By Leo d’Angelo Fisher

When Catherine Livingstone FCA became Commonwealth Bank of Australia (CBA) chairperson in January, she would have been well aware that she had a tough year ahead. The leviathan bank was already battling the reputational fallout of damaging financial planning and life insurance scandals, and the nation’s biggest bank had cultural, systemic and management weaknesses that were clearly out of control. 

Livingstone, who was appointed to the CBA board in 2016, went in with her eyes open. One of Australia’s most respected business figures – she is a former Australian Financial Review Business Person of the Year and former president of the Business Council of Australia – Livingstone has been chairman of Telstra and the CSIRO. Prior to starting her career as a company director, she was CEO of medical device company Cochlear.

But Livingstone could not have anticipated the latest cataclysm to befall CBA: a massive Federal Court case brought against the bank by financial intelligence agency AUSTRAC for “serious and systemic” breaches of anti-money laundering and terrorism financing laws. The agency claims the bank failed to report 53,700 suspicious transactions between 2012 and 2015. Those allegations expose the bank to penalties in the billions of dollars.

Livingstone wasted no time in asserting the board’s authority. The board cancelled short-term bonuses for bank executives and cut directors’ fees by 20% as an act of “collective responsibility”. CEO of CBA Ian Narev’s annual remuneration for 2016-17 was reduced from A$8.8m to A$5.7m. 

(Pictured: Catherine Livingstone FCA)

The board also established a sub-committee to investigate the money-laundering blunder, sending a clear message that any executive and structural shortcomings will be found and dealt with. 

Most significantly of all, Livingstone announced that Narev, CEO since 2011, would “retire” by end of the 2018 financial year. The chairman insists the announcement is a matter of the bank’s “succession process” and affirms that “we have full confidence in Ian as CEO”. The market, of course, was free to speculate on the timing and significance of the announcement.

It was a deft performance by the CBA board under Livingstone’s leadership, at a time when boards are often criticised for responding – if at all – to executive dysfunction with a tin ear, defensive posturing or half-measures. And very often with a generous bonus.

Livingstone is not one for seeking out gratuitous media attention. In stepping into the limelight it was to restore market and consumer confidence in a bank that, despite a just-announced 2016-17 after-tax profit of A$9.93b, is troubled.  

It was a textbook case of a board exercising its governance mandate. In doing so, it sent a message that was as much for internal consumption as it was to external stakeholders: in the event of further dysfunction, this is a board that will act.

The role of board chairman carries considerable weight, in part because incumbents have usually enjoyed prominent careers as company CEOs. Just how high a profile a chairman seeks is often a matter for the individual, but for the most part with elevation to the chairman’s suite comes a desire to remain behind the scenes.

Should we not worry about ethical supply chains? Are we overstepping the mark when we raise money for charity? Of course not.

Leigh Clifford, mining industry doyen and former CEO of Rio Tinto, was appointed chairman of Qantas in 2007. He came into the role with a clear view of what his approach to the position would be.

“Public companies are very demanding on a whole range of issues,” he says. “I came to the role having thought about it. My view was, if I’m going to be a non-executive [chairman], it’s management’s job to run things and my job to hold them accountable.”

After 37 years at Rio Tinto, including CEO of the company from 2000 to 2007, Clifford also decided that his time as a front man was over. “I was very conscious that I didn’t want to fight for the microphone. I didn’t want to compete with the CEO for the microphone. The CEO should be the spokesman,” he says. But that does not mean he has taken a vow of silence.

Earlier this year, when Sydney Catholic Archbishop Anthony Fisher criticised Qantas CEO Alan Joyce for speaking out in support of marriage equality, Clifford wrote a letter to The Australian newspaper as Qantas chairman supporting his CEO. In the process, he set new parameters for social engagement for the corporate sector.

“Apparently, companies have no business expressing a view on social issues; they should focus purely on delivering a service and making money for shareholders,” he wrote. “By this logic, should companies scrap all of their corporate social responsibility programmes? Should we not worry about ethical supply chains? Are we overstepping the mark when we raise money for charity? Of course not.

“And nor should we be expected to be silent on what is a basic civil rights issue.” It might have seemed other-worldly for a blue-chip company chairman to be straying into such contentious social or political issues, but the remit of the company director is no longer limited to balance sheets, mergers and acquisitions and a company’s strategy and direction. As companies and the environments in which they operate become more complex, so too do the issues placed before directors. 

(Pictured: Julie McKay)

Julie McKay, chief diversity and inclusion officer at PwC Australia, is responsible for implementing “world-leading inclusion strategies” at PwC and supporting clients seeking to benefit from more diverse and inclusive workplaces. 

Diversity and inclusion, she says, should be seen as board priorities. McKay laments the lack of progress in many companies despite policies and programmes aimed at tackling the issues.

Diversity of itself, she says, is not enough. “Getting a diverse group of people in an organisation doesn’t necessarily deliver benefits,” she says. It’s inclusion that makes the crucial difference, “ensuring people feel part of the team, feel valued and feel safe to be their own selves”.

The culprit, McKay believes, is a “tick the box” approach to the issue. It’s an attitude she finds difficult to fathom. “As a major employer it’s your responsibility to attract the best talent and the best talent is diverse,” she says.

“Equity should be enough [to ensure diversity and inclusion] but I’ve hardened to the view that it’s important to make the business case and there is a wealth of information available that shows that diversity leads to high performance.” McKay says there are “inherent risks” to organisations that don’t pursue diversity and inclusion. 

“The younger generation is baffled by the way people [in the workplace] are treated. Millennials coming through the organisation demand to see themselves in and throughout the organisation.” PwC research shows that 82% of female millennials consider policies on diversity, equality and workforce inclusion when choosing an employer. It is a message McKay drives home when she meets with company boards.  

Creating a "board skills matrix"

“I would challenge any board that doesn’t see this as an issue for them,” she says. A forum held by Governance Institute of Australia in Sydney recently addressed how a “board skills matrix” can identify gaps in skills or competencies that can be addressed in future director appointments.

A panel of governance professionals stressed the importance of an organisation being able to utilise the skills of its board to execute strategy and manage risk. “Creating a board skills matrix provides a company with a defendable and visible process of evaluating what each director brings to the board and how those skills assist the organisation achieve its purpose,” the institute explains. 

“Importantly, a skills matrix brings clarity about the skills an organisation has and allows it to plan how it will fill any skills gaps by either bringing those skills in from outside or utilising the skills of management.”  

In addition to subject matter experience, industry and sector knowledge and geographic experience, new skills highlighted at the forum included digital expertise and “soft skills” such as shared values and a sense of collegiality. Organisations should review their board skills matrix annually or when there is a change in the board or strategy. 

(Pictured: Kirsten Patterson)

Institute of Directors in New Zealand CEO Kirsten Patterson says changes in business need to be reflected in the boardroom. “The challenges of disruption and the modern world call for modern and diverse boardrooms,” she says. 

“Key skills required of directors are emerging now that were not there five years ago, with cyber skills being one of them, increasing the scope of risk oversight.” Patterson says there is also more expectation, especially from institutional investors, that boards must play an increasingly meaningful and prominent role in shareholder engagement that extends beyond general meetings. 

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Leo D’Angelo Fisher is a journalist, author and commentator.

Photographs: Louie Douvis / James Brickwood / Sarah Marshall.