The future of the ASX

ASX directorship has never been more onerous, but two veteran chairs don’t want a new cohort to shy away from the opportunity. In May, NAB chair Philip Chronican GAICD succeeded UBS Australasia chair, and former Westpac and Transurban chair Lindsay Maxsted FAICD as chair of the AICD ASX Chair’s Forum. Here, they share their thinking on regulatory burdens and directors’ duties. 

“We're certainly all used to speaking up,” says Philip Chronican GAICD, describing running a meeting of seasoned chairs, each accustomed to being in charge. However, interacting with directors at that level of experience has its benefits, he explains. “When you've been a chair of a large organisation, you understand that the role of getting together in a meeting is to hear others’ opinions.”

That opportunity, to test his views among this cohort, is what drew Chronican to volunteer to take over the role of forum chair from Maxsted. “I thought it was a good opportunity to move from having an opinion on the sidelines to being somebody who can actually help shape an agenda.” Maxsted had signed up during his tenure as chair at Transurban and Westpac, seeing a similar appeal — to spend more time on regulatory and advocacy issues the AICD is involved with. “If you're actually chairing the meeting, I find you have to spend more time thinking about those issues to make sure you can then guide the conversation,” he says. “Not to answer every question, obviously, but to at least have a view on important issues. I took on the role of chair of the ASX Chairs’ Forum for that reason. My reasoning was I thought that will make me spend a little bit more time on these governance, regulatory and advocacy issues the AICD is involved with.” Robust communication underpins the forum’s value, as well as the pair’s approach to its succession planning. Prior to the changing of the guard at the forum, Maxsted and Chronican had discussed the governance issues of the day when they served as non-executive director and executive, respectively, at Westpac around 15 years ago.

“We already had a very good-quality relationship,” says Chronican. “When he spoke to me about this opportunity, we talked about the importance of the large company sector to be properly represented and how best to bring together the network of chairs and AICD professional resources.”

Tackling regulatory complexity

Topics at the forum’s biannual meetings range from virtual AGMs during the pandemic, cybersecurity and the hard-won reform to amend the Corporations Act 2001 (Cth) to better reflect director liability in relation to continuous disclosures, and misleading and deceptive conduct.

The breadth of discussion is commensurate with increasing concern. Both men categorically affirm that demands on ASX directors and their board teams are growing, with the regulatory burden increasing in tandem.

For Maxsted, the global financial crisis (GFC) marked an important turning point. “When I joined the Westpac board in early 2008, at the beginning of the GFC, risk meetings were 80 per cent credit risk — as you would think they should be for a bank in terms of its major risk alongside liquidity risk. But by the end, while credit risk and liquidity risk rightly remained high on the agenda, they were sharing the agenda with every other operational risk you can think of — conduct and compliance issues, cyber, financial crime, environmental, privacy, you name it.”

Since then, governments have become more active and empowered more regulators to do the same. Chronican is aligned that there's no doubt that directors face greater liability across a larger number of issues than they did a decade ago.

“There's been a lot of legislation,” he says. “None of which I would criticise individually because it's all been for good purposes, like modern slavery requirements, the progressive enhancements that have taken place on workplace health and safety, the tightening of the anti-money laundering legislation, and a whole range of other issues like climate, cybersecurity and critical infrastructure. All of these things, which are there for good purposes, and good, well-meaning legislation, do add to directors’ obligations and directors’ liabilities.”

However, he warns against directors drawing distinctions for which issues will stand the test of time. “A lot of these ‘emerging’ issues have a way of becoming ‘core’ very quickly,” he says. “The issue that is going to preoccupy you is the issue you failed to manage early.”

Chronican calls out underpayments as a notable example, where five years ago people might have referred to checking the payroll system as “non- core”. “We now know that the failures to properly ensure that the payroll system reflected the contracts and agreements with staff had rapidly become an all-encompassing issue for a large number of companies when they realised they'd been underpaying their people.”

The intensifying climate governance discussion, with mandatory reporting disclosures on the horizon, has been creeping up agendas for some time. Maxsted says sophisticated companies will have an awareness of their scope 1 and 2 emissions and increasingly will be getting a handle on scope 3. Reporting of emissions and net zero targets will be based on predictions and forward assumptions. “Directors will be acting in good faith when they make those predictions, but if they prove to be inaccurate there is now another area of vulnerability in terms of company and director liability. It’s just getting harder and harder.”

Chronican says there is growing concern among directors about whether this area is not mature enough to be moving towards consistent standards — and the impacts of this rigidity. “There is quite a lot of concern among the chairs of the largest companies about overly prescriptive answers coming out too early, before we fully understand the implications.”

How does the top-tier stay ahead? By ensuring the executive and adviser tiers are educated, says Maxsted. “You need to understand that, clearly, you cannot be an expert in all of the areas relevant to a non-executive director. You need to make sure, as best you can, that the executives you employ have those capabilities. Or if they don't, that they're receiving excellent advice. Then it’s the director’s role to establish the governance oversight which will draw out how key issues are being dealt with to make sure you’re fulfilling your duties as a non- executive director.”

Treat your stakeholders well

To help curate directors’ focus, Chronican offers a steadfast lens. “It’s all about long-term sustainability. In the long run, you’d like to think the shareholders also share that view that the long-term health of the company is in their interests. Obviously, you can get situations where different groups have different time horizons on that.”

Maxsted describes the AICD-commissioned opinion by Bret Walker AO SC and Gerald NG MAICD, The Content of Directors’ “Best Interests” Duty as “gold”. “His overriding observation is that as a director your primary observation is to the company. He went on to say that in terms of stakeholders, the prime stakeholder is the shareholder. I must say, understanding that guided me through lots of issues and discussions in my boardrooms, understanding that the primary obligation is to the company. Then, in turn, of all company stakeholders, the primary stakeholder is the shareholder. It goes without saying you can’t create long-term value for the shareholder unless you are conscious of and treat your other stakeholders properly.”

Maxsted feels that against a backdrop of increasing shareholder activism, some of the investor groups have often lost sight of this point. “They ignore Bret Walker's advice: that in the end, what I'm here for as a director and for you, the investor, is to create long-term shareholder value. That's what has to drive me. When a company is under attack for whatever reason, the board will have various options as to how to respond. Again, knowing that your primary duty is to the company, not to any particular stakeholder, helps immensely in formulating how to respond.”

Chronican says that for a company dating back to the 1800s like NAB, looking through the “long- run sustainability prism” means asking, how do we ensure this company is going to thrive? “If we want to be around for another 100 years, obviously we need to manage ourselves for the views of the very long run, and sometimes that will be taking into account community expectations,” he says. “For the financial services sector, we had a good reminder of that through the Financial Services Royal Commission — that if we failed to take adequate account of community expectations, then we can damage our franchise and damage the brand.”

Maxsted says one of the most difficult topics at the forum, with different views around the table, consistent with other boards and AICD members more generally, is how far should corporates go in taking public stances on social and political issues not directly related to their core business. “This issue is particularly relevant to the ASX 50 companies (which constitutes the ASX Chairs’ Forum) as these companies have so much influence in many respects in the community.”

Chronican explains how this has been considered at NAB in regard to the impending First Nations Voice referendum, which NAB publicly supports. He says the forum is there to help the chairs of Australia’s largest companies by sharing why companies have different perspectives, wanting to do the right thing, but not always clear on what that is.

“Each company obviously has a different sensitivity to it,” he says. “I’m aware that big resources companies, for example, feel an obligation to have an opinion because they operate on Traditional Owner land and therefore feel there’s a much higher level of expectation on them than you might get from a company that doesn’t have that type of view. That’s a good example of where different directors or chairs can easily come to a slightly different landing on an issue.”

NAB’s support is linked to its nationwide footprint and a large presence in agribusiness. “We are well served by having cohesive functioning communities across Australia and therefore we support measures to better integrate Indigenous Australia with the modern Australian economy,” says Chronican. “Recognition and reconciliation are foundation stones for that.”

Don’t be deterred

These areas are rapidly evolving in their complexity and import, and Chronican considers the possibility that regulatory burden is deterring some people from joining ASX boards.

“I know several people who would’ve been very good directors, but who have chosen to stay in the private side of business,” he says. “They don’t want either the public exposure or the legal liability that goes with being the director of a public company.”

He says the downside pales compared with the potential. “If you want to have an impact on the economy, then being involved in the largest companies is the way you can have an impact. While it might be safer and financially more rewarding to stay on the private side of business, large public companies are still where the big economic shifts occur, and it’s important we have a steady stream of quality people prepared to serve on those boards.”

Advice for aspiring ASX directors

Lindsay Maxsted FAICD

“I think you must only join an organisation where you want to be there, not for the sake of simply starting or adding to your portfolio. By that I mean you don’t have to be absolutely passionate about the industry or the company, but you certainly have to like the sector. You’ve got to be interested in the sector and you’ve got to like and respect the people you’re working with. Life’s too short to do otherwise.

If you form a view shortly after you join a board, that the chairman and/or CEO are not functioning as you would like, then that’s a really difficult spot for a director to be. Do your homework. It’s like everything in life. If you’re going to do it, you should do it well.”

What makes a good chair

Philip Chronican GAICD

“One of the best attributes of a good chair is to be a good listener. You not only understand the words that are coming out, but you understand the nuances of the context of how people raise things. A good chair is alert to looking around a meeting and listening to who’s speaking, but also looking for who’s not speaking to try to draw out their views.

You want a board to have a diversity of opinion, but you still need to get to an action or a conclusion. The best chairs are those who, even though they hear different opinions, can see a common thread and then bring that together as a consensus. That’s the art of a great chair.”

This article first appeared under the headline 'Leading Lights’ in the October 2023 issue of Company Director magazine.