Capital choice

Finance allocation is a crucial issue for boards in 2022, argues global economist, director and author Dr Dambisa Moyo, who will speak at next month’s Australian Governance Summit.

When Dr Dambisa Moyo took to the stage of Barclays’ annual general meeting in 2010, she was shocked by a question from a woman in the audience about her qualifications to be a board director. “I said explicitly that I was an unconventional board member,” she says from the US. “I’m black, I’m a woman, I was 39 years old, I had not come through the C-Suite. So, take your pick on what the person was getting at, but I think that my race and my gender were probably things that stood out on that particular podium. The experience was a further reminder about the urgent need for corporate boards to staff themselves with more women, more ethnic and racial minorities and generally more diverse groups.”

The board of the global bank was the second directorship for the Zambian-born economist. In 2009, Moyo had joined the board of global brewer SABMiller, the same year Time magazine named her one of the world’s 100 most influential people. What set her apart were impressive academic qualifications — a doctorate in economics from Oxford and a masters in public administration at Harvard — and a New York Times bestselling book, Dead Aid: Why aid is not working and how there is another way for Africa.

In Dead Aid, Moyo argued that despite more than US$1 trillion in development aid to Africa in the past 50 years, it had failed to deliver sustainable economic growth and poverty reduction, and made the continent worse off. Her solution was to phase Africa’s reliance on aid down to five per cent or less within five years.

Moyo, who will speak at the AICD’s 2022 Australian Governance Summit in March and who is a director of 3M, Chevron and Condé Nast, spent eight years at Goldman Sachs from 2001 as head of economic research and strategy for sub-Saharan Africa. She says the crucial issue for boards in 2022 is capital allocation. “It’s very tempting for CEOs and boards to get drawn into things in the here and now — everything from voter rights, to abortion issues, to pandemics — and all of these things are very important,” she says. “But you still have to think about investing in the future and allocating capital, whether it’s investing in employees, or investing in technology, or paying back debt. These are the most important things that we shouldn’t lose sight of.”

Her latest book, How Boards Work: And how they can work better in a chaotic world, addresses important questions and processes for directors and lists Moyo’s notion of the three main responsibilities of a corporate board — shaping the company strategy, selecting leaders, particularly the CEO, and safeguarding the company’s culture, ethics and values.

“Traditionally, boards had two mandates — to oversee strategy and then to hire and, in some cases, fire the CEO,” says Moyo. “But more recently, the bigger piece has become ESG — environmental, social and corporate governance responsibilities.”

She says board work is “more than anything about showing good judgement in the face of difficult problems”, adding the notion of what an effective board looks like has shifted over the years.

Board legacy

Moyo says leaving a good legacy is becoming harder for directors. “This is not just about pursuing profits, it’s about being an active and important corporate citizen in society. For me, a successful board is one in which the company continues to thrive and continues as a growing concern even after I’ve left the board as custodian.”

In How Boards Work, she writes that consideration of how government will manage their growing deficits and debts will be crucial for boards post-pandemic. She notes the US deficit is forecast to reach US$1.3 trillion in 2030 and that US public debt is expected to rise from 81 per cent of GDP in 2020 to 98 per cent in 2030 — the highest level since 1946.

“It seems investigable that US political leadership in the coming years, Democrat or Republican, will have to seriously consider raising taxes on corporations,” she writes. “The smartest boards are already looking at the implications of such a scenario for their businesses.”

In a 2016 TED talk, Moyo said “our ability to create and sustain economic growth is the defining challenge of our time”. She says this is still the case, especially in emerging markets where 90 per cent of the world’s population lives and where 70 per cent of the population, on average, are under 25.

“It is essential that they grow seven per cent a year in order to put a dent in poverty. The largest emerging economies continue to struggle to reach that seven per cent number. Economic growth matters. If growth wanes, the risk of human progress and the risk of political and social instability rises.”

She writes that the fate of corporations and society as a whole are closely linked, noting that, according to Fortune magazine, in 2019 the 500 largest US corporations represented two-thirds of the country’s GDP: US$13.7 trillion in revenue, US$1.1 trillion in profits, and US$22.6 trillion in market value, employing nearly 29 million people worldwide.

Relationship with China

When it comes to doing business with China, Moyo says the West should spend less time denigrating China. “They are the largest trading partner, lender, and foreign direct investor in many developed and developing countries, Australia included. That has real implications for how we engage and how society continues to evolve over time. I don’t believe they’re going anywhere.”

As to whether trading and investing in China is at odds with seeking ESG compliance, she acknowledges the complexities in engaging with a country whose ideological beliefs, politically and economically, tend to be in conflict with Western ones. “Whether we like it or not... the financial crisis emerged from the West, [while] political instability [caused by] populism in Europe and the US is very well noted,” says Moyo. “It is not seen as something attractive. Of course, the fact that inequalities in the West are in some cases worse, or at least as bad as those in China, means there’s a lot of work that needs to be done showcasing that Western parameters or philosophy in economics and politics are the best way forward. It’s not good enough to just talk down China, you have to show [what the advantages are] with your own outcome and progress.”

Importance of diversity

In How Boards Work, Moyo notes ethnic diversity remains scarce on major corporate boards, with just 85 of 1050 director positions in the UK’s FTSE 100 companies held by ethnic minorities. “There’s still work to do and it is my sense that no-one, including women and minorities, wants to occupy a board seat purely because of their race or gender. Simply put, in order to operate, compete and excel, corporations need the best talent.”

She says there are reasons to be sanguine about diversity, pointing to the rise of women in politics and business and noting that in 1998, just two Fortune 500 CEOs were women — Jill Barad of Mattel and Marion Sandler, co-CEO of Golden West Financial Corporation — whereas as of June 2021, 41 women led Fortune 500 companies. “This represents progress, but there is still a great distance to go,” says Moyo.

The more things change

Asked if the COVID-19 world is the toughest directors have faced, she replies: “A board colleague of mine said, ‘The bottom line is you’re always going to be surprised’. I take that to heart because obviously there have been boards of companies I serve on today, where they have had to navigate through a war. If you take the fundamental view that boards will always be surprised and will always need to think about strengthening the management team, employee base, financial, operational safety record through different time periods, then it’s very hard to say this time is much worse than the middle of the financial crisis. I just try to continue to see through not just tactics, but strategically, where these companies should be going or how they can survive the challenges of the day.”

Dr Dambisa Moyo will speak at the Australian Governance Summit 2022, Melbourne, 2–3 March.

Five critical issues boards can’t afford to ignore

1. Risk of a more siloed and protectionist world
2. Sea change in the investment landscape
3. New technological developments
4. The global war for talent
5. Short-termism