Directors deterred from taking up roles and pessimism growing
Directors are more likely to be deterred from taking up roles than 12 months ago, the Institute of Directors’ (IoD) and ASB’s 2019 Director Sentiment Survey has found. The annual survey takes the pulse of the New Zealand governance community and this year included a focus on board leadership and organisational culture.
The annual survey found that 40% of directors are more likely to be deterred from taking a governance role than a year ago, up from 33% in 2018.
IoD Governance Leadership Centre General Manager Felicity Caird says this is as a result of an increasing trend of laws and regulations extending director responsibility and liability.
“This trend is deeply concerning – not least because the survey also indicates that directors are seeing some challenges for our economic climate. Directors play an important role in helping organisations set direction and navigate – and this is particularly important in complex times.
“And while accountability is critical to corporate governance, and directors’ personal liability has its place, care is needed to ensure that honest and diligent directors are not unfairly prejudiced.”
Economic concerns
The survey also found that 55 percent of directors expect the country’s economic environment to weaken over the next 12 months. Only 11 percent of directors expect New Zealand’s economic outlook to improve.
ASB Chief Economist Nick Tuffley says the reasons for this pessimism are multi-faceted.
“Global growth is losing momentum and global headlines are providing a steady diet of a skewed and chaotic global picture. Having said that, New Zealand’s export sectors are generally riding high and are one of the brighter spots in the economy.
“Other likely considerations for directors will be the government’s policy direction, as well as its ability to deliver in a timely manner. A number of government policies are yet to be finalised, leaving some uncertainty about the finer details.”
Culture
Boards’ roles in overseeing culture has been under the spotlight in several reviews in New Zealand and Australia, including the FMA/RBNZ banking and life insurer review released early this year.
The survey found a majority of directors (77%) were monitoring and regularly discussing the culture of their organisations. However, only 43% received comprehensive reporting (down from 46% last year), Ms Caird said.
“All boards need to ensure robust monitoring of organisational culture and conduct, and that the right processes are in place for potential issues to be raised. This includes ensuring there are effective Speak Up provisions and whistleblowing systems in place.”
Climate change
The survey found an upward trend in boards engaged on climate change over the last three years. However, still only 35% of directors said their boards were engaged and proactive on climate change.
“While 70% of directors agree their board considers environmental and social risks are very important to their business, all boards should ensure they are aware of potential impact that climate change could have on their organisations.”
A legal opinion released by the Aotearoa Circle Sustainable Finance Forum on 31 October said “directors of New Zealand companies are generally permitted, and will in many contexts be required, to take climate change into account when making business decisions” — a requirement which stems principally from directors’ duty to act with reasonable care.
The online survey of IoD members from mid-September to early October had 955 responses.