Purpose-Driven Board Leadership

[00:00:00] Intro: Welcome to Minutes by boardcycle, where in each episode we pack the insights from one of Australia's boardroom leaders into just a few minutes.

[00:00:08] Intro: In today's podcast, host Richard Conway interviews Mark Johnson, Chair of HCF, Councillor at the University of New South Wales and director of Goodman, Aurecon and Sydney Airport Corporation about the impact of an organisation's purpose, members and stakeholders on board decision making.

[00:00:30] Richard Conway: Hello and welcome to the Minutes podcast. I'm your host, Richard Conway, and in today's podcast, we're going to be talking about managing diverse ownership or stakeholder groups.

[00:00:39] Richard Conway: Joining me to discuss this topic is Mark Johnson. Mark sits on the boards of a diverse range of organisations including HCF, Goodman, Aurecon, the University of New South Wales, and Sydney Airport Corporation. Welcome to the podcast, Mark.

[00:00:55] Mark Johnson: Yes, thanks for having me, Richard. Great to be here.

[00:00:57] Richard Conway: Great. So, Mark, I wanted to talk to you about [00:01:00] this topic because you're a director or the equivalent on a number of listed companies, which have quite diverse shareholder bases, but you're also the chair of HCF, which is a not for profit mutual fund, a councillor of the University of New South Wales, which, as we know, is a major academic institution, and also a director of Sydney Airport, which is a major infrastructure corporation that's privately owned.

[00:01:24] Richard Conway: So these seem like very different types of organisations who's purposes are quite different, and whose owners or stakeholders are quite different as well. So to start off with, I wanted to ask you whether you think about your role on the board or equivalent of those organisations as being fundamentally the same or very different?

[00:01:44] Mark Johnson: I think they're fundamentally the same. The major differences, Richard, are around purpose. Some of those organisations obviously have a profit purpose. Some of them are listed on a public stock exchange and the profit purpose extends to retail [00:02:00] shareholders. Others are owned by a few large institutions or private equity funds.

[00:02:06] Mark Johnson: They have a for profit purpose as well, but the focus is slightly different to a retail shareholder. And then you move to a mutual where the focus is on your members and on delivering value to members, whatever that may mean. In the case of HCF, it's about helping them navigate their way through the health system and making sure that benefits are paid to the right level, that their premiums are not too expensive.

[00:02:31] Mark Johnson: And then you go to a charity organisation. You didn’t mention the Smith family, but until recently I was on the board of the Smith family, which again, the purpose was different there, which is very much focused on assisting disadvantaged children with their education. And so, each of those purposes are quite different and one fine tunes one's mindset to focus on a purpose.

[00:02:51] Mark Johnson: So quite often, you know, if you're thinking about a not for profit, it's not for loss and not for profit needs to be governed well. You're not trying to lose money. You're trying to [00:03:00] make sure that business is sustained. But by the same token, you're not having to worry about dividends to shareholders and other things like that.

[00:03:08] Mark Johnson: So, in the case of the Smith family, for example, we'd be very focused there on how many more children can we serve? So we're serving 100,000 children say, we'd like to make that 120,000. So how do we make that money stretch further? How do we know that the services we're offering are making a real difference in terms of the ambition there, which was to keep more kids in school and have more of them graduate to tertiary education.

[00:03:34] Mark Johnson: At the university, it's all about giving a great education to our various students. But also it's about driving great research and being recognized internationally as a great place for research and to learn because that leads to rankings, and global rankings leads to international student recognition, and that leads to enrollments, which leads to funding and et cetera.

[00:03:59] Mark Johnson: [00:04:00] So, they differ in purpose. You still need to have great risk management. You still need to have great controls across the board. You still need to have a strategy that's very focused on your purpose and is executed to differentiate you. Importantly, you still need to attract and develop great talent.

[00:04:19] Mark Johnson: One of the big changes is you think a little bit differently about the short and long term if you're dealing with a listed company, obviously you have regular reporting cycles and these things to deal with and the markets are very unforgiving if one misses numbers. In the private equity space and others, one small period of time doesn't matter the same as a life cycle of an investment.

[00:04:41] Mark Johnson: If you're at a not for profit, whilst you want to make sure you're not wasting resources and you're spending money wisely, you're not as focused on profit, you're really focused on delivering to the purpose and making sure you've got sufficient resources to continue providing that purpose for as long as you can, [00:05:00] obviously. Which would mean that you're still spending money wisely, but you're looking at your funding model and a range of other things in a very different context.

[00:05:07] Richard Conway: Yeah, great. So it's quite clear from that, that you're thinking about quite a few different and interacting things when you're thinking as a director of those different organisations. And Mark, one of the things you mentioned there is thinking about your members. So talking about the concept of members, there's a pretty stark contrast between say the members of HCF, which includes representatives of sort of more mom and dad policy holders and the members of Sydney Airport on the other hand, who are major institutions.

[00:05:37] Richard Conway: So how does that kind of difference play into the way you make decisions as a director?

[00:05:42] Mark Johnson: Yeah, well, it does come back to this purpose question and then to the strategy. So, if you take HCF, the purpose there is very much driven on driving member value. And we define member value as meeting their needs in terms of providing services that help them on their health journey.

[00:05:58] Mark Johnson: It means providing them with cost [00:06:00] effective insurance cover and premiums that are market leading. It involves us operating well, so that when they make a claim, we can pay them swiftly. It's all those sorts of things. And whilst a company might be focused on dividends, we're focused on giving value back, through better services, and better returns on their money through better benefits and lower premiums.

[00:06:27] Mark Johnson: So it may well be that the net result is the same, but rather than pay out to shareholders, we're giving it out in member services. In the airports case, for example, we very have, for profit minded investors in that case.

[00:06:42] Mark Johnson: So it's not so much where they're interested in the delivery of a service to them, because in this particular case, they're investors, not customers. Having said that, obviously, they're interested in the airport performing exceptionally well. So that it drives fantastic customer [00:07:00] satisfaction and experience on the basis that that drives passenger volumes and a related range of things.

[00:07:06] Mark Johnson: But those investors are still focused on value and cash flows and things like that. It's different to a public company again, because they're not quite as focused on the day to day, quarterly reporting, etc. They look at things through a longer term horizon.

[00:07:21] Mark Johnson: They're obviously monitoring results very carefully on a regular basis. But the decision horizons then are again, a little different to a public company, which has to deliver today whilst building bridges for the future. Where some of these other organisations just focus on the future all the way and not so much today.

[00:07:38] Richard Conway: Yeah, absolutely. And so, Mark, turning to the listed company scenario, even within your listed company portfolio, there's quite big differences in the ownership makeup of those companies. So I wanted to ask you as an independent director on all of those boards, how mindful are you about the sort of specifics of the breakdown of [00:08:00] your shareholder base in performing that role and in particular about retail versus, I guess, non retail shareholders.

[00:08:08] Mark Johnson: Yeah. Well, we're very focused on our shareholder base, wherever it comes from. And that's the case in any of these organisations. In public companies, we do keep a good eye on the register. And as you, you know, from past experience, Richard, we're speaking very regularly to all our shareholders.

[00:08:22] Mark Johnson: We get around the, I suppose, the big institutional shareholders a couple of times a year. Obviously we're very conscious of our obligations to keep the market informed. And then we obviously are talking to all shareholders, I suppose, through our half yearly reporting, and particularly at the AGM, and through releases and presentations we do all the time.

[00:08:41] Mark Johnson: So you know, bigger shareholders that can, you know, depending on how big their shareholding is, may have a bigger say and, and they normally would have that say through a seat on the board, for example, things like that. But as of them having a seat on the board, we essentially treat all shareholders very much the same as you'd imagine.

[00:08:59] Mark Johnson: [00:09:00] And we are very focused on returns for retail shareholders. Acknowledging that at the end of the day, we work in the interest of all shareholders and we've got to drive to the purpose and strategy of the company for the long haul, whilst delivering for today. And individual shareholders will have individual perspectives on strategy and a range of other things.

[00:09:19] Mark Johnson: And I suppose they appoint a board to work through all the different options and ways in which a business can succeed. And whilst we listen to every shareholder, ultimately, we have the skills and experience on the board to try and find the best path to create value for all shareholders.

[00:09:36] Richard Conway: Absolutely. And then lastly, Mark, I wanted to ask you maybe a tricky question about organisations like the University of New South Wales and Sydney Airport.

[00:09:47] Richard Conway: So beyond the organisations themselves, I guess they make up a part of our kind of societal or economic infrastructure. And so the decisions that you and the other directors are making [00:10:00] can have implications for quite a broad number of stakeholders over quite long periods of time, that could be quite hard to predict as well.

[00:10:09] Richard Conway: And so I was interested in asking you how you grapple with those kind of broader effects to broader stakeholders when you're thinking about that as a director.

[00:10:18] Mark Johnson: Yeah, we're obviously thinking about broad, not just of those organisations you mentioned then. Stakeholder, we think stakeholders much more broadly.

[00:10:26] Mark Johnson: So this traditional view of a company just focusing on its shareholders, the days where you just did that. If they did exist, well and truly gone, I mean. You only succeed, you can't be a success in a failed world. And so at every organisation, not just the University, the airports or others, we're all very focused on sustainability in a broader context and broader stakeholders.

[00:10:49] Mark Johnson: So that includes our employees, local communities, customers, obviously, our shareholders. So our community view is very broad [00:11:00] and our stakeholder assessment is very broad everywhere. And whilst there are always trade offs on those sorts of things, our ambition is to make sure that we're a good corporate citizen and we meet, we work strongly in all of those areas.

[00:11:12] Mark Johnson: And clearly, you know, a for profit organisation, you've got to try and make the profits. But I think the long term view is, if you don't have your other stakeholders happy, that might jeopardise your long term profitability. So you just can't ignore any of those things. So, we have regard to all of those things as we're thinking. And, uh, there are trade offs for what one's making from time to time, in all of those things, because you can't do it all, but you decide what's most important and you try and deliver appropriately for your shareholders and for all the other stakeholders.