All articles in Volume 13 Issue 22

Board composition and NED pay

Board composition and NED pay

Despite a 10.4 per cent increase in fees for ASX 101-200 chairs, these chairs still attract $200,000 less per year than their ASX 100 counterparts.

The findings from the most recent annual report from the Australian Council of Superannuation Investors (ACSI) into the composition of ASX 200 companies found that average fees for ASX 100 non-executive directors have increased slightly from $215,469 in 2013 to $217,196, whereas non-executive chair fees declined 3.5 per cent from $477,226 in 2013 to $460,451.

Smaller companies moved in the opposite way, with ASX 101-200 non-executive chair fees increasing by 10.4 per cent to $256,013, compared to a 4.3 per cent decline in NED fees to $132,292.

The ACSI research maps changes in director roles, gender, director fees, tenure and age.

For the third year in a row, the study includes an analysis, not only of the new entrants to the ASX 100 and ASX 101–200 director pools, but also of their backgrounds. It examines executive director appointments during the sample period, including the circumstances of new appointments and whether appointments were internal or external.

Expanding the director gene pool

ACSI's research highlights a trend amongst directors to sit on multiple company boards. In fact, 105 directors take up one-third of all ASX 100 seats.

The review of new appointments shows that there was a marked increase during this period. There were 93 new director appointments filled by 89 individuals, up from 72 appointments in the previous period – the majority of which were non-executive directors (NEDs).

In the ASX 100, the average tenure of executive directors increased to 6.9 years, while the average age tenure of NEDs was slightly lower at six years.

Interestingly, previous experience of the 46 new entrants who filled 49 NED positions varied considerably. Some were shareholder nominees; others were current executives at other companies. The pool included a number of former lawyers and audit partners. At least 19 of the new entrants had prior international experience.

Of the new appointees, banking and finance was the most common background for directors, accounting for 14 appointments to ASX 100 boards. Chief executive roles and accounting experience remain common backgrounds. Of the 82 directors appointed to ASX 101-200 companies, just over half (42) had never been a director of an S&P/ASX 200 company.

Gender diversity on boards

Gender diversity on boards remains a key focus area for investors.

Over the past 10 years, the proportion of board seats held by women at ASX 100 companies has doubled, increasing to nearly 23 per cent in 2014, with 131 women holding 179 board seats.

Women are also behind a generational shift on boards with 62 per cent of women aged 40-60, with 27 per cent of men in the same age bracket.

ACSI, like the Australian Institute of Company Directors (AICD), is supportive of clear gender diversity targets that aim to lift the representation of women on the boards of ASX 200 companies to 30 per cent – a standard catalysed globally by the work of the 30% Club.

The progress made to increase female representation around ASX 200 boardroom tables is examined in the AICD's Gender Diversity Quarterly Report.

For more information, download ACSI's report, Board Composition and Non-Executive Director Pay in ASX 200 Companies (PDF 690KB).

Tax breaks crucial for investment in R&D

Direct measures and tax incentives for universities to invest in research and development are critical to Australia's innovation agenda, said Professor Ron Johnston, executive director, Australian Centre for Innovation and International Competitiveness at the University of Sydney.

"Currently, there are no tax incentives to encourage companies to link with universities. The Australian Research Council (ARC) Linkage Projects scheme provides direct support, on a fifty-fifty basis, but the cumbersome and slow processes are a substantial barrier to company uptake," said Professor Johnston.

Research Australia CEO, Elizabeth Foley, is supportive of an R&D tax incentive. "While there is currently little hard data about the effects of the R&D tax incentive, there is significant anecdotal evidence that this incentive has helped accelerate research and commercialisation in the biotech and medical devices sectors," says Foley.

Nigel Hennessy, principal and chairman at corporate advisory firm CtechBA, said that innovation remains one of the greatest challenges for boards who find it difficult to balance long term interests with short-term priorities.

"Boards, like many at the operational level, get caught up in the trap of thinking about the day-to-day without giving proper consideration to the future need to innovate," said Hennessy.

"However, this is a critical governance issue which goes to the very heart of a board's role to offer strategic guidance and oversight.

"Tax breaks, along with a mix of other government policies and support could play an important role in assisting business, and particularly NFPs, in prioritising innovation."

Professor Johnston adds that, for most advanced innovative countries, direct measures have been more effective than a general tax break, such as on research and development (R&D) investment.

"Direct measures might include subsidies for companies entering into designated priority areas, for example, in Europe, this has increased sustainability in energy, materials, construction and waste management."

The overnment has previously acknowledged a weakness in the level of collaboration between Australian universities and primary research centres and industry, and has flagged that taxation will be in the mix when it releases its innovation statement in mid-December.

According to Innovation Minister Christopher Pyne, it will be a "game changer in terms of Australia's cultural understanding of the role science and research can play in innovation".

Call for ASIC board

The Australian Institute of Company Directors (AICD) is calling for ASIC to be governed by a board of directors as part of a wide-ranging review of the corporate regulator's capability and culture.

Having a board comprised of a majority of non-executive directors would provide greater oversight of ASIC and set the cultural tone for the organisation "from the top", argues AICD in a submission to the ASIC capability review.

The AICD recommends that the board is led by the ASIC chair, with a model similar to the RBA and boards for corporate regulators in the UK and New Zealand.

"The risk with regulators is they can become very narrow and out of touch with real business issues," said AICD managing director and chief executive officer John Brogden, discussing the proposal in Australian Financial Review.

"The fact that ASIC is likely to be funded by industry is an even stronger argument for independent engagement and oversight through a formal board structure."

In the submission, the AICD recommends that good governance principles be applied to an ASIC board, including use of a skills matrix, ensuring a diversity of background and experience (including gender diversity), performance evaluation and clear processes for managing conflicts of interest.

The expert panel conducting the ASIC capability review, chaired by Karen Chester, Mark Gray and David Galbally AM QC, will report to government by the end of 2015.

For more information, read the AICD's submission.

Website accessibility: An ethical and business issue

Australian companies would never dream of discriminating against a customer with a disability face-to-face. However, many unknowingly do so by failing to have accessible websites.

With one in five Australians having a disability, a lack of digital accessibility is a serious oversight, said Shefik Bey, managing director of user experience consultancy and accessibility training provider, U1 Group.

"It is a common misconception that website accessibility is only about helping those with vision impairments. It's also about people with fine motor control issues, hearing difficulties or cognitive issues."

Bey said that by improving internet accessibility, organisations can increase their market reach by considering the many Australians living with disabilities. A commitment to accessibility also significantly reduces reputational and legal risks and increases brand equity and a positive social standing.

Disability discrimination commissioner, the Hon Susan Ryan AO, says the Human Rights Commission strongly supports the full participation of people with disability in Australian life, including business transactions such as shopping online.

"Early on after my appointment, I took a particular focus on accessible information and communication technology (ICT)," said Ryan. "There have been considerable advancements in website and software technology, hardware and equipment, which means that the barriers that may have prevented a person with a disability from participating can be reduced or removed – if these accessible ICT options are utilised by companies."

Ryan added: "With disability discrimination-related complaints representing the highest number of complaints received under our various discrimination acts here at the Commission, we know that we still have much work remaining."

So how can boards ensure their organisations' IT governance policies consider people with disabilities?

Alex Varley, CEO of Media Access Australia, a not-for-profit which specialises in digital accessibility, said that too many directors are flustered by the issue and may think it is too overwhelming to address.

"Like any governance issue, it is important to start the process and have a strategy in place. That way, risk is managed and you have a clear plan that management can report against," he said.

Varley offered these key tips for boards on digital accessibility:

  • Add it to the agenda - Make the issue a formal item on the board agenda and ask management to report against it. By starting to address accessibility, you are mitigating some of the risk by showing that you have a strategy that you are working through.
  • Find a champion - The accessibility champion must have senior management ownership to drive change and reinforce its importance to the rest of the organisation.
  • Identify the issues - Undertake an assessment of the digital accessibility profile of the organisation.
  • Make board documents accessible - Ensure that digital documents and communications, including your annual report, are accessible. The easiest way to achieve this is to ensure that secretariat and communications staff learn the principles of basic document accessibility. This accessible annual report checklist can help management start planning early.

Information governance goes digital

All federal government agencies will transition to entirely digital work processes under a new five-year plan to establish a consistent approach to information governance.

Digital Continuity 2020 has been introduced by the National Archives of Australia (NAA) and will apply to all federal government agencies. It relates to government information, data and records, including systems, services and processes as well as information created by other parties on behalf of agencies.

'Digital continuity' is an approach to creating and managing information that can be trusted and used for as long as needed, despite technological change. The policy enables the integration of information governance principles and practices into the work of agencies, as well as their governance arrangements.

The NAA's policy is based on three principles:

  • Agencies will manage their information as an asset, ensuring that it is created and managed for as long as required, taking into account business and other needs and risks.
  • Agencies will transition to entirely digital work processes, meaning business processes including authorisations and approvals are completed digitally, and that information is created and managed in digital format.
  • Agencies will have inter-operable information, systems and processes that meet standards for short and long-term management, improve information quality and enable information to be found, managed, shared and re-used easily and efficiently.

NAA director general David Fricker said: "Each year the organisation reports to government on the status of digital information management in agencies and recommends further enhancements. The standards within our new policy will become whole-of-government requirements and we're providing agencies with this opportunity to enhance their skills in digital continuity leading up to 2020."

The new policy principles for agencies include the establishment of information governance committees by 30 June 2016, along with assessment of systems against the standard ISO 16175 and implementation of minimum metadata standards

Digital Continuity 2020 has already commenced and will be phased in over the next five years.

For more information, visit the National Archives of Australia website.

Directors outline priorities for Turnbull

Results from the latest Director Sentiment Index (DSI) have been released, with directors calling on the Turnbull Government to act quickly and address crucial issues to offset concerns that global economic uncertainty will weigh on local business.

The research findings, released today by the Australian Institute of Company Directors (AICD), show that while sentiment has risen to its highest level in two years, confidence in the Australian and global economies is still low. Sixty per cent of directors still perceive the economy as weak at present and almost 50 per cent expect it to be weak in the next 12 months.

Infrastructure and transport, a comprehensive tax reform package, and national industry and innovation policy are listed as the government’s main priorities and the key priorities to encourage innovation and growth in Australia’s transitioning economy.

“Directors are increasingly concerned about our international competitiveness and engagement with Asia,” said John Brogden, Managing Director and Chief Executive Officer of the AICD. “These are important issues that will impact the nation’s future and are additional evidence that Australia needs a bold new policy framework and commitment to innovation if its past prosperity is to be maintained.”

Increasing investment in infrastructure is critical for the growth of industries into the future. However, almost 90 per cent of directors maintain that government spending on infrastructure is too low.

Top economic challenges include global economic uncertainty and low productivity growth, with the “ineffective taxation system” regarded as the third most important challenge.

What does the DSI say?

Economic and market outlook
  • Directors have become more optimistic about the future health of the Australian economy, however half still remain pessimistic.
  • Sentiment regarding the US and Asian economies has declined since the first half of 2015, while the European economy continues to be regarded pessimistically.
  • 65 per cent of directors still expect the exchange rate to decline in the next 12 months and nearly half of directors expect the unemployment rate to increase.
Business forecast
  • Directors’ optimism regarding the general business outlook and the business outlook for their sector reached the highest levels since first half 2014.
  • About 35 per cent of directors claim the growth of their business has weakened in the last six months, while expectations for growth are increasingly optimistic.
Government policy
  • GST remains the top priority for tax reform, with 82 per cent wanting changes to the current rate and/or base. This is followed by multinational tax arrangements and state-based taxes.
  • Directors have become more optimistic regarding the current level of ‘red-tape’, with almost 35 per cent perceiving a decrease in the last 12 months, and almost 25 per cent expecting a further decrease in the next 12 months.
  • 76 per cent of directors believe the Federal Government should pursue industrial relations reform either in this term or following an electoral mandate.

Find out more about the Director Sentiment Index.

Mixed global outlook

The latest Deloitte Access Economics Business Outlook reports that while Australian resource businesses have rapidly increased their outputs, a consequential fall in demand has impacted commodity and energy prices negatively.

However, Australian exchange rates and interest rates have fallen quickly, which combined with low wage growth means the post-commodity boom is a "soft landing" rather than a "dramatic bust" – a good result, says Deloitte.

In terms of the global economy, the quarterly report found that while Europe and Japan "still have some dramas to navigate", the US economy is heading upwards and interest rates are almost definitely set to rise. However, global growth remains sluggish, mainly due to the slowdown in emerging economies, notably China.

For inflation, the key components of demand, labour costs and import prices are said to be relatively static, with only import pricing a possible threat to increasing inflation.

The balance of payments has been negatively affected by falling commodity prices but positively affected by lower interest rates, reducing the cost of foreign borrowings. The report says that this may result in an inflection point when global interest rates commence rising (and implicitly the balance of payments deteriorates), perhaps as early as 2016.

Job growth has been accelerating as a result of lower interest rates and lower exchange rates. Deloitte states that: "Record low wage growth has combined with improving productivity to make Aussie workers more competitive than they were – meaning that a given amount of economic growth is driving more job gains than it usually would."

For more information, visit the Deloitte Access Economics website.

Atlassian bulks up board

Software provider Atlassian has appointed Shona Brown and Heather Mirjahangir Fernandez to its board of directors.

Brown is a former member of the Google executive team, which she joined in 2003, serving as senior vice president of business operations until 2011, when she transitioned to a role leading Google's technology for social impact efforts.

She is currently an adviser and board member to a portfolio of technology start-ups and also serves on the board of PepsiCo, and is a director of a number of not-for-profit organisations.

Fernandez is currently the CEO and co-founder of a start-up in the digital health space. Previously, she served as a senior executive at online real-estate platform, Trulia, which was acquired by Zillow in 2015.

Prior to Trulia, Fernandez was an adviser at Morgan Stanley, director of the Impact Group at Blanc & Otus, and deputy press secretary for Senator John McCain's 2000 presidential bid.

Nine Entertainment has appointed Hugh Marks as chief executive officer (CEO). The announcement follows the retirement of long–term CEO, David Gyngell. Gyngell will remain on the board of Nine Entertainment as a non-executive director.

Marks first joined the board of Nine Entertainment in February 2013, prior to the company's initial public offering. He has 20 years' experience as a senior executive in content production and broadcasting in Australia and overseas.

Following the appointment, Marks has announced he will cease his involvement in other content and broadcasting companies.

Dr Alan Finkel AO has been appointed Australia's next chief scientist and will commence in the role in January 2016. He succeeds Professor Ian Chubb AC, whose term concludes at the end of 2015.

Dr Finkel is a prominent engineer, respected neuroscientist, entrepreneur and philanthropist. He is currently the Chancellor of Monash University and is President of the Australian Academy of Technological Sciences and Engineering (ATSE).

In his role as chief scientist he will provide independent advice to the government on science, innovation and commercialisation.