The recent Qantas Board Governance Review shone a light on key challenges at Australia’s national carrier and offers valuable governance insights for Australian directors. The review made recommendations across matters including board effectiveness, people and culture, risk, and stakeholders. In this article, we unpack the key lessons for boards.
On 8 August 2024, the Qantas Board released the Governance Review report conducted by experienced business adviser, Tom Saar. The review assessed the decision-making and governance processes that led to a deterioration of stakeholder trust in recent times.
In their foreword to the report, Qantas Chair, Richard Goyder AO FAICD, and Chair-Elect John Mullen AM acknowledged, “there were no findings of deliberate wrongdoing, mistakes were made and… in some cases, the responses of the Board and Management were a contributing factor.” They indicated that the board and management team have made progress in implementing the recommendations in full.
The review also influenced the decision to reduce FY23 short-term incentives and director base fees by 33 per cent for its former CEO, and affected current and former executives and non-executive directors who were on the board.
On 12 September 2024, Qantas released its FY23/24 Annual Report, which outlined its progress in response to the Governance Review, which included lifting the weighting on customer measures from 20 to 30 per cent in the group scorecard, introducing a reputation measure in the long-term incentive plan, and expanding the Remuneration Committee to become the People and Remuneration Committee.
Key findings and recommendations
Board effectiveness
The Governance Review found that the Board did not robustly debate or challenge management on some issues, whilst it was reactive in responding to various non-financial issues.
The re-opening of flights during COVID-19 was viewed as business-as-usual operations rather than a strategic issue. This led to considerable latitude being given to a longstanding CEO, who had navigated previous crises. The report acknowledges issues could have been escalated earlier and more analysis of options and risks provided to facilitate board debate.
The report observes that the board was financially, commercially and strategically oriented, and could have been complemented by “enhanced focus on non-financial issues, employees, customers and stakeholders”.
Culture
The Governance Review highlighted a “command and control” leadership style with centralised decisions and an “experienced and dominant CEO”, which impacted the willingness to challenge. The board had limited visibility of this dynamic and extrapolated the strong “safety culture” to represent the broader culture within Qantas.
The review recommended greater oversight of people and culture issues by the Board and Remuneration Committee, as well increased rigour and breadth to the performance reviews of the CEO and group leadership team.
Governing company culture
In the Governing company culture: Insights from Australian directors resource, we highlight that boards are as responsible for cultural oversight as they are for the financial performance of an organisation.
Key questions for directors:
- How does culture appear on the board agenda? What does this signal to management and the organisation about the prioritisation and approach to culture?
- How is performance measured and does that align with the organisation’s values, desired culture and agreed risk appetite?
- Does the conduct of the board and senior management team align with the organisation’s espoused values and desired public reputation?
Risk management
The Governance Review found that the risk management framework was heavily weighted to focus on strategic and financial risks, with less focus on operational reliability, customer, culture and people issues.
The review recommended giving greater attention to non-financial risks and cumulative risks, while establishing non-financial escalation norms.
Social issues
For any organisation, especially one as large and well-known as Qantas, it can be difficult to reconcile the spectrum of stakeholder perspectives when deciding whether to take a position on social issues.
The Governance Review recommended that Qantas define the threshold for board consultation and approval on external proposals on significant stakeholder issues, by assessing such matters through their impacts on reputation, social licence to operate, stakeholder relationships, party politics and litigation/regulatory risk.
Stakeholders and customers
The Governance Review found Qantas often had an “adversarial approach” to stakeholder engagement and external communications, with poor relationships exacerbating challenges for the company.
There was insufficient focus on customers, whether through feedback mechanisms, reporting, incentives, discussions, decision-making and governance. For example, incentives were heavily focused on financial performance and less on customers and reputation.
The review recommended Qantas invest more time to understand their stakeholders in greater depth, provide greater board oversight of a comprehensive group stakeholder management matrix and commit to more ‘open and empathetic’ two-way communications. Improved regular reporting of all stakeholder relations and the escalation of non-financial matters that could adversely affect reputation was recommended.
The report also recommended the board have more direct exposure to customers, that customer insights reporting be enhanced and expedited and that there should be board oversight of a comprehensive customer management matrix.
Elevating stakeholder voices to the board
To govern effectively, boards should understand the environment in which their organisation operates, including the perspective of their stakeholders. The AICD’s Elevating stakeholder voices to the board resource provides a practical framework for boards to help enhance decisionmaking.
Key questions for boards to ask management include:
- Which groups are vital to the organisation’s long-term success and what are their interests?
- Does the board have the right structures to enable a deep dive on stakeholder issues?
- How should the board report on and communicate decisions to impacted stakeholders?
For customers, boards must understand the limitations of customer experience metrics. Boards should:
- Take steps to understand the worst experience customers have via qualitative data.
- Consider establishing customer advisory committees, briefings with customer advocates/advocacy groups and starting a board meeting with a ‘customer moment’.
Key lessons for boards
In the boardroom…
- Boards should consider enhancing the nature of board reporting and board committee structures to adequately capture non-financial risks (e.g. reputational) and the impact of proposed decisions on stakeholders.
- Boards should take steps to formally identify and proactively engage with key stakeholders and determine how to consider the interests of stakeholders in decision making
- The dynamic between directors as a collective and between the board and senior executives should be periodically tested to ensure there remains robust, yet respectful, challenge and debate
Out of the boardroom…
- The board should consider reviewing its remuneration model to ensure financial and non-financial weightings are appropriate across short-term and long-term horizons
- Directors should, as part of a board approved approach, take opportunities to engage directly with internal and external stakeholders to hear firsthand feedback
- The board should promote effective, two-way external communications, rather than a defensive, adversarial mindset
Reflections from other inquiries
The Qantas Governance Review shares some parallels with the 2018 Australian Prudential Regulation Authority (APRA) Prudential Inquiry into the Commonwealth Bank of Australia (CBA). APRA reported several cultural themes such as a reactive stance in dealing with risks and an overly collegial and collaborative working environment which lessened the opportunity for constructive criticism, timely decision-making and a focus on outcomes.
The AICD previously highlighted key takeaways for directors from the APRA CBA Inquiry:
- Risk governance – According to APRA’s report, the CBA board lacked rigour and urgency in dealing with non-financial risks. APRA also found that while the CBA board received regular reports of regulatory matters which had already been identified, they were not receiving an adequate picture of CBA’s overall risk profile.
- Holding management to account – The APRA report noted that while collaboration and collegiality with management is important, a board must always hold management to account. For instance, APRA observed that the CBA board was not receiving alerts on individual incidents or themes that might indicate an underlying or emerging risk or issue that might have reputational consequence.
- Remuneration – APRA observed that the CBA Board Remuneration Committee had not provided clear guidance on its expectations of how managers should exercise their discretion when considering a reduction in remuneration for poor risk outcomes.
Conclusion
Upon the release of the Governance Review Report, Qantas Chair Elect John Mullen AM said, “as the national carrier it is our duty to make sure we always act in the best interest of stakeholders and hold ourselves to the highest level of accountability”.
As reflected in the AICD Practice Statement on the Best Interests Duty, stakeholder interests are legitimate concerns of directors, tied back to the long-term interests of the company, including its interest in avoiding reputational harm. For further guidance, see the suite of AICD resources below.
Latest news
Already a member?
Login to view this content