THE CHAIR of the FUTURE Towards 2025 Header
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THE CHAIR OF THE FUTURE Towards 2025 Header. 1 I...... 2 Contents Our approach 4 Acknowledgement 5 Key findings 6 Introduction 7 The Chair of the future – from 2020 to 2025. 8 10 ways Covid-19 will impact boards in the future. 11 Demand for digital understanding will shape board composition. 14 ESG issues will rise in priority – and climate risk will feature more strongly. 16 The ability to manage divergent shareholder and stakeholder interests is paramount. 18 Mixed views on business activism. 19 Risk and regulation will remain an issue – and non-financial risk will continue to be elevated. 20 Diversity is an enduring challenge for boards. 22 Preparing for 2025 with strategic Chair succession. 24 The NEDs of the future. 26 Our uncertain future needs strong and resilient boards. 29 Contact 30 Korn Ferry 31 3 Our approach Korn Ferry conducted 28 hour-long interviews, 18 with Chairs of ASX listed companies. The superannuation industry fund sector was represented by two Chairs, three CEOs and one Chief Investment Officer. We also spoke to three representatives of proxy adviser firms. The interviews were conducted between March and June 2020. 4 Acknowledgement Korn Ferry would like to acknowledge the David Gonski AC generosity of those who gave their time Chair, ANZ Bank and shared their knowledge to assist in the Rick Holliday-Smith preparation of this report. Chair, ASX and Cochlear Respondents Vas Kolesnikoff Head of ANZ Research, ISS Governance Patrick Allaway Chair, BOQ Catherine Livingstone Chair, Commbank John Atkin Chair, AICD and Qantas Super John McFarlane Chair, Westpac Ilana Atlas Chair, Coca-Cola Amatil Rebecca McGrath Chair, Oz Minerals Debby Blakey CEO, HESTA Super Fund Hamish McLennan Chair, REA and Rugby Australia Michael Carapiet Chair, Link Group, Smartgroup Corp and iCare Robert Murray Chair, Metcash, Southern Cross Austereo Gordon Cairns and Hawke’s Brewing Company Chair, Origin Energy and Woolworths Group Pat O’Sullivan Philip Chronican Chair, Carsales Chair, NAB and The Westmead Institute for Medical Research Bernard Reilly CEO, Sunsuper David Clarke Chair, Charter Hall Group Deanne Stewart CEO, Aware Super Neil Cochrane Chair, Aware Super Anne Ward Chair, Colonial First State Investments Ltd Louise Davidson and Redbubble Ltd CEO, ACSI Peter Warne Mark Delaney Chair, Macquarie Bank CIO, Australian Super Karen Wood Paula Dwyer Chair, South32 Chair, Tabcorp and Allianz Australia Sir Rod Eddington AO FTSE Chairman, Lion Philip Foo Director of Research, CGI Glass Lewis 5 Key findings Attributes of the Chair of the future RESILIENCE – NEEDS TO BE A FEATURE OF THE CHAIR’S LEADERSHIP. AGILITY – MUST THRIVE AND MAKE COURAGEOUS DECISIONS IN AN INCREASINGLY AMBIGUOUS ENVIRONMENT. HIGH EMOTIONAL INTELLIGENCE (EQ) – THE ABILITY TO TAP INTO OTHER PERSPECTIVES AND ENGAGE WITH DIVERGENT STAKEHOLDER INTERESTS. COURAGE – ABLE TO LEAD A BOARD IN UNCERTAIN AND COMPLEX TIMES AND HAVE COURAGE OF THEIR CONVICTION. CURIOSITY – BE TUNED INTO EXTERNAL FACTORS THAT ARE NOT USUALLY PART OF THEIR PURVIEW. A LEARNING MINDSET – BE COMFORTABLE WITH CHANGE AND DIFFERING PERSPECTIVES. Issues Chairs face towards 2025 DEMAND FOR DIGITAL/TECHNOLOGY UNDERSTANDING WILL SHAPE BOARD COMPOSITION. ESG ISSUES WILL RISE IN PRIORITY – AND CLIMATE RISK WILL FEATURE MORE STRONGLY. RISK AND REGULATION WILL REMAIN AN ISSUE – AND NONFINANCIAL RISK WILL CONTINUE TO BE ELEVATED. DIVERSITY IS AN ENDURING CHALLENGE FOR BOARDS. 6 Introduction The global economy is facing an increased key factor of an exceptional NED. Since 2012, the risk of stagnation, climate change is risk focus of boards has increased substantially and with it the spotlight on NEDs has increased, striking harder and more rapidly than particularly the public profile of the Chair. And, expected, and fragmented cyberspace while thinking big is still valued, it is pragmatism, threatens the full potential of next- clear headedness and high EQ that are the characteristics needed for NEDs to take us into generation technologies — all while 2025. citizens worldwide protest political and economic conditions and voice concerns What does this mean for Chairs and the boards they lead? What will ‘greatness in the about systems that exacerbate inequality. boardroom’ look like in 2025? What are the The challenges before us demand global and domestic trends and events that will immediate collective action, but fractures influence the profile of a Chair in 2025 and how are Chairs resetting the boards they lead to be within the global community appear to fit for the future? only be widening. Stakeholders need to act quickly and with purpose within an Korn Ferry interviewed Chairs of our most prominent organisations and other leaders with unsettled global landscape. a stake in future board governance, among them World Economic Forum, Global Risks Report, many who hold leadership roles in Australia’s 2020.1 largest superannuation industry funds along with the increasingly influential proxy advisers. As the world reels from the impact of Covid-19 We discussed the key challenges now and in and economies are being restructured at pace, the future that are shaping board effectiveness, the Chairs of Australia’s leading companies composition and the skills and experience of are reacting to the crisis while ensuring the Chairs and NEDs. companies they serve have resilience and strength for the future. The Chair of the Future – Towards 2025 is a resource for boards, executive teams, investors It is clear that Chairs and the boards they lead and others with a stake in board quality. face challenging headwinds. When defining the scope of this research, which is to learn the skills, experiences and attributes of the Chair of the Tim Nelson future, the full risk of coronavirus wasn’t known. Chief Executive Officer Understanding the impact of the virus coincided Korn Ferry, Australasia with the timing of our interviews and has served Alexandra Goodfellow to sharply focus this research through the lens of risk and ambiguity. Vice Chair Korn Ferry, Australasia In 2012, Korn Ferry conducted research on the theme of greatness in the boardroom. Then, the highest ranked characteristic of exceptional NEDs (76%) was that they should be a big picture thinker. Just 30% of interviewees nominated a deeper understanding of risk as the 1 https://www.weforum.org/reports/the-global-risks-report-2020. 7 The Chair of the future – from 2020 to 2025. It’s a changed world from what we’ve known for they serve equipped to manage an uncertain the last, say 20-30 years. It’s more difficult to and potentially erratic future. have long-term strategies, therefore companies need a culture of real agility so that as Chair, Some current features of board oversight will when you’re not quite sure what’s coming over amplify as we journey towards 2025. They will the horizon, you are still able to respond. And provide both challenges and opportunities for you need to be confident that your company Chairs and, depending how companies manage has people with the ability to respond in an each, will reveal strengths and weaknesses appropriate way. at board level. Sir Rod Eddington noted – Gordon Cairns the breadth of the role: “It would be all but impossible to find a Chair who is experienced in Asking Chairs to look forward five years may, in financials as well as all aspects of the business.” usual times, be a reasonable period to forecast, but in the time of Covid-19 this is proving to be The foundational skills of a Chair will remain, impossible. As one Chair noted: “Anyone who however our interviewees agreed that the long- tells you they know what’s going to happen, term impact of Covid-19 will be keenly felt and doesn’t. Nobody knows.” will influence the composition of boards and the attributes of the Chairs who lead them. It is clear Covid-19 has been a formidable disruptor, that boards require a strong leader who thrives however predicting five-year cycles with any in an ambiguous environment. The Chair of the certainty is difficult in ‘normal’ times. Businesses future needs to possess a learning mindset, operate in an environment of continuous resilience, agility, high EQ, courage and curiosity transformation making it challenging at any to guide their boards towards 2025. time to set the business model and strategy for five years. Most are continuously reviewing their The bottom line, as a Chair and with your strategy and in this time of Covid-19, they have board, is that you have to have the courage had to become very comfortable working in of your convictions. There are many interests changing market conditions. The ‘new normal’ with different perspectives. There are many is that there is no ‘new normal’. The ability to stakeholders as well as shareholders. Therefore, deal with ambiguity, to be agile and resilient has you have to be persuasive with your arguments, quickly escalated to the top of the skills and which means being absolutely convinced of characteristics required of Chairs and NEDs. your position – that is the courage of conviction I’m talking about. I think the future is likely to be very different – Catherine Livingstone to the past. There will be need for careful Chairs of the future will be multi-dimensional in rethinking of strategy, together with an agile their approach. They will be equally comfortable and continual review approach to strategy. applying a conservative regulatory mindset to This will need the involvement of experienced risk as they are at recognising and supporting people with sufficient thought capacity to technology-enabled innovation. really understand the shape of the future business, in addition to understanding the cultural and governance issues. – Rick Holliday-Smith While our interviewees could not with certainty consider the specifics of market forces they expect their companies to face in 2025, they did discuss what makes boards and the companies 8 I think the best Chair has a good idea of the us because the growth of technology is strategy and success factors of the business.