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  • Writer's pictureDavid James Connolly

Boards get back to basics, abandon ‘woke capitalism’

Company boards are getting back to basics, with the vast majority of directors citing profitability as their top priority after years of culture, reputation, social and climate issues dominating the agenda.

Close to 70 per cent of directors said profitability was now their top priority, up from just 47 per cent the year before when it ranked fourth behind skilled labour, the skills’ shortage and cyber risks, a long-running survey of directors by law firm King & Wood Mallesons has found.

The return to basics was also reflected in the results for supporting social issues such as the Voice, with 29 per cent saying it was not the role of business and 44 per cent saying only if it was relevant to the business.

Just 20 per cent of directors said business should support the Voice, despite an ad campaign of leading directors backing a Yes vote in the referendum for an Indigenous Voice to parliament.

“There has been blowback, especially in the United States, where there has been active criticism of corporates taking these socioeconomic stances and critics saying ‘that’s not really appropriate’ – they call it woke capitalism,” lead author and KWM partner Meredith Paynter said.

More than 12 per cent of directors said they had reassessed or “walked back” public ESG-related commitments or disclosures, amid a crackdown by regulators on greenwashing and growing climate litigation.

“The greenwashing risk is real,” said KWM’s Emma Newnham. “At least some organisations are reassessing or ‘walking back’ their public ESG commitments or disclosures as a result,” she said.

The renewed focus on profitability was also reflected over the medium term where the top-ranking issue for directors was finding new business models, nominated by 43 per cent of directors, up from 35 per cent the year before.

Ms Paynter said the Hayne royal commission in 2018 had put the focus on culture, which rolled into the pandemic and the skills shortage and supply issues. However, she said as those issues rolled away, boards were putting the focus back on profitability and growth, amid the mixed reporting season.

“Prior to the COVID pandemic, the twin concerns of corporate culture and protecting brand and reputation were high on businesses’ agenda. Today, in a complex post-COVID world, businesses are having to ‘get back to basics’, and really focus their attention on profitability, improving productivity and searching for growth.” Ms Paynter told The Australian Financial Review.

The economic uncertainty has created a mixed picture on investment with 29 per cent of directors saying their boards are being risk-adverse, 36 per cent being risk taking and 34 per cent neutral.

A Financial Review director round table in July found a high degree of economic uncertainty about the next 12 months had driven a “decided pullback” on investment by top companies, directors including David Thodey said.

Directors nominated the energy transition (including consideration of nuclear) as the top ranking area in need of reform, followed by tax.

Close to 64 per cent said reducing or removing remaining state taxes (in return for increasing the GST) was top of their wish list.

“It appears boards and businesses are in harmony with recent commentary shared by the Business Council of Australia in respect of a desire for tax reform that leads to a reduction in inefficient taxes,” said KWM partner Judith Taylor.

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