Family Business

With David Pring

Welcome

Welcome to KPMG Family Business feature articles. If you would like to discuss these articles or how KPMG can help with your business please feel free to contact me on 9455 9996 or davidpring@kpmg.com.au

Board gender equality: mid-market companies need to take the initiative

 SARAH CAIN

BOARDROOM diversity in mid-market companies is still at modest levels and represents an opportunity for business growth, a study of ASX300 companies carried out by KPMG with the 30% Club, shows.

Th e report fi nds that, as at April 2020, companies in the ASX201-300 bracket had 22% female representation on boards, compared with nearly 32% in the ASX100 and nearly 31% in the ASX200. We spoke to eleven ASX200 non-executive directors so they could give their advice for mid-tier companies on increasing board and senior executive diversity.

Th ere are some positive examples – a quarter of businesses in the ASX201-300 category had achieved a 30% level of female board membership. But there are more concerning cases – over a half had either zero (23%) or one (35%) female director.

So what is the relevance of the 30% threshold? Th e 30% Club (which began in the UK and whose Australian chapter started in 2015) explains that this level is widely recognised as the ‘tipping point’ at which the dynamics of the board conversation change. Th at is the critical mass for diversity.

Th is was illustrated by the interviews with ASX200 non-executive directors we did during the research. A clear fi nding from companies which have already gone through the process of increasing board diversity was that women directors want their voices to be heard and valued on a board and do not want their appointment to risk being seen as tokenistic or ticking a box.

Female directors are more likely to join a board with more than one woman already on it – so those mid-tier businesses which the study showed have none or one female should think about the impression they are giving to the market.

Investors are increasingly asking questions on this issue – it is seen as good governance, at a time when ESG issues are becoming ever more important. Regulators too – changes to the ASX Corporate Governance Principles & Recommen

dations last year specifi cally referenced boardroom diversity as good practice.

But most importantly of all, there is a bott om-line implication to this. NEDS we spoke to all agreed with what research has consistently shown – that there is a correlation between greater boardroom diversity and bett er business performance. And our study gave further backing to this – we found those companies in the ASX201-300 bracket which had signifi cant female representation on their boards grew more than others in the 12 months going into the COVID-19 crisis.

Th ere were several other key fi ndings from the interviews:

1. Achieving board diversity is a

function of leadership – NEDS said that the personal commitment of the board chair was crucial in driving a diversity agenda.

2. Diversity improves outcomes for the company in the long

term – companies in the top 200 see diversity as a business imperative, which research has proved brings long-term financial and non-financial benefits by recruiting from the broadest talent pool, challenging groupthink and improving governance and risk management.

“While there are many priorities now this is not a ‘nice to have’ – mid-market companies need to see increased diversity as a business imperative coming out of the lockdown and an opportunity for growth.”

– Sarah Cain

3. Modern, growth-oriented businesses strive for greater

diversity – for top companies it is now embedded in their culture but for businesses striving to get into the top 200, it is important to explicitly spell out greater diversity as a source of competitive advantage.

4. Progressive companies look beyond line experience as

prerequisite for NEDS – skills, rather than direct sector line experience is key. NEDS say that many ASX300 companies tend to have a restrictive view on what they need, but diversity of skills and capabilities is more important.

5. Focus on building diversity in executive roles and senior

management as well – boards need to use their influence to in

crease diversity throughout the company and create an environment and framework conducive to female career progression into top management roles. Mentoring and role modelling is also important.

6. Companies should set stretch targets for board and senior

exec diversity – NEDS say the setting of specific targets and goals is the most effective method of increasing women and other minority board members.

7. Line experience can be useful

– but should not be used to preclude other candidates. Often businesses feel direct executive experience in their sector is obligatory before they will consider appointing them to their boards. This frequently acts as a barrier to females in traditionally male-dominated sectors. NEDS we spoke to say the key is the range of unique skills and capabilities a candidate will bring to complement existing board capabilities.

Th e strong belief of KPMG – and the 30% Club – is that the greater range of views and experiences across the boardroom table which diversity provides will be crucial in leading businesses out of the Covid-19 shutdown.

Businesses are re-imagining themselves, looking at how they use technology, future strategic direction, workplace practices, new structures and a whole range of issues. Th ey are considering what skills they might currently lack and will increasingly need, in their boardroom and management teams.

So, while there are many priorities now this is not a ‘nice to have’ – mid-market companies need to see increased diversity as a business imperative coming out of the lockdown and an opportunity for growth.

To read the full report, visit KPMG.com.au First published by Sarah Cain, Partner, Enterprise, KPMG Australia on KPMG Newsroom on 7 July, 2020

Gender Impacts of COVID-19: Budget update

 GRANT WARDELL-JOHNSON

BEFORE the COVID-19 pandemic, the gender pay gap had narrowed to a record low and women’s participation in the workforce was at its highest level.

Th at welcome progress is now at risk in a post-coronavirus environment. It is critical for a fast and sustainable recovery and that the labour potential of the whole population is fully leveraged.

Th e impacts of COVID-19 are experienced diff erently depending on gender. Th e eff ects on women have been changing over the course of the pandemic. In the early stages of the pandemic, the employment fi gures pointed to a ‘pink recession’ as the paid hours worked by women fell by more than half that of men, with women cutt ing back their hours by 11.5 percent compared to 7.5 percent for men.

Th e most recent Labour Force data (last week) found that hours worked increased more for females (5.0 per cent) than males (3.3 per cent) over the month – however hours worked for females were still around 7.3 per cent below March, compared to 6.5 per cent for males.

Th e loss of employment remains relatively balanced between genders, with around 4 percent less male and female workers today compared to 12 months ago.

According to today’s Economic Update the employment-to-population ratio and the participation rate declined more signifi cantly for women than for men in the June quarter. Th e signifi cant fall in female participation moderated the is a good time to reassess and prepare for the future through a thorough review into their structure and purpose.

Step one: Organise a meeting of the family and confirm the purpose of the office.

During the pandemic, ensuring communication channels are kept open with family members is a top priority, with video conferencing oft en the only option for a face to face meeting. While these meetings are a great way to see each other again, it’s worth using them to ensure that the role of the Family Offi ce and what it is designed to do remains relevant. When fi rst established Family Offi ces should have a sense of its ‘mission’. Essentially what the family wanted it to achieve. Perhaps it was implicit but now it’s really important to ask the question, does that mission still refl ect what the family needs the offi ce to do on its behalf?

Th is is also imperative if the offi ce is serving the third or fourth generation of the family where the individual needs and wants of family members may diverge widely from its original purpose.

Th e term ‘family wealth’ incorporates many elements not just the fi nancial but also its social (reputation) and human capital. Th e younger generations may have a diff erent view of what it most important is this equation. rise in the measured unemployment rate for women.

JobKeeper 2.0

Th e JobKeeper review found that young people and women have been disproportionally aff ected by the current downturn. Compared with pre-Coronavirus employment females are slightly over-represented in JobKeeper coverage. Th e review found that 47.1 percent of employees receiving JobKeeper were female, compared to 44.9 percent in private sector employment.

JobKeeper 2.0 is a welcome measure to support women during the pandemic given they make up a greater share of employment in the sectors most heavily aff ected by virus containment measures.

Childcare

Th e Economic Update today outlines the $312 million cost of the Early Childhood Education and Care Relief Package which provided ‘free childcare’. Th is measure is partially off set from CCS that would otherwise have been paid in a nonCOVID-19 environment with regular childcare att endance.

While families will continue to be supported through the pandemic by easing the Child Care Subsidy activity test requirements and ensuring childcare fees remain at their pre-COVID-19 levels, the Government may need to consider providing further support to the sector if families choose to keep their children at home while self-isolating or withdrawing their children altogether. Th is would be in line with JobKeeper and its continuation until March 2021.

Step 2: Consider a thorough risk review of operations and security.

We’ve been aware of an increase in the incidence and impact of risks ranging from targeted cyber security breaches, to domestic fraud and payroll misappropriations over the past few months.

It’s quite possible that risks may exist in the way younger family members use ‘social media’ oft en garnering unwanted att ention. Education on safe use of technology is fundamental to ensure data and reputational breaches are avoided at all costs.

At a global level, there has been an increase in threat activity directed towards high risk individuals and their private residences.

If the offi ce’s principle purpose is to ‘preserve the wealth of the family’ making sure that all fi nancial and non-fi nancial risks have been identifi ed and mitigation measures undertaken is important.

Step 3: Understand how the family’s portfolio is reacting to COVID 19

Th e majority of Family Offi ces in Australia are well positioned with suffi cient liquidity in their portfolio, well supported by the actions of the government both in reaction to the crisis and before. However, it is worth identifying what holes have appeared since COVID-19? Are there extraordinary opportunities to deploy capital?

Family Offi ce platforms enabling ‘peer to peer’ deal fl ow have become increasingly useful as a basis for assessing what other families are considering. Re

Early Access to Super

Data from the ATO in May indicated that men are withdrawing on average 40 percent more in super than women – however, the government has not yet completed a full distributional analysis of the impact on women’s super. We would be concerned if younger women were disproportionately accessing their entire super fund balance, as has been reported by some funds. Th ere are also long-established factors in the super system which disadvantage women.

Domestic violence

Th e Economic Update outlines $150 million in support for Australians at risk of domestic, family and sexual violence during the COVID-19 pandemic and further support to help protect victims of family violence in family law proceedings. Th is funding is welcome and supports the movement towards the fundamental right for women to feel safe in their homes and respected in their workplaces.

Other gender measures for recovery

Th e Prime Minister noted in his address to CEDA on 15 June that the government needed to maintain a key focus on its women’s economic security statement, which would get a refresh. While not included in today’s Economic Statement, we would welcome the refresh of this statement ahead of the October budget.

Key insights

While the data now indicates a slightly more balanced impact between the genders, women have still been disproportionately impacted through increased levels of non-paid care work by taking up family as regards the prospective returns the Family Offi ce is capable of returning most of the additional burden that has come about due to home schooling and caring responsibilities.

Th ere is a real risk that the progress made in female participation may be eroded as high workforce disincentive rates and fewer work hours available make it an unviable option for women with caring responsibilities to increase their paid work hours.

Th e extension of the JobKeeper program, funding for domestic violence and the Early Childhood Education and Care Relief Package have provided signifi - cant support for women impacted by the pandemic.

We would encourage the government to monitor super withdrawals under the early access to super scheme and conduct a full distributional analysis to bett er un- derstand any unintended consequences of the scheme.

Other measures that the government could continue to support to ensure the crisis and recovery doesn’t disadvantage women includes investing in gender-disaggregated data including the ABS Time Use Survey and the continued focus on longer term structural changes including reviewing inequities in the super system, such as the paid parental scheme; and reviewing the aff ordability of childcare as a key element to a strong and sustainable Australian economy.

To read our full insights on the Federal Government’s economic and fi scal outlook please visit KPMG.com.au

First published by Grant Wardell-Johnson, Lead Tax Partner, KPMG Economics & Tax Centre, KPMG Australia on KPMG Newsroom on July 23,

COVID-19 AN OPPORTUNITY FOR family offices to review their purpose

 KEITH DREWERY

FOR Family Offices (the office) now

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cently there’s been a great deal of interest Step 5: Review technology in private equity deals where ‘founders and reporting fund founders’, early stage venture into Finally, many Family Offi ces benefi t tech orientated businesses, and continued from reviewing their current reporting interest in ‘distressed’ situations debt. frameworks and utilisation of soft ware. Step 4: Review consumption input of data and upkeep of excel spreadpatterns and family sheets is a common problem and can expectations. be streamlined with a more up to date

Whilst, investment opportunities approach to record keeping. exist that can generate signifi cant capital Th ankfully there have been signifi - growth, it is likely that yields on cercant advances made in the capability of tain more diversifi ed pools of capital non-custodial reporting platforms which will reduce as interest rates continue to can lead to the reduction in Family Offi ce remain low and companies in the short to investment management costs from anymedium term reduce their dividend paywhere between 10-50bps on assets under outs. It is also likely the weakening of the management. Now may be a good time US dollar will negatively impact on the to test the operational framework from a amount of Australian capital generated cost and durability perspective. from global equities portfolios. Taking these fi ve steps will help to

One conversation that may be importrecast the Family Offi ce’s role, on behalf ant is to manage the expectations of the of the family.

2020

Th e time costs related to the manual to the family in the next two to three years First published by Keith Drewery, Director, Famand start planning with the family what ily and Private, Enterprise, KPMG Australia on this may mean for ‘distributions’. KPMG Newsroom on July 15, 2020 WESTERN SYDNEY BUSINESS ACCESS AUGUST 2020