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WA directors losing confidence

WA company directors appear to be so bogged down by legislative requirements for corporate governance, they are losing the confidence to take risks.

Is this a negative trend, given today’s rapidly changing business environment?

Research by myself and colleague Margaret McCabe, at Curtin Business School’s Graduate School of Business, shows there is tension between the legal governance role of directors, their requirement to evaluate opportunities and their responsibility to act accordingly in the best interests of the company.

These findings are in our paper The Impact of Baby Boomers’ Longevity: Are there Implications for Boards of Directors?’ – part of Curtin’s working research paper series.

The Australian Institute of Company Directors (WA) helped our work by inviting members to participate in the study. Fifteen company directors, all males aged between 40 and 69, took part.

Their companies came from primary production, mining and exploration, manufacturing, construction, retail and finance sectors. Half the companies were large, 20 per cent were medium sized and more than 30 per cent were small.

The directors were interviewed about how their role had changed from when they first joined the board.

Many felt that they originally operated on a ‘management board approach’ and the governance role was quite minor.

They felt that regulatory bodies were quite relaxed back then and there were low levels of expectation about accountability.

One said: “It was left to the integrity of the directors as to whether you did the right thing for shareholders in those days”.

Participants believed that the controlling factor in the day-to-day operation of directors was integrity.

The directors’ discussions strongly indicate that there have been enormous changes, even for recent entrants to corporate governance.

The strength of opinion was that changes, driven by community expectations, were a reaction to ‘the excesses of the 80s, cowboys and certain entrepreneurs’.

What is apparent is the perception that governance issues, in the narrow and legalistic sense, now dominate directors’ roles.

Another outcome is the directors’ heightened perception of personal liability.

The extent to which directors are now held to be personally liable is an added constraint, increasing the weight of their legal responsibilities.

Directors see this as restrictive, above all inhibiting them in ‘grabbing the opportunity’ and ‘taking a calculated risk’. Whether this holds back companies in today’s environment, is a worthy subject of further research.

n Professor Margaret Nowak is the Director of the Curtin Graduate School of Business at Curtin Business School. E-mail: nowakm@gsb.curtin.edu.au

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