Growing number of challenges for modern chief executives

The reality is CEOs now have to walk a fine line, being as aware of ESG issues as they are the bottom line.

The intense discussion around the gender pay gap – company by company – this week is yet another example of the array of ­issues the modern chief executive is expected to deal with.

While the main challenge of a CEO is to run their company, the widespread media coverage of the gender pay gap report by the Workplace Gender Equality Agency – and the naming and shaming of individual companies – shows that company executives of listed companies are now tasked with delivering a lot more than just the bottom line, or even complying with the law in areas such as equal pay.

While former Commonwealth Bank chief executive David Murray has hit out at “woke” boards being responsible for having their CEOs deal with a broad range of social issues, the reality is CEOs now have to walk a fine line, being as aware of “ESG” issues as the bottom line.

Changing social expectations are being reflected in increasing legal requirements on companies, with the laws affecting corporations now going a lot further than traditional occupational health and safety requirements.

The WGEA report itself is the result of legal requirements on companies to answer WGEA questions on the gender pay gap in their organisations.

While there is no legal requirement for companies to have an equal amount spent on the payment of men and women, the fact that the effect of “naming and shaming” in itself has power is a reflection of changing social expectations beyond the letter of the law.

A2 Milk’s New Zealand-based chief executive, David Bortolussi, who found his company at the top of the list of ASX 200 companies with the largest gender pay gap for its Australian operations in the WGEA report, did not shy aware from the pressure in an interview with the ABC’s 7.30 program.

“We have so many stakeholders in business now,” he said.

“It is not just about selling products and making money for our shareholders. We have so many responsibilities to our team, in terms of diversity and inclusion, we have incredible responsibilities to our planet and the sustainability objectives as well.

“Managing a public company, or indeed any organisation, there are so many stakeholders that you have regard to in developing your business.

“We place as much emphasis as we can on all these areas as well as performing the core part of the business, which is the provision of nutritional products to our consumers.”

Bortolussi was being pragmatic, spelling out the fact of life for the CEO of a listed company these days – not just in Australia, but globally, or at least in developed countries with a robust media.

The environment is another area where companies are under stricter government-mandated controls.

From later this year, the big Australian companies and organisations such as superannuation funds are facing stricter reporting requirements on their carbon emissions under laws passed by federal parliament last year.

The requirements will expand over the next few years to a broader range of smaller organisations, including not-for-profits.

The requirements are in line with the practice in other developed countries around the world.

The pressure on the former senior executive and directors of mining giant Rio Tinto over the destruction of Juukan George shows how senior management of companies needs to be aware of a much broader range of stakeholders than just shareholders.

A2 Milk CEO David Bortolussi. Picture: Britta Campion

ASX-listed companies are subject to a range of reporting requirements around issues set out in Corporate Governance Principles and Recommendations that date back to 2002.

Overshadowed in all the publicity about the gender pay gap report was the release of a draft from the ASX Corporate Governance Council for the fifth edition of the Principles and Recommendations that will come into force next year.

These cover disclosure of board skills and diversity, a list of the company’s “key stakeholders” and how it engages with them, as well as issues around corporate pay and disclosure of material risks.

Releasing the draft proposals this week, ASX Corporate Gov­ern­ance Council chair Elizabeth Johnstone said the changes incorporated into the fifth edition “take into account developments in public policy and regulation, and evolving community expectations”.

Listed companies that do not want to report on these issues are still required to explain why not.

At the same time, investors around the world – including the big industry superannuation funds – are using their power as shareholders to put additional pressure on companies around ESG issues: from the environment to their policies on the hiring of women and minorities.

Resolutions around what companies are doing to address climate change are becoming more frequent at annual meetings, while some super funds are threatening to use their voting power to vote against the election of directors if they feel the company is not doing enough to hire more women or have more women on their boards.

While the pendulum has swung a long way from the days when Murray ran the government-owned Commonwealth Bank, with broader social issues now a part of the daily life of a CEO, the importance of drawing the line on what issues a CEO becomes involved in, particularly in public, are still important.

The line may have moved, but the risks are still high for those CEOs who get it wrong, as Brad Banducci found out when he tried to explain Woolworths’ stance over the decision not to stock Australia Day-themed goods.

As the debate over the Indigenous voice to parliament showed, when community views are split, there are real dangers in CEOs and boards weighing into subjects that are not the direct remit of the company.

These days many companies have cut back, or even dropped, their political donations due to not wanting to get off-side with either of the main parties or alienate staff or customers who may have different political views.

But in more recent times there has been new issues of spending shareholders’ money on supporting social or political causes, which saw Wesfarmers chair Michael Chaney quizzed about his company’s $2m donation to support the voice at the company’s annual meeting last year.

Interestingly, Fortescue executive chair Andrew Forrest, who is not afraid to speak his mind, chose not to take a public stand on the issue or use his company’s funds to back a side in that debate.