All articles in Volume 13 Issue 9

30 Percent Club launches in Australia

30 per centGlobal gender diversity campaign, the 30 Percent Club has launched in Australia, with a number of influential company directors spearheading a campaign to achieve 30 per cent female representation on S&P/ASX 200 boards by 2018.

The 30 Percent Club was founded by a group of UK chairs facilitated by Helena Morrissey, chief executive officer (CEO) of Newton Investment Management in 2010. Since its inception, the proportion of women on FTSE 100 boards has increased from 12.5 per cent to 23 per cent.

The initiative has been endorsed by the Australian Institute of Company Directors (AICD) and the Australian Council of Superannuation Investors (ACSI) and was formally launched by Morrissey, AICD managing director and CEO, John Brogden and the chairs and non-executive directors of some of Australia’s leading companies.

The launch follows the AICD’s policy announcement earlier this year to increase the number of women on boards in Australia by setting a target of 30 per cent for all S&P/ASX 200 boards by the end of 2018.

Scarce representation of women at senior levels is a global problem and there has been a move by businesses throughout the world to create a paradigm shift. Australia is the latest in a number of OECD countries, including Hong Kong, the US, Ireland, Canada and South Africa, to launch the 30 Percent Club. New Zealand introduced a 25 per cent club in 2012.

Commenting on the launch, Patricia Cross FAICD, chair of the Commonwealth Superannuation Corporation and non-executive director of Macquarie Group and UK-based Aviva, said: “The launch of the 30 Percent Club combined with the AICD’s and ACSI’s ground-breaking commitment to the 30 per cent target is an exciting step forward for corporate Australia.”

David Gonski AC FAICDLife, chair of Australia and New Zealand Banking Group (ANZ) and Coca-Cola Amatil, said: “We all have a leadership role to play and I hope this initiative motivates the business community to produce meaningful momentum on this important issue.”

More information about the 30 Per Cent Club can be found here.


Budget introduces NFP tax caps

Following the release of the Federal Budget, the previously uncapped exemption to the fringe benefits tax (FBT) of meals and entertainment expenses for employees will now be subject to a cap of $5,000 per annum from 1 July 2016.

Paul Murnane FAICD, chair of the Australian Scholarships Foundation said that most NFPs already had a cap written into the relevant employment contracts and that in his experience these caps were “quite small.”

He said that all the NFP directors he knew had been aware of the issue of such allowances and most had treated them very conservatively as not doing so would open up an organisation to “reputational risk.” He further stated that for this reason, some NFPs did not salary package at all.

Andrea Staines FAICD, a director of Goodstart Early Learning confirmed that Goodstart did not use the practice at all. Consequently she said that such a budget move would be “no issue”.

Anecdotal examples of use of the loophole by senior executives of public benevolent institutions (PBIs) and senior medical staff of public hospitals have generally been cited as technically within the law but contrary to its intent. Some directors we spoke to agreed that they had heard rumours of such practices and that such a practice would place the organisation, and hence the board, at considerable reputational risk. The Budget move to cap this practice should reduce this risk for directors.

In further tightening the area, an employee that exceeds the $5,000 meal and entertainment cap will have the excess amount used in the calculation of the existing FBT exemption or rebate (either $17,000 or $30,000 depending on the type of NFP).

In an interesting move the meal entertainment expenses will now be reportable. This will allow the Australian Taxation Office (ATO) to determine the exact value of such benefits provided. In the Re:Think tax paper it stated that the ATO found it difficult to determine the value of rebates and exemptions provided to the NFP sector due to limited reporting requirements for the sector. This increased reporting may be a sign of a future trend.

Community awareness of the practice is currently very low but increased reporting of the benefit in coming years may also result in a raised profile.


Sentiment falls further

Declining confidence in business and regulatory conditions continues to worry directors of Australian companies, not-for-profit organisations and public sector bodies, according to the ninth Australian Institute of Company Directors’ (AICD’s) Director Sentiment Index (DSI).

Overall sentiment of directors has slipped 2.4 points to negative 31.4 so far in 2015, principally as a result of faltering confidence in business and regulatory conditions.

The bi-annual DSI, which is the only indicator measuring the sentiment and intentions of directors across all sectors of Australian business, found that almost 70 per cent of directors expect the health of the domestic economy to be weak in the next 12 months, with low productivity growth and consumer confidence continuing to be the economic key challenges facing business in Australia.

In addition to economic and business indicators such as exchange rates, interest rates, wages and unemployment, the DSI gauges general feeling towards broader issues such as the need for tax reform and budget priorities for the Federal Government.

In the latest DSI, members ranked infrastructure as the first priority for the short term, but interestingly taxation reform rose through the ranks and is now the second greatest priority for directors. Combine this with the findings that 78 per cent of members support a change to the GST system and it would seem clear where members would like the Federal Government to start implementing change.

However, 84 per cent of members feel the quality of policy debate is poor, and that the balance of power issues within the Senate rates as the third highest economic challenge facing business. Together, this makes it clear that the Government faces great difficulty in resolving the issues facing business and delivering a real reform agenda.

Announcing the results of the DSI, John Brogden, managing director and CEO of the AICD said: “The results are a telling indication of the desire for change as our members come from all parts of the community, not just business.”

Speaking specifically about the calls for GST reform, Brogden added: “We implore the government not to ignore the need for GST reform and we implore the opposition not to take a short-term view on this. It's certainly not a silver bullet but we need to finish the work we started 13 years ago," he said.

Dr Eileen Doyle, director at Boral and deputy chairman of CSIRO echoed Brogden’s views by stating that the government should look at tax avoidance by multinational companies as a key priority of taxation reform otherwise local companies may be at a competitive disadvantage. "You want to be able to compete," Doyle said.

Doyle added that the DSI highlighted the fact that “we are clearly facing a worse economic climate in the next 10 years than we have faced in the last 10 years.”

She further commented that business must not give up when faced with these challenges but rather learn to adapt. She suggested organisations look to some examples where difficult circumstances have been faced before, such as the Hunter Valley region in NSW which on a smaller scale some years ago, faced many of the issues currently facing the country.


Women in growth sectors recognised

The Australian Institute of Company Directors (AICD) and the Minister assisting the Prime Minister for Women, Senator the Hon Michaelia Cash, have announced the winners of 40 scholarships for women who work in sectors that are expected to dominate future economic growth.

The scholarships, which are jointly funded by the AICD and the Federal Government, will allow the recipients to complete either the Company Directors Course or Foundations of Directorship program offered by the AICD.

Women working in the oil, gas and energy industry dominated this round of the board diversity scholarship program, winning 17 of the 40 scholarships on offer. Other recipients came from the four remaining industries prioritised in the Australian Government’s industry innovation and competitiveness agenda.

These include the food and agribusiness industry, which took out 10 scholarships; mining equipment, technology and services, which took out seven; medical technologies and pharmaceuticals with five and advanced manufacturing scored two.

“These important industries are likely to play a pivotal role in Australia’s future and we are providing an opportunity for talented women to obtain credentials that will allow them to contribute to this growth,” said John Brogden, the AICD’s managing director and chief executive officer.

These latest scholarships complete the third round of the board diversity scholarship program. A total of 140 women have been granted scholarships since September last year, double the number awarded in each of the previous two rounds of the program.

Since the launch of the scholarship program in 2010, there has been an encouraging increase in the number of women on the boards of Australia’s largest companies. Monthly statistics compiled by the AICD show that women comprised 20.4 per cent of the directors on S&P/ASX 200 boards at 30 April,, versus 8.3 per cent in 2009.

A full list of the winners can be found here.


How to be truly innovative

According to an article in the Harvard Business Review, called The Five Requirements of a Truly Innovative Company by Gary Hamel and Nancy Tennant there are five parts of an innovation engine often overlooked:

1. Employees who’ve been taught to think like innovators

So few companies have invested systemati­cally in improving the innovation skills of their employees. Those companies wanting innovation must teach individuals to challenge invisible orthodoxies; harness underappreciated trends; leverage embedded competencies and assets; address “unarticulated” needs. It adds that with a bit of training, and some opportunities for real-world practice, just about anyone can (sig­nificantly) upgrade their innovation skills.

2. A sharp, shared definition of innovation

To manage innovation in a systematic way, companies must have a widely understood definition of innovation. However, coming up with a practical definition of innovation is harder than it sounds, particularly if the goal is to rank every new initiative or product by its “innovative­ness.” It can take several months for a company to hammer out its defini­tion of innovation. As a starting point, it is important to look back over a decade or two and identify the sorts of ideas that have produced noticeable margin and revenue gains.

3. Comprehensive innovation metrics

Companies measure just about everything that has an impact on the bottom line, yet strangely, they often shy away from measuring innovation. While it is difficult, there are ways of measuring innovation performance. A comprehensive dashboard should track inputs, throughouts, outputs, leadership, competence, climate, efficiency and balance.

4. Accountable and capable innovation leaders

Most leadership development programs give scant attention to innovation-enabling attitudes and behaviours. Through selection, training, and feedback, companies must work hard to create a cadre of leaders who are as adept at fostering innovation as they are at running the business.

5. Innovation-friendly management processes

The article points out that any process that significantly impacts investment, incentives or mindsets needs to be re-engineered for innovation. While over the past couple of decades, virtually every company has comprehensively over­hauled its operating model for efficiency and speed, few companies have devoted anywhere near this level of effort to retooling their management practices for innovation.

The full article can be read here.


Over-confident CEOs increase risk

A recent international study undertaken by a team, including an Australian researcher, hypothesises that an over-confident CEO is “more likely to engage in reckless or intentional actions that give rise to securities class actions (SCAs).”

Fortunately, good governance and appropriate incentive alignment can reduce the likelihood of a class action against the company.

Unsurprisingly, class actions also have the effect of reducing the risk of further SCAs, often by the resultant change in the chief executive officer (CEO) and the study found that those CEOs subsequently exhibited reduced over-confidence.

In Australia, the incidence of SCAs is relatively low, with less than ten commenced in the last year and only around 40 in the past five years. The study concerns itself mainly with the over-confident CEO and the reasoning behind their actions, and also quantifies the likelihood that such over-confidence can actually result in fraudulent actions by the CEO either through mis-statement of results or omission of facts.

While directors of listed companies should familiarise themselves with these behavioural attributes, the reputational risks also apply to private entities and not-for-profits .

The study, based on the US experience and data, also concludes that good governance results in reduced over-confidence in CEOs. Particularly the report cites introduction of Sarbanes-Oxley Act in the US as providing the external catalyst which forced companies to have a majority of independent directors and a completely independent audit committee as being the main factor in “reining-in” the over-confident CEO.

Listed company guidelines in Australia recommend an independent chairman and a majority of independent directors on the board. Of course, mis-statements, omissions and outright fraud have a severe ongoing impact to any organisation so both independent and non-independent directors have an interest in ensuring these do not occur in any circumstance.

While CEOs that act in this way are often subsequently dismissed, the study reveals that those CEOs with close ties to other executives and the board are less likely to be fired. Also, internally appointed CEOs are less likely to be fired following such behaviour. For directors, these attributes should be included in risk assessments.

The full paper can be found here.


Google algorithm favours mobile

In late April, Google changed its algorithm for searches made from mobile devices to preference websites that have mobile-friendly web pages. The move was referred to by some commentators as “mobilegeddon”, but a month later what is the verdict?

While “mobilegeddon” was perhaps over-dramatic, it reflected the fact that more than 60 per cent of all searches now originate from mobile devices. This is expected to continue to increase as both the number of mobile devices and their sophistication increase. This means that all businesses need to be aware that they start to ensure their websites are mobile friendly or are at least moving that way.

Given that Google announced the change three months in advance of the change, it is surprising that50 per cent of the websites of S&P/ASX 200 companies are not mobile-friendly. These include several of Australia’s largest internet service providers. If technology businesses are lagging, other directors may not have fully realised the potential impact of customer experience.

This could also mean that, as with much of digital disruption, small companies will have a significant advantage over the large established businesses. A small company website is far easier to make mobile-ready than a large corporate website with thousands of pages.

Directors of all size businesses will need to ask what the plan is for making the website mobile-friendly. The fact that Google has “forced their hand” is actually good news as the best businesses should have already been moving to mobile friendly interactions with customers and potential customers.

How to test your site: Google have a very simple tool at https://www.google.com/webmasters/tools/mobile-friendly/ which any organisation can use. The Google site also contains guidance on how to assist in making websites mobile friendly.

The list of mobile unfriendly ASX 200 sites is here.


Glentworth appoints new CEO

Information management firm Glentworth has appointed Neil Makepeace GAICD as chief executive officer. Director and senior partner of the firm, Makepeace’s appointment comes during a restructure of the growing Glentworth board of directors, with founder Neil Glentworth MAICD appointed as executive chairman.

The appointment underpins Glentworth’s growth strategy, as it continues to expand across Australia and into a range of industries, from health to education, multiple government agencies and telecommunications.

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Ramsay Health Care has appointed Patricia Akopiantz and Margaret Seale FAICD to its Ramsay board.

Akopiantz has been a non-executive director for the last 14 years and has served on numerous boards including Coles Group, AXA Asia Pacific and Energy Australia. Previously, she was with McKinsey & Company where she helped lead the retail and consumer goods practice. Akopiantz serves as a non-executive director on the boards of AMP Limited and AMP Bank.

Seale was most recently managing director of Random House Australia and president, Asia development for Random House globally.

Seale serves as a non-executive director on the boards of Telstra and Bank of Queensland and continues to sit on the board of Random House Australia and New Zealand.


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