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The Davies Report - Summer 2018

Sunday, December 16, 2018

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What we’ve been up to lately

2018 has been a very big year for us.  It has been a year of portfolio rebalancing - new clients, leadership changes, term limits, handovers and new chairmanships. 

It was also a very big year in Australia for corporate governance.  In 2018 the message from regulators and stakeholders is clear: a sharp focus is required on what works. Ticking the boxes is no longer an acceptable standard.  

This sharpening focus by others has given us a platform for a solid year’s work including progressing areas that we’ve been agitating for change in for more than a decade.  

In this edition we provide some of our thoughts on the year that was and focus areas for 2019.  In this edition:

  • Emerging risk, maybe not what you think it is

  • Reputation risk - outtakes from our AICD webinar

  • Our public submission to the ASX Corporate Governance Council

  • DCRO’s guidance on risk committees – not the audit and risk committee as you might know it

  • Risk reporting. Douglas Adams and the number 42.

  • Our greatest hits from Twitter

  • Our deepest thanks + A safe and festive season

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Emerging risk, maybe not what you think it is

After more than 10 years in the space, emerging risk is finally an idea that is becoming mainstream.  This is long overdue.  A quick timeline.

In the Spring of 2008 Todd Davies and Associates was formed – one month before the Global Financial Crisis (GFC) came into full swing. Like others we’d been warned about it, but in our case our intelligence was unexpected in its source and nature. Like the vast majority we failed to join the dots or understand how it might unfold in our local context. 

In 2010 our work with the ASX Corporate Governance Council contributed to a requirement for boards to be across their most material risks and not buried in minutia (Principle 7, 2nd Ed). This was a significant development which for a fleeting moment led to Australia becoming a centre of excellence globally on getting to the things that really matter.  

In 2010 we wrote the article Black Swans, Turkeys, Ostriches and other Christmas Poultry about this phenomenon and lamented that we couldn’t get people focused in this area despite the obvious need.  It’s a light summer read and as pertinent now as it was then – possibly more so. We’ve included it for your summer reads (see subscriber edition for the link).

In the following year we did national roadshows and international speaking on some of our forecasts on things beyond financial markets. We trained many on various foresight methods in emerging and strategic risk, including an in-depth program on how to spot black swans. (Yes, the many ironies in this are not lost on us).

The years that followed were impressive for some, but disappointing for many.  Those who genuinely focused on building a “material risk” capability thrived, and in some cases led the world in this area. The opposite is also true.

In the years that followed the GFC had ripple effects far beyond debt and equity markets. Many listed companies lost significant value (more than double digits in percentage terms of profit, or market capitalisation or both).  Most of those with 40%+ declines were wound up or sold off at fire sale processes. Shareholders took the hit while directors and officers were rewarded handsomely. 

In nearly all cases those companies attested that they were Principle 7 compliant (material risks briefed and managed), followed by the statement “nobody could have reasonably foreseen those circumstances”.  Interestingly, I called out a number of those “non-foreseeable” risks in my Christmas Poultry article of 2010, as well as many that the World Economic Forum is calling out in 2018.

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Reputation risk the greatest risk and asset of all

In early 2018 we were asked by the Australian Institute of Directors to develop and lead a national webinar in the context of the APRA CBA report and the hearings in the Hayne Royal Commission.  

We were initially asked to provide an update on our 2016 webinar on risk oversight which had been well received and responded well to the calls for more focus on non-financial risks.

At the time of the webinar the CBA report was fresh off the presses and revelations from public inquiries were still coming to light. No one had really had time to synthesise the recent developments and bring them together in a cohesive fashion. It was clear to us that we were seeing something systemic and new, and that a “more of the same” approach was not going to cut it.

This led us to invest nearly 160 hours of new research and material for a one hour webinar, much of which foreshadowed the AICD’s commentary since.

That session was dense with content and received a net promoter score of 9. 

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Our public submission to the ASX Corporate Governance Council

The ASX Corporate Governance Principles and Guidelines are a big deal. They are the peak governance guidelines in Australia. Pretty much everyone adopts them in some shape or form – irrespective of whether they’re appropriate for their context.

There’s a lot of discourse on the current exposure draft.  My read of the submissions is that there is general support by those directly involved in the conversations and work that is shaping their agenda, but on large there is a lot of push back and a desire to get back to the fundamentals.

This is my first year in a decade where I haven’t been directly involved with Council during an exposure draft period. Sometimes it is appropriate to put a statement on the public record.  In our view this is one of our times. Our public submission is polite but blunt. It’s not designed to be but I’m told it’s a page turner. Here’s a taste:

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DCRO's guidance on risk committees - not the audit and risk committee as you might know it

We were really pleased to be the Australian participant on the Director and Chief Risk Officers’ latest publication - Guiding Principles for Board Risk Committees. This is the second DRCO publication we’ve been involved with. it is good to be involved with pro bono projects like this. 

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Risk reporting. Douglas Adams and the number 42.

It’s been a long time since we’ve put a newsletter out.  Possibly one of the last times you heard from us was during the Rebooting Risk Reporting initiative (RRR).

RRR was an attempt to try an innovative model to addressing systemic issues across the entire economy. 

Our view was that risk reporting was consistently pretty ordinary in many places and perhaps by getting a lot of people together for a small fee we could so something quicker, bigger, better and cheaper than tackling this one organisation at a time. Our rationale was that if you could get the risk conversation right between executive and board then many good things would follow.  The coordination required proved to be difficult as a first-time effort. Nonetheless we did a study and learned a great deal. The results closely resembled a scene from one of our favourite Douglas Adams books.

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Noisy Twitter. Maybe it's too cheep.

I’ve been listening to a lot of Seth Godin this year on podcast and other forms.  I’m struck by how much of what he’s saying at the moment accords with what I was trying to say in my AICD webinar on reputation risk.  If you get a chance to listen to him during your morning commute I’d recommend it – particularly when he’s being interviewed by others.

One of his recurring pairs of questions is “What is it for? Who is it for?” in any product, service or action.  He tells people to get off social media, because those questions often don’t have a clear answer.  

I was one of the first people on Twitter to use the #corpgov hashtag, at a time when Twitter was about sharing useful thoughts that you hadn’t had time to blog about yet, and wasn’t a constant stream of interruption marketing and list building. 

I’ve got a very small following – maybe only a dozen people who genuinely pay attention, so I’m writing for them.  For the folks who don’t do Twitter (and there’s many good reasons not to) I’ve included a taste of a few of the discussions that from 2018.  Most are near real time reflections on what I’m seeing at the time.  I hope some resonate with you or result in a chuckle or two. (Click image for details).



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Our deepest thanks + A safe and festive season

Todd Davies and Associates is a micro business that works with other like minded people as collaborators, clients and team members.  We collaborate with those who have a strong sense of purpose and often run against the grain of how things are traditionally done.

There are very few people who have been working as a freelance business in this space for more than 10 years, particularly the way we do it.  Maybe there’s none. There’s a reason for this, it’s a terrible way to make a living.  But it is rewarding in different ways, primarily in knowing you’re making a difference and working in a way that matters.

It’s not for everyone, and those who work with us are a very special and select group.  They are the change we hope to see in the world. 

I’d like to thank everyone who’s supported us over 2018 as a client, advocate, referrer, supporter, sponsor, collaborator, enthusiast, team member, sounding board or generous critic. Our work is for you. You are the reason we stick at it. For this we are grateful.

I’d like to take the opportunity to wish you a safe and festive holiday season in whatever form that makes sense to you.

Have a great summer and looking forward talking in the new year.

Go well.





Todd Davies


Summer hours:

Our office will be closed for appointments from Tuesday 19 December through 6 January. For appointments in the new year please call Rhia on 02 9043 1719 or book via our Calendly service. We look forward to talking with you then.

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