Qantas Governance Review (the Review) — Stakeholder governance

Advisory Street summary

This note summarises the key findings and recommendations related to the theme of Stakeholder governance and engagement.

According to Qantas, stakeholders include: customers, employees, investors, governments, regulators and the broader community.

All other themes and the Full Review by Qantas can be found here. 

The recommendations put forward by the business adviser and Qantas are steps in the right direction. It is important for boards to have oversight of the key relationships that are 'mission critical' for their organisation's success, including having deeper engagement with stakeholders with site visits and various other methods to have their 'finger on the pulse'.

We have concerns that non-shareholder stakeholders — such as staff, customers and others — are categorised as "non-financial".

The Qantas experience demonstrates that stakeholder issues can materially and financially impact an organisation' value. At the height of the crisis between August 2023 and October 2023, Qantas lost about $3b in market capitalisation (approximately a quarter of its equity value). As such, we consider the dichotomy between shareholder vs stakeholder primacy as less relevant.

Picture source: Qantas

Qantas released its governance review undertaken by experienced business adviser Mr Tom Saar in early August 2024.

The Review considered a range of recommendations that affect the Qantas board’s effectiveness, culture, policies, legal, remuneration & reward, people and culture.

The Board, led by Chairman Richard Goyder and Chairman Elect John Mullen, and the management team have committed to implementing all 32 recommendations in the report.

Our quick summary

Did the Board and management recognise the impact of their actions on the Qantas reputation?

Yes, Qantas acknowledged that their actions in recent years had contributed to the Group’s “significant reputational and customer service issues”. Communications to stakeholders was often “combative” which exacerbated the issues.

What contributed to this Qantas' reputational impact, from a stakeholder perspective?

Qantas acknowledged that, amongst various issues, the airline was “not achieving the right balance between the interests of our different stakeholders” and that there was a culture that focussed on financial performance before stakeholders and non-financial risks (other than safety).

Is stakeholder engagement important moving forward?

Yes, Qantas will want to understand the ‘full array” of stakeholders better, “increase the rigour” to hear their voices, adopt a more “open and empathetic two-way communications” including a strong governance for decision-making on disclosures.

What are the key changes to support this approach?

• Stakeholder engagement and communication — strengthened governance and engagement with key stakeholders, including the Board’s consultation and approval required for external communications on significant stakeholder and community issues.

• Social or political campaigns — a clear framework for supporting social or political issues and the Board's role.

• Monitoring — stronger reporting to the Board on customer metrics, employee engagement and key stakeholder relations.

• Remuneration — greater weighting on customer outcomes and reputation.

Further details below

Theme and Findings	Recommendations and Qantas Response
1.     Governance and Risk  Board effectiveness and culture The Board would benefit from more informal interaction with employees and stakeholders. There should be enhanced focus on non-financial issues, employees, customers and all stakeholders.	Create further opportunities for Directors to engage directly with Group employees to witness the culture, values and work of Qantas personnel and with external stakeholders to hear firsthand their perspectives. Redesign the Board and Committee meeting pattern to free up more time for key strategic, stakeholder, reputational and emerging issues
Information flow with the board The Board’s oversight of non-financial issues and risks could be enhanced by having more targeted stakeholder reporting, including in relation to non-financial risk.	Improved regular reporting of all stakeholder relations and the escalation of non-financial matters to the Board that have the potential to adversely affect the Group’s reputation.
2. People and culture More rigourous process for Performance reviews of the Group CEO and Group Leadership Team.	Performance reviews of the CEO and the Group Leadership Team, including regular and comprehensive 360-degree assessments from reports, peers and key stakeholders
3. Stakeholders Poor relationships with some external stakeholders exacerbated problems for Qantas.	- Establish stakeholder relationship owners to undertake re-sets with key stakeholders. - Devote more time and resources to understand, monitor and incorporate into Group strategies the breadth of perspectives across the Group’s stakeholder matrix, including drawing on external expertise to stay abreast of community and societal sentiment and issues of concern. - A program of regular engagement by Management with regulators has been implemented and will be extended to the Board.
The company often had an adversarial approach to engagement with key stakeholders and external communications.	Adopt a more cooperative approach to stakeholder interactions and external communications.
There was not a specific Board approval requirement for major support of social issues or campaigns.	- Clearly frame and adjust the threshold for Board consultation on, and approval of, significant political, social campaigns, proposals or interactions. - The threshold for Board consultation and approval on external proposals or interaction on significant stakeholder and community issues will be clearly defined, with a particular focus on issues that have the potential to: Significantly impact the Group’s reputation or its social licence to operate; Significantly impact customers, employees or other key stakeholders (or the Group’s relationship with them); Become a party-political issue; and/or Result in litigation or regulatory intervention.
4. Customers The Board and Management must remain acutely conscious of the relationship with customers.	The Board should have sought more comprehensive, and preferably leading indicator – as opposed to trailing indicator – customer touchpoint data and insights, including emerging risks and opportunities to maximise the customer experience. More direct exposure to customers can also help the Board to better gauge customer sentiment.
5. Remuneration and Reward Incentives were heavily focused on financial performance and less on customers and reputation.	A greater balance is needed in the Group’s scorecard between employee, customer and shareholder expectations. Qantas has: increased weighting to Customer measures in STIP to 30%. introduced a reputation (RepTrak) metric into the LTIP, being a 3rd equally weighted measure. Intends to introduce in STIP an employee engagement or other cultural metric, with an appropriate weighting.

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