All articles in Volume 14 Issue 6

Inside the Boardroom with Holly Ransom

Interview
Holly Ransom
Non-executive director, Port Adelaide Football
In March Holly Ransom became the youngest director of an AFL club when she was appointed to the board of Port Adelaide Football Club. She is also CEO of Emergent, a leadership and strategic advisory company, a co-chair of the United Nations Global Coalition of Young Women Entrepreneurs and chaired the G20 Youth Summit in 2014.

A well-known commentator on intergenerational economic and social challenges, Holly spoke to The Boardroom Report about what young people bring to boards, how government and corporates can work together to solve problems and why sometimes we need to push ourselves to our breaking points.

Boardroom Report (BR): You consult to companies on how to get the best out of intergenerational teams. What advice do you have for organisations looking to attract and get the best out of young talent?

Holly Ransom (HR):One of the biggest things that I notice with top young talent is they want to be connected into an organisation that has a significant purpose — something bigger than delivering shareholder returns. To engage with this generation of young people you have to make them feel like they're engaged in something meaningful. On top of that they want to feel like they're more than a cog in a wheel. They need to be able to see the significance of their contribution to the broader mission of the organisation.

BR: Do you think it's necessary to have more young people on boards? What can they bring to a board?

HR: We're living through a great demographic shift where 50 percent of the world's population are now under 30. By 2025 three quarters of the workforce will be millennials. As a group they think differently, they have different career goals and have different tastes as consumers. So one of the big things they bring to the board is that understanding. They bring different perspectives to the board debate to create a more robust discussion.

BR: As the youngest person on many of the boards you're on, have you ever struggled with confidence to question managers and other directors who are older than you?

HR: It's definitely a challenge. There's always that difficulty of not feeling at place in the room and wondering if you can really ask that question. But you have to remind yourself there's a reason you're there. As a director, you've been brought in to contribute because the people around the table see the value in the experience and the insight you can bring.

BR: You are strong advocate of the government, not-for-profit and corporate sectors working more closely together. Are there examples you've seen or have worked on?

HR: An example would be the work we did through the G20 on youth unemployment. On an issue like that, the Government can't go it alone. You have to bring business to the table because ultimately it's businesses that create jobs, not governments. And you have to have involvement from not-for-profit organisations to put social protection mechanisms in place.

Generally I think we're just scratching the surface on how we think creatively about collaboration between the sectors. I look at something like US site challenge.gov, which allows the public citizenry and private organisations to submit solutions to challenges that we face as a society, and get really excited about the new ways of thinking that will open up.

BR: As a director, how do you go about making strategic decisions, say, with Port Adelaide's China strategy to spread the game there?

HR: The challenge for any board is looking at the organisation's mission and vision and thinking how do we make strategic decisions that position us to get there.

At Port Adelaide we think about how we support the club, how we take the club to new fans, where those fans come from, who they are and what they look like.

I think Port Adelaide is on to something quite incredible with what we're doing in China. We look at the statistics and it's mind-boggling. We had 4.2 million people watching our last game of AFL football there, the highest rating game we've ever seen.

By 2025 three quarters of the workforce will be millennials. As a group they think differently. They bring different perspectives to the board debate to create a more robust discussion.

BR: You recently completed an Ironman triathlon (3.86km swim, 180.25km cycle, marathon run). What did you learn in training and competing for the event that you have taken across to the rest of your life?

HR: The ripple effects of Ironman have been extraordinary.

One lesson, and it's counterintuitive, is the importance of training to hit breaking points. In an Ironman you don't know when or how often they're going to come but you can bet your bottom dollar they will. That was an interesting reflection on how we do strategic planning and operational rollouts in a corporate context. Quite often organisations aren't stress testing ideas and not preparing for those breaking points.

BR: You've talked about your struggle with depression a few years ago. You still managed to make an immense contribution to the community and issues that you care about during that period. How do you work through a low period to keep doing that?

HR: I was given a great piece of advice that you have to be ruthless on your energy management when you're in a state like that. Things that are an absolute priority and need to get done, make sure they still get done. But clear the rest away. You have to consciously think about what it is that energises you, both people and activities.

You also have to make sure you're getting the right help. You can't expect yourself to find your way out of that pit on your own. I had a great doctor and a great psychologist, both of whom were a key part of helping me through that and I'm incredibly grateful to both of them.

BR: You and the organisations you work with have excellent engagement with stakeholders and customers on social media. How should an organisation go about building its social media profile?

HR: You have to have a genuine reason to be on social media. A lot of brands just feel like they have to be seen there. They're on there but they're using it as a one-way mouthpiece.

They're talking at people. They're not facilitating a two-way conversation. It's really important to understand at first why you’re there. Is this a vehicle for answering questions? Is this an information outlet for people to reach us? And then you need to be able to back that up with how you engage.

You have to be genuine too. If your voice is inauthentic, people can sniff that from a mile away. People want to connect with real people, with brands that have a genuine voice and don't sound like some kind of robot.


The results are in: tough road ahead

Author
Stephen Walters
Chief Economist
AICD’s Chief Economist examines the winners and losers from the recent federal election and considers what we should expect once the dust settles.

We finally know now that the Coalition government was returned at the recent federal election. In the lower house, the Coalition looks to have secured the 76 seats (of 150) needed to govern in its own right, and could eventually hold 77 seats, to Labor’s 69, with 5 independents. The final make-up of the upper house is yet to be determined, but the so-called cross bench of minor parties could number as many as 19 (of 76) senators.

For the economy, the uncertainty over the election outcome has damaged confidence, and some businesses may postpone hiring and investment. Confidence was already fragile because of concerns about the faltering transition of the economy away from mining investment as the main source of growth, and an array of offshore issues, including the fallout from the UK “Brexit” vote and slower growth in China, Australia’s major export market.

The final configuration of the parliamentary chambers will have an important influence on the stability of the government and the outlook for the economy and policy. The government now is free to move forward and present the legislative agenda that it took to the people. The contested nature of the parliament, though, means achieving longer term reform in areas like taxation and industrial relations probably has become more difficult.

There are, however, some important positives to note. First, sometimes, a government having only a slender majority can be an unexpected blessing in disguise, particularly for budget policy. It imposes discipline that may be lacking from a complacent administration enjoying a thumping majority (and, perhaps, control of both houses). Similarly, a slim majority can focus the mind on achieving only what is important and not, as they say, on trying to “boil the ocean”.

For the economy, the uncertainty over the election outcome has damaged confidence, and some businesses may postpone hiring and investment.

Moreover, not all of the Coalition’s legislation will be opposed, with the opposition and minor parties supporting some parts of the government’s agenda. There is, for example, a decent chance the planned company tax cuts will be passed, although only for smaller companies. Similarly, the government’s proposed changes to superannuation concessions seem to have broad support, as does the rise in the tobacco excise and the crackdown on multi-national tax avoidance.

The prospects for other legislative measures, though, have dimmed. The 45th Parliament is unlikely to rubber stamp the government’s planned changes to education funding, the welfare changes announced in earlier budgets, or the increase in the pension age. That said, there may be calls from minor parties for more spending in the regions and perhaps on corporate welfare.

As it is, the promised return to surplus is receding further into the middle distance, which helps to explain why ratings agency Standard & Poor’s downgraded Australia’s ratings outlook from stable to negative. This means the chances of Australia actually losing the coveted AAA rating have increased, which should be a warning to all sides of politics – fiscal repair should remain a top priority.


For more economic commentary from the AICD’s Chief Economist, you can opt-in for regular email updates.


Addressing the merit myth

Author
Julie McKay
Gender Advisor, Chief of the Defence Force
'Merit’ has long been the standard response when organisations are challenged on why they haven’t promoted more women. Julie McKay, Gender Advisor to the Chief of the Defence Force and Chair of Women’s College at the University of Sydney, explains how the merit myth introduces bias to the hiring process, holds back women and ultimately hurts organisations.

Over the last decade, more business leaders have publicly recognised the need to address gender inequality in business and in society more broadly. During this period, we have loudly celebrated incremental increases in the number of women on boards, welcomed the ASX Corporate Governance Principles on Diversity and celebrated the establishment of the ‘Male Champions of Change’. Despite these ‘wins’, women remain seriously marginalised in our workforce, especially when it comes to leadership positions.

Leaders will often remark that while they are committed to diversity, decisions in their organisations are based on merit, not on gender. While that makes sense on face value, it is critical to unpack the subjective concept of ‘merit’ to understand its impact on perpetuating gender inequality.

Merit is some combination of past performance and future potential and is in large part a subjective measure.

There are many examples which demonstrate the ‘merit myth’ including the widely cited Heidi vs Howard study, which has now been replicated across business schools and workplaces. The study saw participants ranking the same resumé more favourably when Howard Roizen was the candidate rather than when Heidi Roizen was the name on the resumé. Participants acknowledged that Heidi was obviously well-accomplished and highly competent, but were less likely to want to work with her or for her.

The introduction of blind auditions for major symphony orchestras in the US, where the player is hidden from the judges by a screen, increased women’s chance of advancing through preliminary rounds by 50 percent. The New York Philharmonic, for example, saw the proportion of women rise from 10 percent to 45 percent of new hires once blind auditions were implemented, ensuring judgment was based on sound, not gender.

Merit is some combination of past performance and future potential. These examples highlight that the concept of merit is in large part a subjective measure that is affected by unconscious bias.

Without targets and accountability measures for the employment of women, it is very unlikely that real progress will be made.

For companies that are serious about affecting transformative change with regard to diversity and inclusion, the idea that we can rely on some objective merit process needs to be fundamentally challenged. Some examples of how to overcome the merit myth include introducing unconscious bias training for all promotion and selection panels, reporting the statistics about the number of women applying for roles, the number being shortlisted and ultimately selected, and designing strategies to increase the number of women in the pipeline.

The ASX Corporate Governance Principles sought to engage companies in setting measurable objectives for achieving gender diversity, presumably with the intent that these would be used to hold leaders accountable for outcomes. KPMG’s recent analysis of 2015 ASX disclosures demonstrate that while efforts have been made to articulate ‘objectives’, they are rarely measurable or included in leadership KPIs.

I have never heard an ASX executive say that profit margins or risk management should be excluded from a leader’s accountability framework. Yet proposals to include diversity KPIs have been resisted very strongly indeed.

At their most basic, KPIs might measure the percentage of women in a manager’s team. More mature approaches look at not only the numbers of women in different roles but also at who leaders are currently mentoring, what events the leader is actively supporting, separation rates for men and women, and the ratio of women shortlisted for roles compared to hires.

Without targets and accountability measures for the employment of women, the number of women in senior leadership and on boards, and for pay equity, it is very unlikely that real progress will be made.

Leaders need to reshape the conversation we have about merit to ensure that women do not face a backlash when they are promoted, with claims that they only got there because they were women.

Overcoming the myth of merit requires leaders to step up and acknowledge that the current process is impacted by bias and that ‘cultural fit’ often disadvantages diverse candidates.


How SMEs can become more innovative

Author
Andrew Klapka GAICD
CEO, Trans Chem
Have you always wondered how some businesses seem to innovate so readily and easily? Andrew Klapka GAICD considers three steps SMEs can take to be innovation ready.

When speaking about innovation in the mid-19th century, Louis Pasteur famously stated that ‘fortune favours the prepared mind’. We can extend on this reflection and add that ‘innovation favours the prepared organisation’.

While chance discoveries in innovation do happen – recently Australian researchers ‘stumbled across’ a treatment halving the time for wounds to heal – such discoveries are usually the outcomes of an organisation with a well-prepared innovation capability; a state of innovation-readiness.

As Australia’s resources boom softens, the government is starting to drive policy initiatives for industry value-creation. Important topics – such as startup funding, regulatory barriers, collaboration and knowledge-clustering – are high on the list of items receiving attention on the national agenda. But how confident and prepared are small and medium-sized enterprises to implement innovation?

What is needed for innovation readiness?

Innovation is often talked about, yet businesses often have trouble implementing it. According to recent reports from the Department of Industry, Innovation and Science, only 16 percent of Australian businesses have an innovation capability that performs well and almost 40 percent have none at all.

Organisations in technology industries are more innovation-ready than other industries. Continuous innovation is their lifeblood and they have competencies to support this. Even for startups, young innovative entrepreneurs have access to the support of university incubator models. However, for many SMEs, which make up the larger part of Australia’s business landscape, it’s a different story.

While most SMEs understand that innovation entails more than just the generation of a new product or service idea, they may not have a clear idea of how to:

  • develop an innovative culture and capability;
  • initiate processes that reveal profitable new service or product opportunities;
  • mitigate risks when developing new products where demand is uncertain.

Organisations should develop an innovation framework to suit its style and objectives. This framework should define the steps of innovation implementation from discovery to commercialisation to risk-balancing of an innovation portfolio.

Three steps towards building innovation readiness

As with many matters of governance, an innovation framework is about focusing the right questions on the right topics. Here is a selection of discussion points to consider when determining innovation readiness.

  1. Culture and communication
    How does a business embed innovation as a wall-to-wall, top-to-bottom culture and capability?

  2. Portfolio structuring and management
    How do you structure a balanced and measurable innovation growth portfolio? What determines a particular choice of innovation direction or platform?

  3. Successful implementation
    How can you utilise your current and future customers to form innovative ideas?

Given the complexity and inherent project risk, it is not surprising that many businesses are daunted by the prospect of pursuing a program of innovation. But if businesses continue to baulk at innovation because of process and risk uncertainty, Australia’s substantial SME sector risks stagnation.

How boards and management can help

Just as the board calls on external strategic advisers to steer an organisation’s strategic review, so too can the board recognise the need to engage innovation expertise for guidance. In this way, boards and management can apply proven and stable innovation practices that stimulate confidence throughout the business and have the best chance of delivering outcomes that customers genuinely value.

Innovation should be a standing item on board and management agendas – just like safety – that prompts updates from different functional areas within the business. This will reinforce innovation as an overarching organisational capability that touches all functions.

Boards can facilitate benchmarking with businesses and organisations who deal with similar research challenges. Such knowledge sharing will often be surprisingly useful. Innovation benefits greatly from the sharing of experience between companies from completely different industries.

Finally, the risk-averse business must approach innovation with greater confidence. If risk is properly managed valuable outcomes are possible and good fortune will indeed favour the innovation ready organisation.


Andrew Klapka GAICD is CEO of Trans Chem, an importer and distributor of raw materials. Previously he spent 10 years in Paris managing global innovation for Lafarge France, a leading European multinational.


ASIC sounds warning to directors on financial reporting responsibilities

ASIC has sent out a warning to companies to be careful with their asset valuations in their next set of accounts or risk incurring the wrath of the corporate regulator.

The Australian Securities and Investments Commission (ASIC) has sounded a warning to directors of their financial responsibilities ahead of the FY16 reporting season.

The regulator highlighted in a press release in June that it would apply close scrutiny to asset valuations and accounting policy choices.

“Directors and auditors should continue to focus on values of assets and accounting policy choices. We continue to see companies use unrealistic assumptions in testing the value of assets or that have applied inappropriate approaches in areas such as revenue recognition,” ASIC Commissioner John Price said.

The warning comes following the 1H16 review period in which 46 percent of the enquiries that ASIC made of company accounts were to do with asset impairments.

Research confirms the regulator’s observation that many companies are not properly impairing their assets in a timely manner. A paper by University of Technology Sydney accounting academics found that most Australian companies showing signs of impairment were not recognising that impairment. “There is little evidence of firms complying with the regulatory requirement for asset impairments,” the researchers wrote.

Directors and auditors should continue to focus on values of assets and accounting policy choices.

In the wake of the collapse in commodity prices, ASIC has particularly called on companies in extractive industries and mining support services, as well as those affected by digital disruption, to be careful when assessing asset values. Mining companies accounted for 62 per cent of non-current asset impairments of ASX50 companies for 1H15, according to a survey by KPMG. In total there were $41 billion in impairments over that period across the ASX50, the highest since KPMG started the survey in 2008.

The regulator also urged auditors and directors to consider how accounting policies, such as off-balance sheet arrangements, revenue recognition, tax accounting and inventory pricing, might affect reported results.

“Even though directors do not need to be accounting experts, they should seek explanation and advice supporting the accounting treatments chosen and, where appropriate, challenge the accounting estimates and treatments applied in the financial report,” ASIC advised.

ASIC identifies unreasonable cash flow assumptions, using inappropriate discount rates and not cross-checking with different valuation methods as some of the common issues the watchdog encounters with asset impairments.


Is the role of the chair changing?

Author
Professor Stansilav Sheksnia
Affiliate Professor of Entrepreneurship and Family Enterprise, INSEAD
Once a ceremonial or advisory role, the responsibilities and challenges of chairing a board are continuing to evolve.

While much has been studied and written about the characteristics and motivations of the top executive, comparatively little public discourse focuses on the chair: the individual in charge of running the board of directors responsible for the organisation’s governance and long-term sustainability.

A recent study for INSEAD’s Leading from the Chair program, which included a survey of 118 chairs of medium and large company boards from 30 countries, reveals that the job of the contemporary chair is very real and hands-on, requiring close interaction with board members, company management and stakeholders.

Predictably, the majority of the respondents (91 per cent) were senior (by age and experience) men — a trend that is expected to continue. Most were also well educated and a majority have held CEO positions.

While demands for a more engaged board have changed the role of the chair in some respects, the lack of gender diversity is still evident. Less than 10 per cent of respondents to our survey were female. The study also found that female chairs were more experienced and better educated than their male peers, suggesting that only women with outstanding qualities made it to the very top.

Challenges

The top four challenges facing today’s chair are:

  1. maintaining good relationships with the controlling (or larger) shareholders;

  2. managing difficult board members;

  3. maintaining a level of collaboration and teamwork amongst these individuals;

  4. processing large amounts of information about the organisation.

Surprisingly, challenges such as “low motivation and absenteeism of board members” and “insignificant time commitments of board members” – often cited as major obstacles to board work in academic and business literature – did not seem to worry our respondents. This may reflect the fact that boards have become more engaged and directors more responsible and involved.

Remuneration

While challenges most boards face are similar in many respects, there is great diversity in the levels of financial incentives offered. Predictably, company size has some impact on the chair’s compensation, with almost half of small companies paying less than $50,000 a year. However, the other half pay more than $1 million. This reflects the fact that the “market” for chairs is not well developed.

While not-for-profit organisations in general reward their chairs modestly, remuneration is otherwise defined not by organisations but by the capabilities, experience and market value of the individual regardless of gender.

Accession to chair

From a governance point of view, the chair should be proposed by the nomination committee and elected by the board. The reality, however, is that shareholders play a decisive role in finding and selecting a future leader of the board, making sure they have in the position someone they know, trust and can predict.