Posted: 29 Mar. 2022 5 min. read

7 trends to keep on your board agenda in 2022

Beyond compliance lies values and risk

Are the last two years of pandemic disruption ending? Is there some certainty in sight? In 2022 does your organisation have the agility and resilience to meet the flow-on effects of the pandemic and associated changes in societal, regulatory and political expectations? For Australian boards it’s a time of deeper reflection in both managing risk and realising new strategic opportunities.

Throughout 2022, we will publish a series of deep dives into seven trends identified below that illustrate the critical issues directors face in delivering effective board performance in the current climate.

Climate risk

There is an increased surveillance trend in 2022 by the regulator on the accountability and underlying veracity of net zero commitment statements by directors, ASIC has stated “we continue to monitor ‘net zero’ statements… we will take regulatory action where warranted.”1 The recent adoption by New Zealand of mandatory ESG reporting is likely to flow to Australia. Increased global institutional investor expectations from COP26 reinforce the need to keep ESG risk high on the board agenda. In December 2021 the Council of Financial Regulators together with the International Sustainability Standards Board announced comprehensive global baseline of sustainability-related disclosure standards impacting boards in the next three to four years. Boards therefore need to start now in steering their organisations towards enhancing and testing their ESG responses.

Ongoing implications of COVID

In 2022 as COVID-19 will continue to disrupt, stakeholders will set increasingly high expectations of boards to mitigate the impacts of uncertainty through activities such as scenario planning. The Tennis Australia (TA) board recently found itself in the spotlight, stating, “embarking on a major international sporting event during a global pandemic that continues to evolve and challenge us all is profoundly demanding for all stakeholders.”2. Boards can learn from the complexity and unpredictability of the circumstances that confronted the TA board in addressing such issues.

The great resignation

Where, when and how we work fundamentally evolved over the last two years. In his 2022 annual letter to CEOs, BlackRock’s Larry Fink wrote, “no relationship has been changed more by the pandemic than the one between employers and employees.”3 The so-called ‘Great Resignation’ has put the psychological employment contract between employees and employers under immense pressure.4 What were once considered perks to attract and retain talent – working from home, flexible hours – are now the norm. The war for talent is real. With low unemployment and job advertising at its highest in 13 years, Australian boards need to think outside the box when setting the strategic direction of employee engagement.5

Economic volatility

The Reserve Bank of Australia expects economic growth to remain strong overall, but the journey through will have some bumps in the road, which we’ve already seen in action. In January 2022, Australia’s consumer confidence sank to a three-decade low during the Omicron outbreak, challenging the expectation of renewed consumer spending following two years of lockdown-associated savings.6 The impacts of future “shadow lockdowns” caused by evolving COVID-19 variants are unavoidable. Sustainable financial performance during the ongoing volatility will be a key focus for boards in 2022.

Cyber security

The COVID-19 pandemic saw many organisations move to remote working with speedy adoption of new technologies. To the surprise of some, productivity and profitability increased, but what we gained we also traded in exposing organisaitons to increased cyber risk. Cyberattacks and phishing scams significantly increased, in particular, targeting employee data.7 With little indication that staff working remotely will return to the office soon, greater investment in and focus on cybersecurity should be high on boards’ 2022 ‘to do list’.

The regulatory agenda

COVID-led regulatory changes including insolvency relief, continuous disclosure, and virtual AGMs are likely to continue to evolve. Whilst the proposed regulation of proxy advice has been rejected by the Senate, the ongoing influence of the global advisers on AGMs continues8. Remuneration Committee Chairs must maintain dialogue with their institutional investors through the proxy advisers. The 2022 federal election will inform policy and budgetary agendas. Boards should be looking to adapt quickly to those changes that will arise post-election.

Board and executive remuneration

In November 2021 the Australian Financial Review’s annual CEO pay survey showed an average pay increase of 24% and a 67% jump in bonuses.9 In setting their executive remuneration framework, Board Remuneration Committees will also impact on their company’s bench strength of talent against a backdrop of continued stagnant wage growth across the wider Australia workforce.10 The 2022 AGM season will test the mettle of ASX boards facing institutional investors given the last two years have resulted in both a significant escalation of pay in some cases and a significant depression in compensation with increased responsibilities in others.

Conclusion

2022 will challenge boards to navigate an increasingly complex set of circumstances. Awareness of the challenges that lie ahead and equipping themselves to respond will be critical for their organisation. Boards who take control of their narrative will not only minimise the many risks at play, but will add value to their organisation with a superior board performance.

Our first deep dive in this series on our top seven board trends on, ‘The Ongoing Impacts of COVID-19’, is coming soon.

References:
1. https://asic.gov.au/about-asic/corporate-publications/newsletters/asic-corporate-finance-update/corporate-finance-update-issue-6/#net-zero-statements-clarified
2. https://www.theguardian.com/sport/2022/jan/18/tennis-australia-board-breaks-silence-to-commend-craig-tiley-following-novak-djokovic-saga
3. https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter
4. https://www.abc.net.au/radionational/programs/this-working-life/the-pandemic-driven-great-resignation/13536416
5. https://thewest.com.au/business/economy/treasurer-confident-after-business-figures-c-4472237
6. https://www.theguardian.com/business/2022/jan/18/people-are-spooked-australias-january-consumer-confidence-sinks-to-three-decade-low-over-omicron
7. https://www2.deloitte.com/ch/en/pages/risk/articles/impact-covid-cybersecurity.html
8. https://www.abc.net.au/news/2022-02-10/proxy-advice-regulation-by-josh-frydenberg-defeated-in-senate/100819906
9. https://www.afr.com/work-and-careers/leaders/revealed-australia-s-50-highest-paid-ceos-20211117-p599rf
10. https://www.theguardian.com/commentisfree/2021/nov/18/no-wages-are-not-about-to-explode-they-are-struggling-to-keep-up-with-australias-inflation

More about the authors

Dr Ulysses Chioatto

Dr Ulysses Chioatto

Principal, Audit & Assurance

Dr. Chioatto is a governance specialist and corporate lawyer with over 25 years’ experience across various sectors in Australia and globally including extensive regulatory and legal experience and industry and consulting experience in Financial Services. Ulysses is a Fellow of the Governance Institute of Australia and considered a thought leader on governance issues including ESG and executive remuneration with both the Australian Institute of Company Directors and the Governance Institute. Ulysses has assessed governance frameworks for global company groups including long term governance, risk and compliance management advice of both Australian and foreign regulated financial institutions in Australia. He holds degrees in business and law with a doctorate in organisational behaviour, an MBA and a masters in employment law as well as his legal qualifications. Dr Chioatto is an adjunct professor in law at various Australian universities. Ulysses leads the Australian Centre for Corporate Governance, supported by the Deloitte Global Centre for Corporate Governance and its 60+ member centres, to provide best practice around the globe.

Alice Bell

Alice Bell

Senior Manager, Governance, Regulation and Conduct

Alice helps lead the Deloitte Integrity practice within Governance, Regulation and Conduct. Deloitte Integrity supports business, governments and non-profits to solve complex strategic, leadership, governance and trust issues, with a focus on environmental and social justice, particularly for Australia’s First Nations communities.