AICD's update on the banking Royal Commission and corporate penalties

With the release of the banking Royal Commission final report, 2019 will see landmark legislation implemented with a focus on corporate responsibility.

Public trust and accountability in focus

The year ahead promises a continued focus on governance, from community expectations of board practice to possible regulatory responses.

The Royal Commission into Aged Care Quality and Safety, which began in January, may consider governance practices in the sector as it explores issues on quality of care.

Regulators will remain in the spotlight, with the Australian Securities and Investments Commission (ASIC), Australian Prudential Regulation Authority (APRA) and the Australian Competition and Consumer Commission (ACCC) foreshadowing a strong focus on enforcement action and a greater willingness to bring court actions, including against directors and officers for breaches of duties.

Community demands for corporate accountability (a factor in some significant remuneration strikes in the 2018 AGM season) will also continue across all sectors of the economy.

With a federal election due in the first half of this year we expect further public and policy attention on the broader themes of public trust and accountability.

The AICD will be an active voice in governance debates in the year ahead — both in terms of practice and expectations as well as in regard to regulatory reform.

Meanwhile, the federal parliament has progressed measures linked to these themes in the final sittings of last year that directors should be across.

Modern Slavery regime begins

The Modern Slavery Act 2018 received Royal Assent on 10 December 2018 and commenced 1 January this year.

The Act requires organisations with turnover of over $100m to prepare and publicly release “modern slavery statements”, approved by the board of directors (or equivalent) and signed by an individual director. These will disclose how their operations and supply chains could contribute to modern slavery risks and explain how entities are managing and minimising these risks — including -assessment of effectiveness.

The law covers many types of organisations (including private sector companies, government entities and charities). The first statements will need to be submitted in 2020.

The legislation follows similar reforms in the UK and US, and is part of broader human rights efforts by the United Nations (UN) through the UN Sustainable Development Goals. According to the 2016 Global Slavery Index, modern slavery is estimated to affect approximately 46 million people.

Read more about the new laws and the related legislation passed in NSW in the AICD’s December 2018 Boardroom Report, or contact senior policy adviser Kerry Hicks here.

Whistleblower legislation progresses

The Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2018 passed the Senate in late 2018 and is expected to be approved by the House of Representatives early this year.

These reforms will significantly expand private sector whistleblower protections and the range and quantum of penalties for organisations and individuals for failing to prevent detriment or victimisation. It also sets new obligations for internal whistleblower protection policies.

The AICD strongly supports stronger legal protections for whistleblowers. Robust corporate whistleblowing frameworks support good governance. Boards have a strong interest in corporate misconduct being brought to light early so that it can be addressed and prevented.

While the final legislation is still to pass, the Bill should be on the radar of private sector directors given the significant increase in coverage and penalties.

The AICD’s overview of the proposed law in December’s Boardroom Report is a useful guide for directors.

These are two categories of protected disclosures for whistleblowers who report issues externally, to media or politicians:

• An emergency disclosure category based on substantial and imminent danger to a person’s health and safety, or the natural environment
• A public interest category based on a broad public interest test (subject to certain prior reporting requirements and time periods).

Corporate penalties

Directors and companies will soon face far heavier maximum penalties for corporate misconduct, with the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 likely to pass early this year.

The AICD supports increases in the maximum penalties for individuals and corporations, both to reflect the gravity of offences and serve as more effective deterrents to corporate misconduct.

Among the changes proposed are doubling of maximum prison terms for certain criminal offences (as an example, a director breaching section 184 of the Corporations Act 2001 (Cth) by dishonestly using their position or information known to them to gain an advantage for themselves or someone else, or who causes detriment to the corporation, would face a maximum gaol term of 10 years.

Maximum individual and corporate civil and criminal penalty fines also substantially increase, including new turnover-based penalties for corporate misconduct.

In a welcome move, the Bill also removes imprisonment as a penalty for strict and absolute liability offences.

The AICD will keep members informed of the progress of these important reforms.

NFP Governance Principles revamped

The AICD launched a major update of our well-regarded NFP Governance Principles in January, after careful consultation and review. Our NFP Principles are a fantastic resource to guide good governance practice in NFPs and our website includes the updated principles, case studies and resources to support member adoption.