2022 Essential Director Update Presentation by Ann Sherry AO FAICD

For her EDU22 presentation, Ann Sherry AO FAICD covered a range of topics, including how to govern for stakeholders, reducing sexual harassment in the workplace, filling Australia’s skills gap and more.  

Thank you very much. And good morning, everyone. I'd like to start by acknowledging the traditional owners of the land upon which we meet, the Gadigal people of the Eora Nation, and pay my respect to elders past, present and emerging. And I do this as a mark of respect to those who've kept alive the oldest continuous culture on Earth. And in doing so, I also declare my support for the constitutional change we need to give our first peoples a guaranteed voice in the Constitution of Australia. 

Can I thank Angus Amour, who I think is in the audience, for getting me on this road show, but also say to Mark Rigotti, who has been travelling with us around Australia, it's a great organisation and I feel like it's in great hands. So, thank you for having me as well.  

I loved Justin's introduction, talking about strengthening society through world class governance. I wished I'd thought of it, but we're here to talk about how we do that. We're here to talk about good governance and the governance challenges that we all face. How do we as directors keep up with the changes happening around us? And there are many. And I'm not here pretending to be an academic or a governance expert, but I've certainly got some scars from things that have gone badly as well as some ideas about things that we need to think about as directors. 

So, I'm going to make some opening comments on five themes that I'm talking about. And obviously I'm happy to take any questions at the end.  

Governing for Stakeholders 

So my themes, I begin with stakeholders and the question I think we collectively need to ask and we need to ask all of the time is: are we really listening? Stakeholders are often talked about in boardrooms. Some are surveyed, so we can hear their views unfiltered. Some we meet with. But I think our real focus and care factor is varied by board, by sector and by stakeholder group. And I also think the stakeholders that are interested in our businesses have grown and their claim to be part of our stakeholder engagement has grown much greater. 

It's a much larger group of people than it was ten years ago, 15 years ago, when really boards focussed primarily on shareholders, employees, perhaps suppliers, not that much on suppliers, even ten or 15 years ago. So those groups now are a very diverse and very large segment of our community. I think there's an inevitable debate in boards about how much time, how much effort do we spend on people who might have a short-term view versus a long-term view on the health of our business. 

But we do carry a lot of risk in our businesses if we don't consider stakeholder needs and views. And many of us have experienced the consequences of getting it wrong. There's a lot of question about whether we as directors are acting in the best interests of our organisation. If we extend our view, our stakeholder conversation to a much broader view and there's a really good AICD practice statement on best interest duty, which I suggest that you read. 

But when we think about stuff that hasn't gone well in recent times, I mean, I'm on a bank board. The Royal Commission into banking in Australia really came about as a result of a group of disgruntled long-term customers that everybody had met with, everyone talked to, but we couldn't find ways through. And in the end, their political clout led to a Royal Commission which has resulted in banks in Australia paying billions of dollars in recompense. And it goes on.  

So, I think those issues that we sometimes take a very rational view about, we've tried, we can't find a middle ground, it doesn't work, we disagree with them, our lawyers have said, our organisation, our management have said. Those things, if they go on and on and on, lead to much, much worse consequences than compromise. 

And so, I just think there's learning for all of us from some of that sort of examples. Similarly, when you look at the ESG backlash, the environmental backlash, but some of our resources businesses who felt that they were communicating, who felt they were collaborating, who believed they were consulting, but in the end were found to be not doing that with sufficient diligence. 

Legislation on bullying in the workplace. We've got example after example of how we've ended up with legislative change and sexual harassment legislation, which I'm going to talk to, is another topic this morning. In the end, is going to lead to legislation that will be much more onerous on all of us and require much more than we're currently doing. 

So I think as directors, we need to constantly ask ourselves, should we be doing more to engage? Is it sufficient that we get filtered views from stakeholders, either through work management are doing or through work that others are doing on our behalf, surveying and so on? Do we end up with an average of average views? Are we clear who our stakeholders really are? 

Are we testing constantly the external market to see who feels they have a stake in our business and are being vocal about it? Are our management clear or are they defensive about external stakeholders who are critical of them? And who don't we hear from? Whose voices never make it to us in the boardroom? Because that might be our biggest risk. 

So, I think the issue of stakeholder management is one that we cannot outsource. It's one we cannot assume that others will do for us. I think increasingly it's something we've got to be comfortable to be able to do ourselves.  

Sexual Harassment

My second topic for the morning is a bright way to start the day, is on sexual harassment. And I want to talk about it, and it's linked to organisational culture. Because I think the conversations about sexual harassment end up being a “he said, she said, they said, we did” conversation, not whether there's more we could be doing across all of our cultural norms to deal with behaviours that end up with us all at lawyers at 100 paces.  

Sexual harassment is clearly a serious problem across our society in general, not just in our workplaces, but it's a problem in our workplaces. And how can boards play a stronger role, a clearer leadership role in taking action on sexual harassment? What tone are we setting from the top, and is it clear that it's a broad priority? 

I think the reporting on sexual harassment to boards is patchy. The metrics are maybe a number of complaints. If we don't get any complaints, we pat ourselves on the back, instead perhaps of seeing no complaints as a red flag. Are we missing problems in our organisations if we don't have good speak up cultures, encouragement of surfacing of issues that come certainly to management and ultimately to the board? 

What are the barriers to reporting incidents and how can they be avoided? When was the last time our policies really were reviewed? And do we have those policies that end up being about 50 pages long and three-point font that nobody in the organisation can read, let alone any of us even see? And do we have policies just on sexual harassment or is it a broader set of policy statements on behaviour, expectation, culture, and particularly the issue that we're all about to face, is the traditional use of non-disclosure agreements to shut up anybody who complains and anybody who's complained against. 

So as organisations we've learnt a lot about culture change in the last decade or so, particularly when we look at our performance on health and safety management. Zero tolerance, assume all complaints are serious, that workplace practises need to be examined and that everyone needs to speak up, if they see something that's not appropriate. Peer engagement. The same mindset practise needs to be applied to sexual harassment. 

We know how to do it now with health and safety. There is absolutely no reason that can't be applied to other behaviours in our workplaces and legislative change is now coming. Employers, I think, will have a positive obligation to take responsibility and proportionate measures to eliminate sex discrimination, sexual harassment and victimisation. Directors potentially will be liable in the current draft of the legislation, as we are with health and safety. 

So I encourage directors to look closely at the Respect@Work report that was done by the Human Rights Commission. It's the basis of the legislation that is currently before the Federal Parliament. Its recommendations were clear. There you will see the future direction on this issue. And I think the AICD tool on preventing and responding to sexual harassment at work is also worth looking at. 

We need to be ready because change is coming. And so, the question then we need to ask ourselves is: what do we need to do differently? What needs to come to us as a board? What do our organisations need to do with intent and urgency? What do we measure and how do we link harassment, practise, and process to what we already have in place for health and safety and to some extent, whistle-blower practises as well? We've got other really strong practises in virtually all of our organisations. We need to make these work for many issues, not just issue by issue by issue. We've created complexity doing that.  

NFP Governance

My third topic, provocation, whatever you want to call it for the morning, is a not-for-profit governance. And Mark mentioned this earlier. I think the not-for-profit sector is a very, very large part of our community and governance community, but also service delivery in Australia. 

The latest ACID not-for-profit study, the results were mixed. 40% of respondents in the last 12 months said they were either not financially impacted by the pandemic or had emerged better off afterwards. Great for them. 40%, however, said they would take longer than a year to recover, which in governance terms means your back’s against the wall. So, what are the key challenges for the overall sector as we look forward? 

And I think trust would be one for many parts of the sector. Recent Royal Commissions in aged care, disability service provision, largely run by not-for-profit organisations, has cast a very large shadow over the not-for-profit sector. How it's run, how decisions are made, how effective boards and managements have been. So, rebuilding trust is going to be one key challenge. 

But we also know that it's not a homogenous sector, not one size fits all in the not-for-profit sector. But what we do have in common is the need to have absolute clarity of purpose and to ensure our managements have a clear idea and discipline about organisational purpose. When you're doing good work, it's very easy to find other good work you should be doing and to drift into other segments, whether you've got the financial or management capability to do so. 

We also need to be clear on the financial management and accountability. Again, doing good work does not absolve you of the duty to run your organisations with discipline, great accountability and very clear financial accountability. And our regulator is now asking much sharper questions of the sector.  

I think similar risks sit in not-for-profits, as in commercial boards. And the question is, are we ready? Cybersecurity, which David's going to talk about in a bit more detail, our not-for-profits are extremely vulnerable. Many have not invested in good systems. Many have out of date systems. Many have systems that are out of support and don't have the capital to continue to invest. If you are in that space, then the hard questions need to be asked: should you stay in business? 

Financial risk and accounting. How good are the financial management capabilities in many not-for-profits? Regulatory risk, stakeholder management and reputation risk, which I've already mentioned, the risks are high. And do our boards then have the skills to manage and understand these risks? Many not-for-profits, have great boards, very capable people, but others don't. And so, it's a hugely varied sector. 

And not-for-profit boards are not just training grounds. They can be and they can be great places where we go to give back. But they are not places where you go thinking there is no requirement for diligence or skill as would be expected in any other governance structure. You must have the balance right, because increasingly not-for-profit boards are facing very, very difficult challenges. They need to be fit for purpose. And many, such as small single purpose charities, family charities, small health and disability organisations have very uncertain futures. And the sooner those issues are called and dealt with properly, rather than people being territorial and throwing the walls up, the better the sector will be, and those organisations will be. So, we need to build skills in our communities as well for not-for-profit boards. 

Taking on the challenges of not-for-profits is critical because our regional and rural communities, for example, are run by not-for-profit boards. Their hospitals, their health services, their water boards, so many of their services that those communities rely on for their day to day lives are run by not-for-profit organisations and not-for-profit boards. And all of them need skilled directors and need capability for the challenges ahead. 

Skills and the Workforce of the Future

My fourth topic is skills and the workforce of the future, which of course, could be an entire morning. We've just come off the back of the jobs summit. The focus was really on the stuff we've talked about a lot already over a long period of time. How do we lift productivity? How do we lift the female participation rates in our workforce? How do we get our visa systems working so they are more effective and more timely? Where do we get skilled migrants? Those topics, quite honestly, have been done to death over a very long period of time and yet, we have a massive skills shortage in Australia. The solutions feel the same, the problem gets bigger. So, the things we're doing will help. 

But this is not an Australian issue. This is now a global issue. Any of you who've travelled know everywhere in the world, restaurants are struggling to find employees. I don't know where everyone's gone, they’ve vanished. And everywhere people are struggling for labour. And countries are now saying you can't have our nurses. As an example, the Philippines has said: “Don't come here looking for nurses, we need them. You cannot just come and plunder our nurse training for your own benefit.”  

So, the question for us is: what do we need to do differently to train and retrain our own people? What are our obligations as directors of organisations to manage the risk of labour and skill shifts in our organisations? How much time are we spending talking about our workforce planning needs? 

Not today, not looking back last year, but actually looking forward three, five and ten years ahead. Because we are going to need a wider set of solutions. And as I've been known to say in many fora, how many Uber drivers are engineers and doctors from overseas? What are the barriers to recognising and retraining skills we already have sitting in our communities? 

Why is it that we think if you've been trained in a university, perhaps where English is not the first language, that you're not good at doing the technical things, that if you were trained in English you could do? How do we how do we use those skills, rather than have people driving us around in their old cars? It's such a waste of talent already sitting with us, which we seem blind to, or incapable of finding a solution to harnessing that talent that sits in our community already. 

We have other pools of untapped talent as well that we seem to be blind to. Older workers, which is getting a bit of currency at the moment. Suddenly we're all top of the pops again. How do we get rid of the tax disincentive for people who do have skills, who do have experience, who do have desire to work, who have great knowledge to get them back into the workforce and to use their skills and capabilities? 

People with disability, we've been talking about this for decades. And yet we're still blind to the ability that people bring. We're completely fixated on their disability, whether it be physical, intellectual, neurological. Some organisations have tapped into this incredibly effectively, including some of our spy and anti-cyber organisations who've tapped into a group of people that we once would have just labelled autistic. But many of those people have extraordinary skills and are being used by many organisations now to fill a skills gap that we haven't been able to fill easily. 

So, for us as directors, how do we engage in this subject with the management of our organisations? What are the questions we need to be asking increasingly? Are we thinking about the retraining of our existing employees? And if I give you an example from my experience at NAB, where we have a lot of people who know their jobs are probably not going to be there in 5 to 10 years’ time. But they're numerate, they’re literate, they want to stay working, they want to stay in the organisation. So, what do we need to do as an organisation? How did we think about what we needed to do to keep them? Well, 10,000 people have been retrained in coding skills because that's a skill we're going to need in bucketloads as we look forward. Increasing people's tech literacy is a really important skill for all of our organisations for the future and those people took it up with vigour. 

So, I think some simple ideas sometimes give you amazing outcomes, but we do need to start thinking differently. We cannot fall back on the same old, same old solutions because it's not going to get us there. The world has changed. It's not going to go back to the way it was. And so, we need new solutions, not just to be pulling the same old songbook out and singing the same songs, as comfortable as that might be. 

Reconciliation

My final topic for the morning is reconciliation. Justin's introduction, I think, reminded us of the power of understanding, of the recognition of the power of purpose. And for me, I think reconciliation is also about the power of the sort of Australia we should be creating. Most of us are in very, very powerful positions. This is not a passive game anymore. 

It's not a game where we sit on the sidelines and watch what's going on. This is about the future as well as acknowledgement of the past. So, most of our organisations have probably got Reconciliation Action Plans. They were created and came into being to get companies engaged in at least an internal dialogue on this issue. 

The question I've got now is how many of us are engaged in this issue, really? How many of us have even seen the Reconciliation Action Plan that our organisations put together? Is it a tick box exercise or does it drive any change inside our organisations? Because as all of you know, anything that becomes a tick box exercise quite frankly is a waste of time, effort and space and creates cynicism inside our organisations. 

There are some organisations who have made significant change, who have changed their workforce profiles very dramatically, who’ve changed the way they deal with Supply Nation and supply chain conversations. But there are many others, and I would suggest most, who’ve made little inroad into the culture change required to really open jobs, training, and supply chains to Indigenous Australians.  

The new government has committed to a referendum on the constitutional recognition of Indigenous Australians and enshrining a voice to the Australian Parliament. This is being done to address a decision and to reverse actually, a decision that was made in 1901 to exclude Indigenous Australians from constitutional recognition. Boards and organisations will be asked by employees, shareholders, customers to declare their view. Some companies have already indicated support and had quite robust engagement on this issue. But I have to tell you, this is an area where intent and action will be examined by your stakeholders. 

So, the stakeholders, and there will be many, and they will become louder as time goes by, positive and negative, will be engaged in this issue. So, has your board had any discussion? Have you brought any understanding to the table? Do you understand what's going to be asked of you? And does the leadership of your organisation have a view, or have they had any discussions themselves? 

There will be discussion in your workplaces and my question to you all is: are you facilitating or are you observing? Are we going to be on the right side of history this time around? We had the opportunity to do it once before, a long time ago, and we chose differently. The question that's going to be asked of us now is, in the 21st century, are we ready to be the sort of Australia that we can be? An Australia that both embraces the rich history, a unique history in the world, with  

a First Nations people who've been custodians for longer than any of us can ever imagine, more than 60,000 years, along with a new Australia, as we heard earlier, that has created prosperity, inclusion, diversity in a very different way.  

Are we going to be on the right side of history, bringing together those two pieces of Australia to create a formidable Australia that is both rooted in history as well as rooted in the future? And if you haven't had that conversation, I strongly suggest you start now because it's going to come upon us extremely quickly. 

So in summary, are we listening and looking for insights into the change in stakeholder views and concerns in our changing world? Do we understand the underlying cultural norms and behaviours in our organisations, and how do we test for the issues like sexual harassment, but not only? Have we thought about our future skills, what do we need? Are we investing? Are we thinking about this now rather than screaming at government to try and fix it for us, when we can't get it right ourselves? And are we on the right side of history? Are we going to be part of creating and shaping the Australia of the future, the Australia we leave to our children and our grandchildren? Thank you.