Boards focus on the big issues of 2022

A group of the nation’s top directors gathered to discuss the big issues they confront, ranging from Covid to climate change, and the economy to cyber risk.

Directors say cyber risks have increased during the pandemic. Generally boards are optimistic about 2022 but see significant challenges for companies.

Participants in the Australian Institute of Company Directors roundtable:

Richard Gluyas – moderator, The Australian

■Neil Chatfield – chairman of Aristocrat Leisure and Costa Group

■Patricia Cross – non-executive director of Transurban, Aviva and Future Fund Board of Guardians

■Janette Kendall – non-executive director of Vicinity Centres, Tabcorp and Costa Group

■Michael Ullmer – chairman of Lendlease and European Australian Business Council member

■Nicola Wakefield Evans – non-executive director of Viva Energy Australia, Metlife Australia, Lendlease, Macquarie Group, AICD and Clean Energy Finance Corporation. Also 30% Club Australia chairman

■Angus Armour – AICD managing director and CEO and European Australian Business Council member

How do you see the economic outlook for 2022?

NC: I think it’s clear that balance sheets for both personal and corporates are in very, very good shape. There‘s still a fair bit of stimulus sort of flopping around the economy. And there’s a pent-up demand for investment by corporates and spending by individuals. So I think the settings, at least in the short to two-year time frame, are pretty strong. But I think it has to be tempered by the fact that we’ve still got uncertainty with Covid, both in this country and offshore. And we have continuing supply chain pressures.

PC: I’d say I’m also optimistic in the short term. But I think longer term, there are plenty of things that we could worry about. I‘m especially worried about how tighter monetary policy is implemented, especially here, because there is the possibility of a policy misfire with the Reserve Bank very focused on wage growth and not really looking at other things that are inflationary indicators. So we could be too late. I’m especially optimistic in Australia, but I think there’s just a lot of things that we can’t lose sight of. And if things really went the wrong way, you could find yourself in a stagflationary environment.

What is the thing that most concerns you about the outlook?

JK: What concerns me most is if we go back into lockdown, and if there’s some other variant and the vaccines don’t stand up against it.

What’s on the top of your wish list in terms of policies in the election?

NWE: I’d like to see a lot more bipartisanship at the political level, and that goes for the federal government and the state governments. The thing I worry about is that we’ve seen a splintering for the first time in about 120 years of our federation. The shutdowns I think have not been handled well at that bipartisan political level … and we’re going to pay for that.

The national cabinet seemed to work quite cohesively in the early stages.

NWE: It did, and then I think politics got in the way. And you’re right, the national cabinet was a fantastic idea by Scott Morrison and his government, but then they allowed themselves to politicise it, and that’s where it fell away. And I think part of it was, we didn’t think early in Covid that we would still be here nearly two years later dealing with the impact of Covid, so I think there wasn’t that long-term thinking around how to stabilise the economy, how to handle the shutdowns. No one was really thinking about this whole question of border closure, which I think’s been very damaging to our federalism.

JK: At the top of my wishlist is increasing women’s participation in the workforce. I think we’re just grappling with where the skills shortages are as we’re transitioning to a new economy, and the two go together, increasing women’s participation in the workforce, which also picks up on Neil’s point on universities, as well, and education, and how we rapidly accelerate the skills that we need for the new economy. It’s shameful that we’re still talking about women’s participation in the workforce, we’re still talking about childcare and the need to address that issue for both working parents, and the solution is staring at us in place. We know what the positive economic impact of that is, and wouldn’t it be wonderful if this election actually delivered some significant reforms?

NC: I just think that if we want governments to be about leadership and confidence, then we need clear majorities and not these splintered groups. Unless we’ve got leadership and confidence, I think politics doesn’t work at all.

NWE: I take a different view. I actually think what’s happening with the rise in independents is a real maturity in Australian voters, because it seems everybody is fed up with the two main political parties and the rise of independents is a sign of that. The other thing I would observe is that most of the independents are women, and most of the independent candidates you would think in normal circumstances would be Liberal candidates. Part of what is happening is that the Coalition has ostracised women. We know the issues that the Liberal Party has with women. They don’t have enough women in parliament, both at state and federal levels. Maybe we need to go through a couple of cycles for the reform to occur.

AA: I’d like to use a practical policy example. Climate change is an area where business has been focused for a very long time. It’s an area where the institute on behalf of directors expressed concern, talking to both sides of politics about the need for substantive policy and preferably, as Nicola would say, bipartisan policy position. So we have a sense of a 10-year horizon and can invest accordingly. But business has been leading on this issue for a long time and we all welcome the 2050 bipartisan support, but there’s a lot of detail still to work through. We would like to see in the next election an outcome so business, and the community generally, have confidence that we have a path to 2030 and 2050.

What about cyber risk with the massive switch to digital during Covid?

JK: We really did see a heightened cyber risk in Covid. We’ve seen cyber crime rates accelerate rapidly. We’ve seen very specifically targeted industries, such as medical. I think everyone on this call would be seeing reports of constant attacks on systems, which has meant increased focus on that risk, how we manage it, how we harden our digital assets.

Have the defences been sophisticated and they’ve been penetrated anyway, or are these companies falling short of best practice?

NWE: I think it’s a combination. Those that have suffered, you find vulnerabilities that you maybe didn’t think you had. So you’ve got to look at training your workforce in things like not clicking on links in emails. Some companies now have zero tolerance for clicking on anything, unless you’ve checked it first. There’s a lot of companies that are doing some quite sophisticated things around protecting their workforce. With one of my (boards), we’ve decided that we need to train our entire workforce from the board down as a life skill, because cyber intrudes on our lives in a personal and professional sense. It doesn’t matter what level you are, it doesn’t matter what job you have, cyber actually is everywhere, and you’ve got to have the skills to be able to protect yourself both personally at home, but also carry those skills into your professional life.

MU: There’s been just a relentless increase in the exposures here, but particularly around probably two key areas. One is the increasing use of things like software as a service so that attack allows it to go out to a whole range of the users. And then the other one is the extent to which computer systems between people in supply chains are linked. You have these linkages, so you may have all of the controls within your own environment, but you’ve got an exposure because one of your suppliers or one of your customers who’s linked to you has a failing, and then that failing can find its way into your system.

Should vaccinations be mandated?

NWE: I think we should have vaccination mandates for a couple of reasons. We know that the vaccinations work. We’re seeing that now because we’ve got high vaccination rates. So even though we’ve still got cases, we don’t have the high rate of hospitalisations. So vaccination helps to keep your viral load low. You’ve got less chance of either catching it or passing it on. If you get it, you won’t be as sick. So that’s the first thing. The second thing is it‘s a safety issue in my view for big organisations and interestingly, Australian organisations, public and private, for a long time have enabled their workforce to get the annual flu shot, which has proved incredibly effective in keeping flu rates low in this country.

PC: I agree. It‘s a personal view, but I’m very pro-vaccination, for everything. The issue is not so much about the 5 per cent unvaccinated; it’s about the 95 per cent-plus that are vaccinated. Everyone has a right to feel safe in their workplace and these people that have taken the route to vaccination have done so because they’re concerned about trying to mitigate the prospect of Covid, and if they’re sitting among people that haven’t been vaccinated, it just doesn’t feel quite fair.

Are you confident that we’ve gone past the stage now where we automatically lock down if we’re confronted with a new variant?

PC: Well, no, sadly I’m not. I mean, throw me in the loony bin if we get locked down again. But I think that we recognised that there was an asymmetric return profile between the federal government and the state governments on the lockdowns, especially in the first stages where there was JobKeeper. So the states had no incentive politically not to lock down.

RG: Was serious progress made at the Glasgow climate summit?

MU: I think what you have to do is look at the direction or shifts that occur, and the thing I would focus on is the specific reference to coal in the statement at the end, which is a first. The acknowledgment of preserving ecosystems, which is already getting some pushback, but that has wide ramifications in many parts of the world. Also, progress on implementing an international carbon trading scheme and the whole framework that would go behind that. The bilateral announcement by the US and China were quite significant, as was the fact that all parties have to renew their 2030 commitments during the course of the next year. I think that may be what the Morrison government is keeping its powder dry for.

NC: Sometimes we want to think these events change everything the day after. And I agree with Michael, this is an ongoing kind of discussion … you’ve got developing countries, you’ve got developed countries. To me, it’s an evolution and we’ll always get situations where people go, oh, it’s too slow. Or others saying, hang on, we need to pull it back a bit.

Trillions of dollars will also be required in Australia. Can we fund it?

NWE: I’m very confident that we’ll be able to afford the money we have to spend, because I think there’s considerable upside. And every stage we’ve gone through in this transition so far, prices have come down much faster, hugely faster than anybody anticipated. I think in five years time, there’ll be companies listed on the ASX that aren’t in existence today.

PC: It’s a fantastic investment opportunity, not just for the likes of Macquarie Bank, but for our superannuation funds, for the Future Fund. There’s going to be incredible growth and opportunity. And I think it’s going to be a win-win at all ends of the investment spectrum.

JK: The debate on climate, and this may seem like a long bow to draw, seems quite analogous to the debate and resistance in about 1996 to the transformation to a digital world. There were such strong arguments against that transformation and the need to protect legacy businesses. We had the same resistance and arguments about climate change as well. And seeing it as a cost, as opposed to an opportunity. I’m not suggesting for one minute that the transitions are simple or easy, but whenever we’re faced with significant change, there’s a lot of resistance and opposition.

The perception that Australia is a laggard on climate gets highlighted when the Prime Minister is isolated at multilateral conferences. Is that a concern to business, when there’s talk of measures like carbon border taxes?

NWE: I think we are worried, definitely worried, that that is a possibility. And the problem is that the federal government has not had a unified climate policy and energy policy for some time. The state governments have actually stepped up, almost all of them, and have been incredibly successful, as has business, as has other parts of the economy, including households. But we have another risk which I’m very concerned about, and that is our infrastructure has not kept pace with the big move into renewable energy. So we’re going to have distribution problems. And the federal government is responsible for part of it. State governments are responsible for part of it. And because the federal government has been just unable to come up with a comprehensive, cohesive energy plan, nothing‘s happening. And it takes a long time to get the infrastructure off the ground. I think that‘s the concern that business has, being targeted by foreign governments.