As highlighted in our recent note, “2021: Leadership Is Up for Examination”, it would appear that we are on track with that theme. We are already witnessing federal politicians deny the prospect of an early election, well-known Boards making wholesale changes and sporting organisations seeking new blood – all this within weeks of the new year.

In the calendar year of 2020, there were 69 Chair and 72 CEO appointments in the ASX. We expect 2021 will be very busy for our Board Practice.

Delayed decisions from last year are now coming forward and the demand for senior executive talent has picked up noticeably. There are a number of Directors who have indicated that they are reasonably exhausted by the last 15 months and will be potentially moving on. There will also be a considerable number of CEOs seeking early retirement after keeping the ship afloat.

This provides both opportunities and concerns for the Chair.

Chief executives are certainly taking and returning calls. Organisations have weathered the storm, are keen to move their business forward and are now scanning the market to examine other leadership options. Those that have led the organisation for the last twelve months may not be those to take you on the next part of the journey. As such, there is a higher than usual number of discussions being held and the cadence is above that of a “normal year”.

There is also another element which is not being mentioned: What has been learnt by all parties in the Boardroom over the Covid-19 period? In our conversations with a large number of CEOs over the years, there is real concern about capability in the Boardroom and area of focus. As noted in our paper, The Challenges of Attaining Growth, a high percentage were concerned by the emergence of the “New Professional Director with limited leadership, P&L, or relevant industry or adjacent industry experience” and noted the rise of this “corporate governance Director”. Comments from CEOs include, “We spend too much of our time as an executive on educating the Board about our business, that the corporate governance Directors are moderating the risk appetite of Boards and are overly focused on individual reputation management.”

In the last six months, we followed up on these thoughts and found that for many CEOs, it had only been reinforced, with a number posing the question surrounding the role of Board Directors during difficult times, unable to offer needed counsel when businesses at times were and still are facing some challenging decision points. There was a consistent theme that “real experience” is needed and that few Board Directors bring that to meetings. As captured in this comment from an ASX 100 CEO, “I am not sure why we spend an inordinate amount of time on fundamental governance when ‘Rome is burning.’ The weight of focus is out of kilter. A cynic might say when you have not much else to offer then we spend time justifying our existence. Whilst harsh, the unspoken reality is that big and important decisions have to be made, not what colour is the shed on page 85, paragraph 6 in our Board pack.” In the same spirit, an ASX 50 CEO said, “Start from the top and go down ASX 200 and review the backgrounds of the Board Directors. Some are outstanding but there are far too many who bring little besides an AICD accreditation and will argue they are up to date on governance. We seriously have to challenge this. It is difficult to participate effectively in Board meetings when we waste an enormous amount of time with people who have never been an executive, an entrepreneur or, speaking harshly, have anything to really offer. If you went on to survey all the CEOs and asked some tough questions without the politically correct rhetoric, I think you will be very disappointed with the answers you receive. I believe that the majority of CEOs are underwhelmed. I struggle to find value to a company’s executive team when some Board Directors wouldn’t have been good enough to report two levels below. It is staggering to watch how this has been supported. Under pressure, particularly the last 12 months, these Directors have little to offer and leave it to the few to carry the load. We have generated a mindset that one has the right to be an NED. No, you have to earn it and an AICD programme isn’t, in my view, the ticket in.”

Another dominant point expressed by CEOs was the need to place greater emphasis on the technology front, whether it be cyber, data or digital. Many felt there was not enough consideration given in this area. CEOs praised the dedication of the Directors recognising the enormous amount of work undertaken over the last twelve months but stressed that the period had brought home some concerning gaps.

In our discussions with Chairs over the last few months, many felt that the recent period had highlighted some of these points flagged above and that all-around business experience was very much at the forefront of their current thinking in future appointments. Governance and risk are certainly critical but a number of Chairs felt the role of the Director “is becoming a senior governance executive and that weightings of experience should be reconsidered.” Others were more vocal, expressing a genuine concern that “Boards are there to hire and fire the CEO, to ensure the strategy is executed and that there are returns for shareholders to be achieved.” ESG was highlighted as a key theme that is rapidly evolving. The matter of CEO and executive retention programmes is also very much at the forefront of thinking, particularly as shares prices have been volatile and for some, they have gone underwater at no fault of their own.

There have been a number of CEO and Executive departures without obvious internal replacements highlighting the focus on CEO succession planning: how well organisations have groomed their internals and how well the Board is engaged with the broader market to understand external capability. There have been a number of CFOs and Directors in the last period move into the CEO role. The question arises now that markets are moving upward and vaccines are being released globally, “Do organisations have the right person in charge to accelerate the organisation out of the recent tough times?” CFOs historically have been well suited as CEOs during times of slowdown and Directors moving into CEO roles have had mixed success, both are general historical reference points. The concern is that there is a genuine lack of information for Chairs and Heads of Nomination Committees as to what other potential is in the market.

Over the last six months, we have been engaged to undertake CEO succession planning exercises with a number of Boards and are surprised by how few have a methodology in place in case of the proverbial bus or poor performance. Again, to highlight what they have not realised, there are a large number of discussions being had and CEOs and executive team members are taking calls.

As we previously stressed, the last 15 months have impacted everyone and for many parts of the world, including Australia, we have fought COVID-19 as if at war. In fact, the United States has already lost more people to COVID-19 than it did in the entirety of WW2. We are mindful of potential increases in unemployment, future inflation and the shortage of international talent. However, for the short term, one only needs to open a history book to look at what happened after the war. The western world exploded with innovation, improving lives as the new era commenced. History often repeats itself and as such, we believe Governments around the world will invest, Private Equity will seize opportunities and companies will rise. Consequently, the demand for good Board Directors, CEOs and Executives will be high. This trend will be global, and with the introduction of vaccines, we are on the cusp of seismic change.

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