Overcoming the expectation gap critical to improving performance and accountability

  • Date:01 Feb 2012
  • Type:Policy paper
The "expectation gap" – the difference between what the community expects from non-executive directors and how directors realistically perform their roles - is impeding corporate performance and impacting our national economic competitiveness. These are the findings of a new White Paper, 'Mind the Expectation Gap– the role of a company director', released by the Australian Institute of Company Directors.

Launching the White Paper, John Colvin, Chief Executive and Managing Director, Australian Institute of Company Directors, said there is a degree of blurring and misunderstanding in the mind of the public, the media and the law about the division of roles and duties between directors and management which is out of kilter with the realities of running a modern corporation.

“There must be a clear separation between the roles of boards, directors and executive management teams to optimize corporate performance,” said Mr Colvin.

“This ‘expectation gap’, and the prescriptive regulatory response taken by our parliamentarians and regulators, is placing an increasing burden on directors and is becoming dysfunctional. The plethora of liability laws are stifling business, investment and job creation. They are anti-business, a drag on Australia’s prosperity and impact our international competitiveness,” Mr Colvin said.

In the White Paper, author Steven Cole* argues that the ‘expectation gap’ has led to directors spending more time on corporate compliance and conformance, and less time on strategy, entrepreneurship, risk management and prudential oversight.

“There are more than two million people in Australia acting as a director of a corporation and it is generally accepted that these directors, even those who are not getting paid, must act in good faith and in the interests of the corporation. But how far should this responsibility extend and at what cost?” said Mr Cole.

“Many people believe that corporate boards and their directors should be so closely involved in the affairs of the corporation that they can ensure nothing can go wrong. This view is fundamentally flawed, not in touch with reality and has led to unrealistic expectations about what directors should be doing in areas that are the responsibility of corporate managers.”

“In reality, the role of a non-executive director is complex and differs depending on the nature and circumstances of the corporation and the circumstances confronting the corporation. It simply is not reasonable to expect directors to be familiar with every detail of a company’s operations,” said Mr Cole.

In the White Paper, Cole also argues that:

  • Good corporate governance principles, designed to ensure the optimisation of effective corporate performance, support a clear separation between the roles of the board and its directors and the executive management team.
  • The regulatory burden on NEDs is adversely impacting financial outcomes, business efficiency and business reputation.
  • In order to maintain its international competitiveness, Australia needs to find the right balance between corporate performance and regulatory compliance.
  • Unrealistic expectations about the role of NEDs are leading to an unjustified loss of public confidence in our corporate leadership.

About the author:

*Steven Cole FAICD has more than 35 years of professional, corporate and business experience through senior legal consultancy, as well as a range of executive management and non-executive director appointments to ASX listed, proprietary, and statutory and NFP boards.

Steven recently stepped down as a national Board member of the Australian Institute of Company Directors, and as the President of the Western Australia division. He currently serves on the National Education Advisory Committee and the Corporate Governance Committee.

Download the above media release, 'Overcoming the “expectation gap” critical to improving corporate performance and accountability' (PDF 201KB).