Alarm bells: Almost 60% of ASX200 chairs see chairing a private capital board as more appealing than listed role - HSF Kramer survey

Though once seen as the pinnacle of Australian corporate life, almost 60% of ASX200 chairs now see chairing a prominent private capital board as more appealing than their listed company role, according to a new report from Herbert Smith Freehills Kramer (HSF Kramer).

The report, which surveyed the chairs of ASX200 companies, found that the appeal of chairing a listed board is steadily fading in the face of growing challenges that have pushed the risk-reward equation out of balance.

"This sobering statistic should ring alarm bells far beyond the boardroom. ASX200 companies employ millions of Australians, anchor the superannuation system, underpin national tax revenues, and drive innovation across entire sectors," said Rebecca Maslen-Stannage, global chair and senior partner at HSF Kramer.

"The strength of these companies, and the health of public markets more broadly, depends heavily on attracting and retaining the nation’s experienced and most capable directors, particularly Chairs. Right now, Chairs are signalling quite clearly that both structural issues and incentives are driving them away from the listed market. At a time when productivity is such an urgent national issue, restoring the attractiveness of the listed company sector should be a priority." 

Proxy advisers and regulatory burden taking a toll

While chairs report enjoying their interactions with shareholders, with 82% of respondents reporting positive experiences and 57% finding interactions with shareholders insightful, engagement with proxy advisers is a different story.

75% of chairs reported finding dealings with proxy advisers ‘challenging’, with 55% saying these interactions are getting harder. This is having a direct effect on how chairs feel about their role, with 62% saying their role would be more fulfilling if proxy advisers had less influence.

With the Australian share market heavily dominated by institutional investors who are served by only a handful of proxy advisers, the influence of advisers and their recommendations is outsized. 

Carolyn Pugsley, a senior partner in HSF Kramer's Head Office Advisory Team, said this influence is further magnified when companies lack direct access to institutional investors, which is often the case when they are large international investors for whom even the largest ASX-listed entities represent a tiny fraction of their global investment portfolio. 

"This creates a powerful incentive to design governance structures, remuneration frameworks, and disclosure practices around proxy advisor guidelines, encouraging homogenised, defensive governance. Where Boards look to break outside the boundaries of usual convention, they do so knowing there is a ‘gauntlet’ to run in securing proxy adviser and investor support for their arrangements," she said.

The ever-increasing regulatory burden is also weighing on chairs, with economic uncertainty, cyber threats, compliance risk and cost, managing AI risk and opportunities and geopolitical factors the top five challenges facing ASX-listed companies.

Litigation risk is also a factor. 85% of respondents say their boards were concerned by litigation risk and around a third believe they spend more time on mitigating litigation risk than they consider ideal.

Asked what would help improve their sense of fulfilment in their role, 60% cited legal reform to reduce class actions, while 54% indicated that a less aggressive stance from regulators would be welcomed.

Risk/reward equation is out of balance

Almost 60% of chairs do not feel appropriately compensated for the time they devote to the role, with 84% citing an imbalance in the risk-reward equation as the top reason for dissatisfaction around remuneration.

Continuous scrutiny, public accountability, complex regulatory overlay, competing demands for their attention and reputational exposure were seen as risks with no corresponding upside reward. 

"While absolute remuneration is unlikely to be a key driver of the leakage of talent to private sector opportunities, the survey indicates that the perceived risk-reward imbalance is undoubtedly a factor."

"By contrast, private company board roles involve a lower risk profile, with reduced compliance burden, no shareholder class action risk and lesser media scrutiny, and often involve meaningful reward upside for delivering strong performance outcomes," Maslen-Stannage said. 

Reforms needed before talent leaves

With the survey coming on the heels of ASIC's roadmap for capital markets, Maslen-Stannage said Australian markets are at a crossroads, and it's clear urgent reform is needed before the talent leaves the ASX. 

"The survey paints a picture of chairs who are deeply committed to their roles, who feel they add value, and who want to lead Australia’s flagship companies, but who are wrestling with a system that makes the role less fulfilling, less effective, and less attractive," she said.

While chairs reported that the next 12 months will require heavy focus on growth, productivity and risk management, elements that will require stable, experienced, and high-calibre leadership, it's this exact leadership questioning whether the ASX environment is worth the cost. 

Maslen-Stannage said, "Unless the structural pressures on directors are addressed, our listed market risks losing precisely the leadership it most needs, and Australia’s economy will feel the consequences."

You can read the report here.