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Back to Global Corporate Governance Trends for 2024
Heightened demands on Australian directors
2024 is expected to be another demanding year for Australian boards and their directors, as more than 10% of ASX 300 businesses received a vote against their remuneration report last year—the largest proportion since this legislation was introduced more than a decade ago. It reflects investors’ dissatisfaction with a range of matters, some of which are not even directly associated with remuneration. In 2023, shareholders of Qantas Airways rejected the company’s remuneration plan (with a near-record 82.9% in opposition) after a series of scandals. The Quantas vote was as much about shareholders wanting to make a statement on their dissatisfaction with the brand damage inflicted on the business and to force changes to the board as it was about executive compensation. To add to the pressure on directors, there has been notable complexity regarding market M&A activity and a resurgence in activist shareholder attacks. The boards of Endeavour, AGL, Origin, Magellan, Link, Newcrest and Invocare all wrestled with muscular shareholders or aggressive acquisition approaches.
Increasing regulatory requirements continue
The introduction of the Workplace Gender Equality Agency (WGEA) is a meaningful change to how boards are held accountable for equity in their businesses. Beyond the additional reporting requirements—which will inevitably lead to some businesses being exposed for their poor equality practices—the organization’s powers to investigate and enforce compliance with existing legislation is a significant change. Understandably, this is leading to an increased focus in the boardroom on issues around sexual harassment policies, workforce composition, and pay – with the burden for this work typically falling on remuneration committees. Furthermore, boards are also needing to prepare for the introduction of increased reporting requirements in 2024 / 2025 around climate change and carbon emissions. Boards will be required to use the disclosure framework recommended by the Taskforce on Climate Related Financial Disclosures (TCFD), addressing governance, strategy, risk management, targets, and metrics. This will then transition to reflect the climate disclosure standards currently being developed by the International Sustainability Standards Board.
Carbon transition planning intensifies
Investors have a heightened interest in organizations’ carbon transition plans and see this as the first step in ensuring that businesses are managing their risk appropriately. As one institutional investor put it, “Once we get disclosure, pressure will further increase. Transition frameworks and industry transition roadmaps are more readily available now, so it is getting easier to benchmark against others.” But it is not just shareholders requiring action from businesses. All four major banks are now expecting major emitters to present “credible energy transition” plans by late 2025 if they want to remain serviced by the industry. These requirements are creating a new area of focus for the board and a mixed approach to managing the workload. Most are keeping it as a main board responsibility, with a minority delegating it to an ESG committee (or similar). While investors and proxy advisors want to see concrete action on climate change, there is less consensus on how management should be incentivized.
Opposition to including non-financial metrics in LTI plans has been softening, and there are now 12 ASX 200 businesses with ESG measures in their long-term incentives. Nevertheless, Institutional Shareholder Services (ISS) have raised concerns about the weakening of hard financial measures in the major banks’ LTI plans. This leaves the remuneration committees of Australia’s largest businesses with the challenge of balancing these seemingly incompatible demands.
Diversity focus moves away from gender
With women making up almost half of the board appointments to ASX 300 boards over the last two years, and holding 35% of these boards’ NED roles, board gender diversity is being seen as less of an issue for most businesses (executive team gender diversity does, however, remain a concern for investors, and companies should expect this to continue as a focus through 2024.) While the outliers on board gender diversity will feel increasing pressure, investors are switching their focus to different forms of diversity, with a genuine desire to see a broader range of perspectives around the board table. Consensus is forming around the AICD’s and 30% Clubs’ objective of securing 40/40/20 (40% men/40% women/20% of any gender) representation. However, with 90% of NEDs of ASX 300 businesses being Anglo-Celtic, investors are applying pressure to see broader ethnic diversity better reflecting businesses’ customer bases and operational footprint. The AICD recently made the point clear:
“Boards need to reflect Australian society because their organizations don’t just represent shareholders – they also represent end customers and clients of these companies. Therefore, it’s not acceptable for boards to be stacked with overwhelmingly white, straight and upper-middle class people while overlooking the many talented diverse people in our community. There is enough data to show diversity at all levels of leadership improves business performance – and accountability – now we need to see boards become more representative of our diverse society.”