Australian directors’ identity crisis

A new King & Wood Mallesons report warns that Australian directors are increasingly facing an identity crisis.

Directions 2013, which polled more than 180 directors across a wide range of industries in November 2012, says part of this crisis has been spurred by ongoing difficult economic and business conditions domestically and internationally and pressure to re-orient towards the burgeoning Asian economies.

However, it adds: “The growing sense of identity crisis has been exacerbated by developments in Australia’s legal and regulatory landscape. These developments have conditioned responses to various challenges, and opened a widening gap between, on the one hand, the traditional understanding of the role of directors as custodians of the strategic direction of companies and, on the other, directors’ increasing risk and compliance-based responsibilities and functions.

“In this context, Australian directors are questioning the true nature and extent of their role in today’s corporate environment, and whether the role of directors today still carries with it the potential for the level of creativity and entrepreneurship associated with the role in the past.”

One cause of concern, according to the report, is a widening “expectation gap” – that is, the disconnect between how some sections of government, the courts and the public perceive the proper role of directors and how directors perceive their role.

“This is leading to a form of identity crisis for directors as they try to reconcile their view of what the role of a director is against the view held by other stakeholders,” says the report.

“A key factor in the development of the expectation gap has been the increased focus placed by regulators, the public and the media in recent years on the directors’ role in relation to the oversight and management of compliance and risk issues.”

Directors polled indicated that rising compliance burdens and excessive red tape were leaving them with insufficient time to devote to providing companies with strategic direction and guidance. They also suggested that increased burdens were making their jobs less interesting and therefore less attractive.

The expectation gap was reflected in the top five issues of concern to directors:

Increasing compliance burden (including risk of personal liability).

Inability to devote sufficient time to providing strategic direction and guidance.

Excessive bureaucracy and regulation.

Time burden (number and length of meetings and volume of materials for review).

Risk of damage to your reputation as a result of actions by or against your organisation.

Indeed, 17 per cent indicated they had refused, or resigned from, a directorship due to one or more of these concerns – up from 9.6 per cent of respondents in the previous year’s survey.

The top three regulatory issues receiving director attention in 2012 were:

Changes to the work health and safety laws (up from the fourth-ranking issue in 2011). Almost 50 per cent of respondents included this issue as one of their top three issues, and it was also the issue most frequently cited as their most significant area of regulatory focus in 2012.

Directors’ duties (including the implications of recent court decisions).

Ineffective regulation or excessive red tape.

Other regulatory issues that received substantial attention in 2012 were continuous disclosure regulations and practices, and the effect of political uncertainty at the federal level in Australia.

The survey’s results show that the time directors dedicate to regulatory issues remains considerable. When it came to their top ranking issue, 39.7 per cent said they had spent more than 30 hours on this issue in the previous 12 months, 56.5 per cent had spent more than 20 hours and 80.5 per cent had spent more than 10 hours.