Forty years young

Governance education in Australia continues to evolve as it enters its fifth decade during an era of remarkable change.

Back in 1975, the ASX Group didn’t exist, there was no Corporations Act as we know it and the insulated domestic economy was heavily regulated. Forty years on, the ASX is a $1.5 trillion market and Australian business competes in unpredictable, globalised markets following a wave of reform in the 1980s.

The dramatic shift in the economic environment also altered the legal framework in which business entities operate, a change which itself had profound consequences for directors of other organisations such as charities and sporting bodies.

Throw the consequences of the collapse of insurer HIH into this mix, plus other corporate crises of the past 40 years, and it is abundantly clear that modern directors operate in a far more complex world than those of yesteryear.

It is against this backdrop that governance education in Australia has evolved since the first program began in 1975. This program has morphed over the years into the Company Directors Course, the flagship course now offered by the Australian Institute of Company Directors (AICD).

“The whole discipline of governance has expanded dramatically. Back then, there were only a handful of books but now there are thousands, plus many journals and director institutes not just in Australia but also in other countries such as the US and UK,” says Geoff Kiel FAICD, a long-time governance educator and practising director.

“Forty years ago, the content in governance education was more about general management issues. Today, governance is an academic discipline in its own right,” Kiel says.

In the year to 30 June 2014, more than 2,500 people graduated from the Company Directors Course versus the 700-odd that, by some estimates, completed previous versions of the program in the late 1970s.

Today’s students complete 10 modules over five full days (or the equivalent), taking in around course notes with a page volume equivalent to two telephone books. The issues examined include corporate law, financial literacy, decision-making and risk management.

“Risk management, and you can add to that compliance, is a whole discipline in its own right. There is also a lot more emphasis in education on what may seem like mundane board processes but are actually very important – things like meeting agendas and getting board papers right,” Kiel says.

But perhaps nowhere is the increased volume of information over the past 40 years more obvious than in the subject of potential litigation against organisations and directors.

“The guide provided [for students] in 1976 contains a single chapter devoted to directors’ duties whereas the same publication in 2005 [contained] four chapters which together occupy nearly half of the entire book,” said Access Economics in a report prepared for AICD in 2009.

Profound changes

The profound changes in governance principles that apply to big commercial entities have been mirrored across other organisations, partly due to community expectations and so the educational requirements for directors in these arenas have evolved significantly too, especially when it comes to financial prudence.

“The biggest single change in governance and accountability in recent times is that it has been extended into lower levels of society. We can see that in the profiles of those completing governance education. We now see many people from small not-for-profit (NFP) entities and local councils, for example, undertaking these courses,” says Carey Cox FAICD, a company director and AICD course facilitator.

The Access Economics report made much the same point, particularly in relation to the governance of NFP organisations and public sector entities.“Increasingly NFP boards are composed of people with recent experience of corporate life, including life on corporate boards, and they seek to import corporate practice where they perceive scope for improved outcomes,” it said.

“Pressure has also arisen from Top 200 companies themselves who demand improved governance if they are to be associated with particular charitable concerns.  These various influences have combined to increase the professionalism of NFP boards and enhance their commitment, discipline and transparency,” said the report.

It’s a similar story for public sector boards. In decades past, meritorious bureaucratic service or loyalty to an incumbent political party was a primary factor in the selection of directors.

These days, appointments are focused more on an appropriate level of independence from the responsible government department, as well as a government itself. And with that independence comes a responsibility to be fully informed about the duties and responsibilities of directorship and to acquire the necessary knowledge to fulfil those responsibilities.

The changes evident in governance education over the past 40 years are likely to be mirrored by just as much change, if not even more, over the next four decades. For certain, digital disruption and all that comes with it – such as cyber-security, big data and privacy questions – will drive some of that evolution, not just in terms of content but also in how it is delivered.

Global dynamics

But the world is changing at an exponential rate in other ways too. Future directors may well need to grasp the complexities of uniform multi-tax arrangements and globalised regulation generally.  And, of course, the dynamics of doing business in the Asian region (including China and the Association of Southeast Asian Nations) may well impact the decisions that boards are required to make.

Domestic issues, of course, show no sign of remaining stagnant either, with new privacy laws introduced last year and the ramifications for audit committees generated by the so-called Centro case just two examples of recent changes with which directors must grapple.

Cox also points to the ubiquitous nature of social media and information disseminated by the internet more generally as factors that will thrust decisions made by directors into the public limelight even further.

This means that an old-age issue for directors will continue to be central to their education and impact decision-making by boards.

“One thing that has not changed over the years is the straight-jacket law and societal expectations that are applied to directors. We live in an era of great accountability,” Cox says.