Customers and employees top priorities for directors, survey shows

The survey of 600 members of the Australian Institute of Company Directors (AICD) was carried out in December 2018, at the end of a year dominated by headlines of poor treatment of customers by financial institutions.

In almost every question, customers – and employees – were given top priority in the eyes of directors, ahead of other stakeholders or issues. The survey covered listed, private, not-for-profit and public sector.

Alison Kitchen, KPMG Chairman said: "After 12 months of the Royal Commission and what it exposed, perhaps it is not surprising that the survey showed treating customers well is top of mind for directors. This reinforces the findings of a separate KPMG survey of CEOs released late last year. After years of perhaps paying lip-service to the idea of the customer being king, organisations are now truly putting customer at the centre of their thinking. Restoring trust was not identified as a specific answer in this survey but it seems to have permeated other issues like keeping customers and employees satisfied.

Angus Armour, AICD MD and CEO said: "It shows that directors and their organisations are looking to create value while balancing different stakeholder priorities. They should be asking key questions including how can my board take into account the varying needs of both short term and long term shareholders?

"Seeing company culture feature as a priority for directors in this survey, alongside recognition of employees as a priority stakeholder group, is telling. Boards should consider how they can communicate a clear sense of purpose that engages employees through alignment to their personal values. The broader community and customers are also increasingly looking to business to demonstrate a sense of purpose and values."

• In the survey, in terms of prioritising stakeholders, customers and employees rated 8 out of 9 in terms of significance to the relevance and viability of the business. Investors, government and the local community were behind on 6/9.
• On identifying the critical issues impacting the organisation, customer satisfaction came top with 8/9 followed by employee satisfaction and internal culture/conduct – rather than financial outcomes. Next, on 7/9, came: Public trust; demonstrating social values/contribution to society; innovation and disruption; financial responsibility/sustainability; and cost competitiveness.
• 30 percent of directors rated customer satisfaction as a key metric for measuring the organisation's ability to deliver value. Following this were Values (effective leadership and workforce alignment to company values) at 18 percent and Employee engagement and innovation at 17 percent.
• Top three responses on issues crucial to maintaining corporate reputation were: customer satisfaction, employee behaviour/conduct and governance and accountability(8/9). Satisfying investors was behind on 6/9.
• The most common mark for 'my board has access to sufficient tools and information to challenge management on key issues and does so effectively' was 7/9. Second most common was 6/9 and 8/9, while 30 percent said 5/9 or lower
• Directors were asked if they felt confident their organisations were able to handle simultaneously dealing with and possibly mitigating past mistakes while also focusing on plans for future growth and investment. The most common response was 7/9, followed by 8/9 and 9/9, with a sizeable number that were less confident.
• Looking ahead, respondents said they were most concerned about excessive regulation (this was particularly felt by directors of larger organisations, over $500m revenue) and director liability and accountability in the post-Hayne era.
• It is evident that the younger directors (those aged 18 – 34) are much more passionate about the potential impact of cyber security, innovation and disruption, digital transformation, cost competitiveness and the workforce of the future. It is also noteworthy that the nearest group to the younger directors were those aged 75 and over.
• Communicating and engaging with stakeholders openly was rated the key answer to building stakeholder engagement. Transparency of business practices and decision-making and maintaining social license to operate were the next most highly rated.

Angus Armour said: "Last year's survey showed that a significant proportion of directors felt unable to challenge executive management on issues that have potential to damage reputation. This year's results are more positive, however 30 percent of respondents this year were not confident they had adequate tools and information to challenge management, so there is work to be done in this respect.

"It was very interesting to see the different responses given by the various age groups. This shows the importance of board diversity, not just in gender but also backgrounds and experiences, which varying age levels would naturally represent."

Alison Kitchen said: "Overall, the most heavily weighted theme was People, Conduct and Culture - unsurprising given royal commissions and enquiries into conduct, and quality of service in financial services and health. Internal culture and conduct, employee satisfaction and customer satisfaction are all key. KPMG believes that this reflects directors' priorities: the need to focus on improving outcomes for customers and employees over short term financial performance and maximising returns."

She added: "Directors appreciate that the focus on governance and culture after the GFC was rightly on financial soundness and stability. In today's business environment, that focus is too narrow. With the release of the Royal Commission's Final Report, and in echoing the APRA Inquiry into CBA, it is clear that supervision must extend to include non-financial risks and to consider the interests of all stakeholders."