Pamela Hanrahan, professor of law and commercial legislation at UNSW, told the conference that changing community expectations were flowing through to legal and regulatory responsibilities and liabilities for directors. While community standards — which form part of the law — were unchanged, community expectations around accountability were hardening.
As a result of the banking Royal Commission, the community had become less aware of corporations as “soft, vague, faceless, overwhelming institutions” and had started to see the individuals involved in their management. At the same time, the community expected business to fill to some extent the vacuum left by governments on issues such as climate change, retirement, security and gender equity.
Hanrahan was asked how all of this translated into legal principle.
“The answer is that they translate into the directors’ and officers’ duty to exercise their powers and discharge their duties in good faith, in the best interest of the corporation, and for a proper purpose.”
She said the law recognised that this involved understanding and reconciling the interests of a range of stakeholders and noted Commissioner Hayne AC QC had suggested the different interests of the different stakeholders would converge over time.
Tougher penalties regime
The maximum penalties for criminal and civil contravention of corporate law were increased at the start of the year and Hanrahan said directors should remember that if they are an accessory to a crime or involved in a contravention of a civil county provision, they are liable just the same as if they were the principal offender.
The “Hayne pain”
The Australian Securities and Investments Commission (ASIC) had started to remake itself even before Hayne handed down his report and was gearing up for Hayne’s “why not litigate?” instruction, Hanrahan said. The major difference companies and directors would see was a greater separation between the enforcement part of ASIC and the business-as-usual regulatory engagement part of ASIC.
She noted the personal accountability of senior executives and directors, as enshrined in the Banking Executive Accountability Regime (BEAR), was likely to go beyond banking. “This approach to personal accountability is very tempting for governments and I think that they will continue to expand it — certainly across the financial sector and then further.”
Will the pendulum swing back?
Hanrahan was asked whether the tougher environment was like a pendulum swinging out after the Royal Commission and if it would swing back in a few years’ time.
“My sense at the moment is that it’s probably a rolling rock,” she said. “In sectors where there’s a high public impact — such as financial services, energy, telecommunications, media and so on — the pressure on regulators to pursue enforcement action, not only against corporations in court, but also against individuals, will be very strong.”
Pamela Hanrahan is a regular columnist in Company Director magazine. Read her article on regulating ASIC from this month's issue here.