Board Monitor Australia and New Zealand 2020

Boards in Australia, New Zealand, and around the world were facing a range of competing expectations for the new members they would add in 2019.

Modern boards are expected to possess significant expertise in areas as specialized and diverse as digital transformation, corporate reputation management, and sustainability, to name just a few, and also include diversity in terms of gender, racial and ethnic background, age, and national origin, among other characteristics. This is all to improve decision making by combining board members with specific expertise with the benefits of diverse teams, which are widely seen to make better decisions.

Most boards in the 15 countries we study¹ made some progress in adding new members with diverse backgrounds and skills. Patricia McKenzie, the chair of both Essential Energy and Healthdirect Australia, explained that boards need to “take into consideration social norms that are changing in society and making sure [they] reflect them.” In Australia and New Zealand, for example, 47% of seats were filled by women for the second year in a row. James Fazzino, the chair of both Manufacturing Australia and Osteon Medical as well as a board member at Rabobank Australia, explained, “In Australia, our focus on diversity is still pretty much around gender.” But there is a sense that that focus needs to broaden: in New Zealand, Julia Hoare, deputy chair of both a2 Milk and Watercare Services as well as a member of the boards at the Port of Tauranga, Auckland International Airport, and Meridian Energy, noted that “the social piece around the New Zealand Maori and Polynesian workforce is increasingly important for New Zealand boards.” Indeed, given the recent increased focus on racial injustice and social inequality around the world, many leaders are reconsidering and accelerating their diversity and inclusion efforts, including on boards.

Many boards around the world also continued to add a number of more traditional directors. This includes people with prior board experience, though that share fell notably on Australia’s and New Zealand’s boards in 2019, to 69%, from 80% in 2018. This year’s share, though, is comparable to that in the United States, at 72%, and the United Kingdom, at 69%. Though such directors don’t as often add diversity in other areas, their experience has been particularly valued by nominating committees when companies face significant enterprise risk. On that front, boards at companies in Australia and New Zealand seemed particularly focused on financial risk and compliance experience in 2019, filling 24% of all seats with people with those backgrounds, up from 9% in 2018 and notably higher than the share in the United States, at 12%, and notably lower than the share in the United Kingdom, at 39%. Warwick Bray, a director at Spark, a New Zealand telecom company, explained that “boards need to have a stronger hold on risk and compliance than they have in the past as a result of the Royal Commission and associated failings.”

Among the characteristics of new directors we have been tracking, we note a few trends among new directors globally, which are somewhat at odds with each other.

Some progress on diversity

• Women continue to make significant gains among newly added directors compared to previous years.
• Progress on racial or ethnic, nationality, and age diversity has been disappointing, with little progress to report anywhere in the world.
• The range of functional experience on boards has increased, with a corresponding decrease in CEO experience. Digital expertise, now essentially a given on boards, trended highest. With sustainability and cybersecurity rising as central concerns for companies, boards also focused on adding experience in these areas.

A continuing preference for traditional experience

• First-time directors are still not as common as experienced ones, despite boards’ stated focus on adding new perspectives.
• Financial expertise and experience in financial services sectors remained highly sought-after backgrounds.
• Though the proportion of directors with CEO experience has continued to decline annually, it remains the most common type of prior expertise, followed by CFO experience.

Simply ensuring a board has an appropriate mix of perspectives is just the start. To be highly effective, a board must be clear on its purpose: what it stands for as an entity and whom it represents in a global society. Fazzino noted: “We spend a lot more time now talking about purpose—[though] even if we build purpose into the scorecard, our focus is still more on the financial.” Boards must also align on how they will serve as an underpinning for a purpose-driven, socially responsible organization that delivers value to a wide range of stakeholders. And boards must have a culture and processes that ensure their directors can work well together. Indeed, Bray explained that “there are two aspects to creating a successful purpose: having the purpose and then how you bring it to life.”

In 2020, with the added pressure from economic and societal volatility, fractured or dysfunctional boards present more risk than ever before. The solution is inclusion, broadly defined. As Hoare said of one of her boards: “The chairman is fostering more collaboration.” Many boards think of inclusion particularly in relation to their significant efforts to add diversity, but, as they seek to oversee recovery from a deep economic and social crisis, boards will benefit most from ensuring that every member is able to contribute fully, regardless of the board’s traditional norms or habits, varying personalities, inherent biases, or for any other reason. (For more on Heidrick & Struggles’ thinking on board dynamics, see Future-Proofing Your Board.)

Acknowledgments

Thanks to the following Heidrick & Struggles colleagues for their contributions to this report: Guy Farrow and Fergus Kiel.

In addition, Heidrick & Struggles wishes to thank Warwick Bray, board member, Spark; James Fazzino, chair, Manufacturing Australia and Osteon Medical, and board member, Rabobank Australia; Julia Hoare, deputy chair, a2 Milk and Watercare Services, and board member, Port of Tauranga, Auckland International Airport, and Meridian Energy; Patricia McKenzie, chair, Essential Energy and Healthdirect Australia; and Mark Williamson, chair, Spectris plc, for sharing their insights. Their views are personal and do not necessarily represent the views of the companies they are affiliated with.

Reference

¹ Australia, Belgium, Brazil, Canada, France, Germany, Hong Kong, Ireland, Netherlands, New Zealand, Portugal, Singapore, Spain, United Kingdom, and United States are included in our studies of boards.