AICD director Stephen Cole says placing expectations that are too onerous on directors means they effectively become employees.
Photo: Louise Kennerley
This week’s boardroom bloodbath at APN News & Media
was a vivid demonstration that the director’s life in the current corporate environment is not an easy one. But just in case further proof were needed to make the point, a survey of company directors has revealed growing disquiet in Australian boardrooms.
The survey of 180 directors by law firm King & Wood Mallesons, for its Directions 2013 corporate governance review, found that many directors feel burdened by an “identity crisis” as they seek to reconcile the widening gap between the traditional understanding of their role as “custodians of the strategic direction of companies” and directors’ increasing risk and compliance-based responsibilities.
The review notes that directors feel hamstrung by increased demands from regulators, investors and the media to oversee and manage compliance and risk issues, “leaving directors with insufficient time to devote to providing companies with the strategic direction and guidance that directors see as being the fundamental purpose of their role”.
This widening “expectation gap” has resulted in some directors rethinking the wisdom of accepting or retaining directorships. This is not a new dilemma for directors, but it’s intensifying. Increasing exposure to class actions and personal liability in recent years – the review says class action settlements totalled $506 million in 2012 – has added to director concerns.
Some directors are voting with their feet, or are thinking of doing so. According to the survey, four in 10 company directors have reconsidered whether to take on new directorships or retain existing board seats: 17 per cent say they have refused or resigned a directorship and 26 per cent have or are considering whether to refuse or resign a directorship.
The top five issues causing company directors this anxiety are: the increasing compliance burden (including the risk of personal liability), the inability to devote sufficient time to providing strategic direction and guidance, excessive bureaucracy and regulation, the growing time burden, and risk to reputation.
An underlying concern among experienced directors is that if they are to fulfil the expectations placed on them theirs will become a quasi-executive role.
Perth company director and corporate adviser Steven Cole addressed this concern in his 2012 white paper for the Australian Institute of Company Directors, Mind the expectation gap: the role of a company director.
“If these expectations were to be met, all directors would have to become, in effect, full-time employees of the organisation,” Cole writes. “This would undermine the non-executive director’s independence of outlook and objectivity, which are vital for effective corporate governance.”
Boardroom adviser and corporate governance researcher Nicholas Barnett, chief executive of Melbourne-based Insync Surveys, says directors who are ambivalent about accepting or retaining a directorship tend to do it for personal reasons or judgments rather than concerns about the changing nature of the director’s role.
“In my experience, directors who step off or don’t step on to a board don’t feel comfortable with the chief executive or management of the company, or other board members, or they have concerns about where that particular industry is at,” Barnett says. “Their decision is more likely to be influenced by how sitting on a particular board will affect their reputation.”
Barnett says that far from directorships being seen as unattractive or too risky there is an “unprecedented” number of candidates who want to join a board.
“For every director who may want to jump off there is someone who wants to jump on,” he says. “There are some fantastic people who want to join boards. They’re board-ready, they’re aware that the bar has been set high for directors, and they want to join a board now.”
However, while confident that Australian boardrooms are not yet being spurned by disillusioned directors, Barnett has this warning: “If we’re not careful we might get to that position.”
On Monday the chairman of APN News & Media, Peter Hunt, chief executive Brett Chenoweth and three other independent directors resigned when major shareholder Independent News & Media challenged a board proposal to launch a $150 million capital raising to reduce debt. APN announced yesterday that long-time board member Peter Cosgrove has been appointed chairman.