All articles in Volume 12 Issue 21

Directors vocal on board composition

Oct 31 lead shotFindings from PwC’s US 2014 Corporate Directors Survey shows 36 per cent of directors believe that a fellow board member should be replaced.

Newer directors are more likely to want a fellow director replaced than those who have been on the board for more than 10 years.

The percentage of directors who see impediments to replacing an underperforming director grew to 53 per cent from 48 per cent last year. A higher proportion of directors said the biggest impediment was that board leadership was uncomfortable addressing the issue.

Directors also cited a lack of director assessments and ineffective board assessment processes as further impediments to addressing director underperformance.

As to the reasons why more than a third of directors want to replace a fellow director, diminished performance due to ageing, lack of expertise, and not being prepared for meetings were cited as the top reasons for their dissatisfaction. There was also an increase in directors who believe a fellow director should be replaced for overstepping his/her oversight role.

When considering what to look for in a director once they managed to remove their underperforming peer, 93 per cent of US directors rated financial expertise as the most important attribute for directors. Industry, operational, and risk management expertise followed in importance.

The full report can be found here.

Executive pay to remain static

Analysis of companies’ 2014 annual reports for the 30 June reporting season has highlighted some interesting trends around remuneration.

According to a study of 33 company reports by remuneration consulting firm Egan Associates, board or executive fixed remuneration would remain static or rise by around three per cent in the majority of companies. In outlier cases, there were larger rises of 10 per cent.

On the issue of remuneration framework, the analysis said the songbook for this year reads “no significant changes”. However, when changes have been made they have been in the areas of establishing or increasing short-term incentive (STI) deferrals with decreases in long-term incentives (LTI) often facilitating these increases, in order to keep total reward stable.

Egan Associates found four cases where the board had used discretion to reduce an executive’s reward. There were also two cases where the board had used discretion in the executive’s favour to increase awards or provide the executive with a second chance to meet performance conditions.

Around two thirds of companies examined voluntarily disclosed an extra table noting what executives were actually paid. However, the contents of this table varied. The option that was comprised of fixed remuneration, STI cash earned during the year, STI deferred that vested during the year, and LTI that vested during the year proved the most popular.

Further details can be found here.

Thodey’s warning on digital disruption

Company directors must spend time thinking about the impact of digital disruption on their business, or risk falling behind their competitors.

This is the stark warning delivered by David Thodey MAICD, CEO at Telstra at a recent Australian Institute of Company Directors’ lunch in Sydney.

Discussing the impact of digital disruption on business, Thodey urged directors and to immerse themselves in unfamiliar territory, or face missing the opportunity to evolve.

“You have to understand what these disruptors could mean for your business; you have to think it through. If you don’t spend time thinking about it, then you will be disrupted,” he warned.

“To do this it is critical to expose yourself to new things, even those that you don’t understand. Yes, it is a little bit confrontational, but you have to put yourself out there and expose yourself to that stuff, otherwise something will pass you by,” he said.

Thodey also stressed the importance of company culture and employing people who challenge the status quo, as they will help to reinvent the business.

“It is too easy to conform in life especially in large companies, because you just keep your head down. And yet what you really need is people who challenge you, otherwise you will not become the company that you want to become,” he said.

“Reinvention is a term that you have to think about all the time; I think about reinventing everything at Telstra. There is not one organisation, whether not-for-profit, education, healthcare or government, who is not going to be impacted by technology innovation in the future.

“Everything that can be digitised will be digitised and the speed at which this happens is only going to get faster,” he said.

M&A not the solution for NFPs

The not-for-profit (NFP) sector has been warned against relying on mergers and acquisitions (M&A) as the only solution to the challenges it faces.

The warning follows the release of the Australian Institute of Company Directors’ 2014 NFP Governance and Performance Study sponsored by the Commonwealth Bank of Australia, which found that collaboration and mergers are becoming more commonplace in the sector.

The study, which was completed by Baxter Lawley on Company Directors’ behalf, found that mergers are being discussed by 30 per cent of boards, most commonly, in larger NFPs. The main reason for mergers was to improve existing services, efficiency or broaden the range of services to existing service users.

Twenty per cent of respondents said mergers had been considered in order to make the business more attractive to funders, while 18 per cent said it was in response to encouragement by the government.

Speaking at the launch of the study, Paul Murnane, chair of the Australian Scholarships Foundation and MS Research Australia, said that merging with other organisations could also bring its own challenges.

“Mergers are not a solution to the not-for-profit sector’s problems; it is just one of a number of tools. To focus on mergers alone as one of the solutions is a little narrow,” he said.

Murnane continued: “It has been well researched in the US that a lot of mergers do not meet expectations. Admittedly, they might meet financial expectations, but they do not meet the cultural needs and expectations of the merging companies and that is a reason why a lot of them fail.”

Click here to download a copy of the study.

ESS changes to buoy start-ups

Changes to employee share schemes (ESS) proposed by the federal government will significantly improve Australian start-ups’ ability to secure top global talent.

The current rules impose income tax on employees at the time they are granted shares or options, rather than when the options are exercised or when the shares are sold.

Under the proposed changes, the taxation of rights (including options or performance rights) granted by all companies will be deferred until they are converted into shares.

For employees of “eligible start-ups”, tax on shares and options issued at a yet to be defined “small discount” can be deferred until sale, with the maximum period for deferral extended from seven to 15 years.

In order to be eligible the company must be unlisted, have under $50 million turnover, and be in its first 10 years of business. Start-up employees will also need to hold their shares or options for at least three years to qualify for tax deferral.

The changes have been broadly welcomed by the entrepreneurial start-up sector, for whom incentivising employees with equity is critical, due to limited cash flow.

“While we welcome any changes that improve the current ESS, we believe the proposed measures can be broadened to include other unlisted companies and smaller listed companies still in start-up phase,” said Thomas Isbell, national head of global mobility services at Grant Thornton Australia.

The legislation is set to come into effect on 1 July 2015.

SME confidence rebounds

Confidence levels among Australia’s small-to-medium enterprises (SMEs) bounced back strongly last quarter, according to the latest Sensis Business Index.

Overall confidence levels rose 16 percentage points in the last quarter, following the sharp decline recorded in the May survey. However, they are still below the post-election peak recorded in November 2013.

The increase in confidence coincides with current perceptions that the state of the economy has improved, rising 14 per cent on the previous survey. Although more respondents believe the economy is slowing rather than growing, there has also been an increase in the proportion of SMEs expecting the economy to be stronger a year from now.

Despite the increased levels of confidence, SMEs recorded only marginally stronger performance results last quarter for key indicators such as profitability and sales. More businesses also reported decreased rather than increased employment levels.

Overall, expectations for short-term (current quarter) growth were considerably stronger than last quarter, particularly on the key sales and profitability dimensions.

“Encouragingly, only a quarter of business owners reported being worried about their prospects. The lack of work or sales was the most pressing problem, with a strong sense people are not spending and increasing concern about competition. The economic climate, bureaucracy and cash flow were among the other challenges we heard,” said John Allen, CEO at the marketing services company Sensis.

A full copy of the report can be found here.

ACNC abolition hangs in balance

Independent Senator John Madigan has vowed to vote against the abolition of the Australian Charities and Not-for-profits Commission (ACNC), in a move that will cancel out a vote of one his fellow crossbenchers.

The news follows an announcement by Senator David Leyonhjelm from the Liberal Democratic Party who told news site Pro Bono Australia that he does not support the ACNC.

The planned abolition of the not-for-profit (NFP) regulator was delayed earlier this year after the Greens forced it to be referred to the Economics Legislation Committee for inquiry.

Currently, a bill to repeal the ACNC is before the senate and is due to be debated in the final session before Christmas.

However, speaking against the move, Senator Madigan referred to the federal government’s plans to disband the charities regular as “bewildering” and said the ACNC served an important role.

“The ACNC provides a stamp of approval to legitimate charities and supports trust in the NFP sector. I will not be voting for its abolition,” he told Pro Bono Australia.

In contrast, a spokesperson for Senator Leyonhjelm said: “The Liberal Democrats believe that the regulation of charities is not necessary beyond tax regulation by the Australian Taxation Office and company regulation by the Australian Securities and Investments Commission – donors can make their own choices about who to support.”

Pro Bono Australia said that with Labor and the Greens locked in a stalemate with the coalition, it is likely that the five crossbench senators and the Palmer United Party senators will make the final deciding votes on the ACNC’s future.

Apple co-founder joins UTS

Apple Computer co-founder Steve Wozniak has joined the University of Technology Sydney (UTS) as an adjunct professor, the first adjunct appointment he has accepted at any university.

The pioneer inventor, electronics engineer and computer programmer is working with staff and students in the Magic Lab (Innovation and Enterprise Research Laboratory), School of Software and Centre for Quantum Computation and Intelligent Systems in UTS's Faculty of Engineering and IT.

Wozniak is cited as having significantly contributed to the microcomputer revolution with the design of his Apple I and Apple II computers. He is also acclaimed for having developed the first programmable universal remote control.

Wozniak is expected to arrive for his second visit to the UTS City Campus in December.

The Dymocks Group has appointed University of Sydney robotics expert Professor Salah Sukkarieh as a non-executive director.

He will join the Dymocks board in November.

Sukkarieh is professor of robotics and intelligent systems at the School of Aerospace Mechanical and Mechatronic Engineering; and director of research and innovation at the Australian Centre for Field Robotics at the University of Sydney.

He was recently awarded the 2014 NSW Science & Engineering Award for Excellence in Engineering and Information and Communications Technologies.

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