Five red flags for HRDs in 2019

John Hilton
by |

Directors are “stewards for long-term value creation” and need to be adaptive to a complex and changing environment, according to the Institute of Directors (IoD) chief executive Kirsten Patterson.

Patterson added that there are risks that are often interconnected, have high-speed impact and occur at scale.

“Directors need to have their antennae up, be strategic and make sure they have the right information for decision-making.”

The five issues identified by IoD’s Governance Leadership Centre that should be top of mind for directors in 2019 are:

Culture and conduct
There have been numerous cases globally and in New Zealand of poor conduct causing harm to employees, customers and investors. Corporate governance has come under intense scrutiny.

“Boards are ultimately accountable for what goes on in their organisations,” said Patterson.

“They have a core role in overseeing corporate culture, conduct risk and setting high standards of ethical behaviour.”

Climate change
The increasing occurrence of extreme weather events and wildfires around the world are reminders of the impact of climate change. The introduction of a Zero Carbon Bill is imminent and a revamp of the Emissions Trading Scheme is expected.

“Businesses have already taken a lead with the launch of the Climate Leaders Coalition. Directors have fiduciary obligations in respect of climate-related risks including physical, economic transition and liability risks,” said Patterson.

“It’s important that directors prioritise climate change risks and pursue opportunities while transitioning to a low-emissions economy.”

Future of work
As the New Zealand economy has grown, firms are finding it difficult to attract and retain employees. IoD’s and ASB’s 2018 Director Sentiment Survey found 61 per cent of directors cite labour quality and capability as one of the biggest impediments to national economic performance.

The ‘future of work’ includes consideration of the impact of technology, demographics and other factors on work, workers and the workplace.

“The challenge for boards is ensuring that management is looking ahead, keeping an eye on how to maximise the potential of changing ways of working while looking after their workers through the change,” said Patterson.

“They also need to assess the potential risks that disruption will bring to organisational culture.”

Mental health and wellbeing in the workplace
Responses to the Health and Safety at Work Act 2015 have focused on safety issues, with less attention to mental health and wellbeing. Yet one in five New Zealanders live with mental illness. And 606 New Zealanders took their lives in 2016-17.

“Poor mental health causes significant human and economic costs,” said Patterson, “whereas improved workplace wellbeing leads to improvements in productivity and employee retention”.

Compliance that matters
The 2018 Director Sentiment Survey found that 41% of directors rated regulatory ‘red tape’ as one of the biggest impediments to economic performance.

“Organisations have mandatory compliance activities that have to be fulfilled,” said Patterson, “and there are also other compliance activities that, although not legally required, are important.

“The challenge is to manage time and effort on compliance to ensure it adds value.”

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