This corporate queen is right – the era of board entitlement must end

As former chairman of CSIRO, the Commonwealth Bank and Telstra, the corporate blood doesn’t come any bluer than that which flows through the veins of Catherine Livingstone. So her pronouncement-opinion that board directors should be tagged with a used-by date will ruffle the feathers of the corporate establishment.

The boards of Australia’s elite are still littered with directors who are part of an entitlement club – similarly minded seat warmers.

Six years on the board are enough, says Catherine Livingstone.

Livingstone wasn’t one of them. Her views have the heft of one who is arguably one of the most successful, hard-working, and intellectually robust directors of the past 20 years – and one with a record-setting disinterest in self-aggrandisement.

She isn’t promoting mandatory fixed terms for board members – that would be too extreme – but Livingstone clearly believes that as companies and the environment in which they operate change, so do the skill sets of those who govern them from around the board table.

Livingstone reckons six years is a pretty fair yardstick.

It wasn’t that many years ago that directors had de facto tenure. And while the average length of board stints has come down from the days when 15 to 20 years was commonplace, these days, 10 or more year terms are not unusual.

It is no longer enough to plonk a corporate lawyer, an investment banker and a few retired executives on the board and assume the bases are covered.

There is clearly an argument that shorter terms for directors could risk limiting the depth of corporate memory around the board.

But leaving directors in their roles for too long can have the greater negative effect of allowing stale opinions to remain.

Appointing fresh board blood recognises that companies are organic and dynamic. The skill sets needed 20 or even 10 years ago are not necessarily the ones needed today when the external environment is evolving rapidly.

Modern companies need to respond to a world in which they need to have a social licence to operate.

Would Rio Tinto have scandalised the world by blowing up the ancient caves in the Juukan Gorge, had its directors been responsive to the social responsibilities and cultural importance of First Nations people and their heritage if a traditional owner had been around the board table?

Would the AMP board have promoted a senior executive, Boe Pahari, after he had been accused of sexual harassment if any of the directors fully appreciated the societal blowback from that decision?

Would Qantas have continued to upset its customers if any of its board members had appreciated the brand damage that it ultimately sustained?

It is no longer enough to plonk a corporate lawyer, an investment banker and a few retired executives on the board and assume the bases are covered.

The 2020 blasting of Juukan Gorge caused an outcry.Credit: PKKP Aboriginal Corporation

For example, boards need to have much more diversity – not just gender but in areas of expertise.

Over the past 20 years, companies have increasingly understood that boosting female numbers around the board table is what shareholders expect. But too often, they have drawn from a small pool of female talent to tick their gender diversity box rather than finding the appropriate skill set.

A smattering of directors who are completely across the green transition should be mandatory – the risks of getting the carbon equation wrong are enormous. Optus, Medibank and a string of others can attest to how beneficial it would have been to have a director with a working understanding of cybersecurity.

There should also be, for example, technologists on any large company board to oversee how generative AI is going to change the nature of the business.

But to evolve as a board, and inject new skill sets does require increased director churn.

Livingstone isn’t suggesting a governance revolution. Rather, she is approaching the need for changing boards as a scientist with forensic and emotion-free analysis.

All she is saying, in the address she made to the Australian Institute of Company Directors on Wednesday, is that a conversation needs to be had.

Kicking off this discussion, particularly from someone as well regarded as Livingstone, is long overdue.

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