AICD's recap on the Hayne Royal Commission final report

Following the banking Royal Commission, governance reform remains on the agenda for AICD's Advocacy team. We respond to the findings of Hayne's final report.

A lot has already been written — including in this edition of Company Director — about the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

It is now time to look ahead to the steps the government, the regulators, financial services entities, directors, senior executives and stakeholder groups can take to mitigate the risk of misconduct recurring in the future, and position organisations for long-term, sustainable success.

Culture, governance and remuneration march together

In Commissioner Hayne’s words, “culture, governance and remuneration march together. Improvements in one area will reinforce progress in others; inaction in one area will undermine progress in others”.

Clearly, Hayne’s findings on governance require the AICD to reflect on our work, positions and guidance to directors. In the near term, we must test our curriculum and resources in light of the report’s findings. Issues of measuring and assessing culture, cultivating effective board dynamics and strengthening remuneration governance may require additional resources.

More broadly, it is time to consider the ways in which corporate Australia, including the director community, can promote professionalism, accountability and purpose.

Hayne’s final report has underscored the complex environment in which directors operate. Acting in the best interests of a corporation demands more than a focus on short-term profit and shareholder returns. As Hayne emphasises, it cannot be reduced to a binary choice. It is a more complicated task than choosing between the interests of customers and shareholders.

Key legislative and regulatory reforms

We look forward to engaging with government as it goes on to implement important legislative and regulatory reforms, and with the regulators.

We will see new regulation in the financial services industry with the extension of the Banking Executive Accountability Regime (BEAR) to all APRA-regulated industries and the co-administration of the regime between ASIC and APRA, as well as revised APRA prudential standards and guidance with a stronger focus on the linkages between remuneration and non-financial risks.

ASIC and APRA will be subject to greater levels of oversight, with the establishment of a new, independent body that will assess the effectiveness of the regulators in discharging their functions. Interestingly, Hayne stops just short of recommending non-executive directors be appointed to the boards of ASIC and APRA — although he identifies some of the governance benefits that may flow from such a step.

Superannuation reform

We will also see important reforms in the superannuation sector, which came under scrutiny by both the Royal Commission and the Productivity Commission, which recently published its 722-page report on Superannuation: Assessing Efficiency and Competitiveness.

The Productivity Commission acknowledged that high quality governance is integral to a super system where members rely on others to make decisions on their behalf (especially in an environment of compulsory savings). Similarly, Hayne pointed to the importance of the sector, not only to the many individuals who participate in it as members of superannuation funds, but also to the nation.

AICD supports the extension of the civil penalty regime for breach of covenants by corporate trustees and trustee directors, including the duty to act in the best interests of members. We should also see a focus on the composition of the boards of trustees and a strengthening of director skills and experience.

While parliamentarians and APRA will take time to implement changes to the relevant legislative and regulatory frameworks, trustee boards do not need to delay reviewing their own practices against the recommendations and considering where and how their current processes and policies can be strengthened.

Reviewing the legal and economic impact of the operation, enforcement, and effects of continuous disclosure obligations In addition to the Productivity Commission report, this year has also seen the release of another important and wide-ranging inquiry, the Australian Law Reform Commission’s report Integrity, Fairness and Efficiency: An Inquiry into Class Action Proceedings and Third-Party Litigation Funders.

Significantly, the ALRC has recommended the federal government should commission a review of the legal and economic impact of the operation, enforcement, and effects of continuous disclosure obligations and those relating to misleading and deceptive conduct contained in the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth).

AICD strongly supports continuous disclosure obligations as a vital component of robust disclosure and governance practices to deliver market integrity and investor confidence. However, we have significant concerns about the unintended consequences that have arisen as a result of the current regime. These consequences could well be exacerbated if the proliferation of shareholder class actions continues post the Royal Commission final report.

A review would present an important and timely opportunity to consider whether Australia’s continuous disclosure laws and its interaction with the class actions regime are operating as intended. We look forward to contributing to the important discussion on this recommendation.

Financial reporting thresholds

And in yet more news on reforms that will impact corporate Australia, Treasury is considering increasing the financial reporting thresholds for proprietary companies, with the release of a suite of proposals in late 2018.

Proprietary companies that meet the thresholds are required to prepare and lodge an audited financial report, a director’s report and an auditor’s report to the regulator each financial year.

Treasury has proposed that the existing thresholds be doubled to revenue of $50 million, assets of $25m and companies with 100 or more employees (satisfying two of these three criteria means the entity meets the reporting and audit requirement).

If passed by parliament, the proposed application date for the new thresholds will be 1 July 2019. The thresholds have not been reviewed since 2007 and in response to member feedback, AICD has advocated they be increased for some time.

We eagerly anticipate engaging with members as the AICD advocacy team continues to look ahead.

Australia Day honours list

Australian Capital Territory

• Daniel Nicholas Bennett CSC GAICD
• Major General John James Frewen AM DSC GAICD
• Greg Hoffmann AM CSC MAICD
• Michael Hans Janos Miko AM GAICD
• Dr Andrew Charles Miller AM GAICD
• Brigadier Anthony John Rawlins AM DSC GAICD
• Brigadier David John Wainwright AM DSC GAICD
• Joanne Kathleen Whittaker CSC AAICD

ACT/New South Wales

• Robyn Clubb AM MAICD

International

• Peter John Verwer AO MAICD

New South Wales

• Mark Anthony Orr AM GAICD
• Prof Sanchia Kaye Aranda AO GAICD
• Peter Botten AC CBE MAICD
• Assoc Prof Andrew James Brooks AM FAICD
• Geoffrey Norman Brunsdon AM FAICD
• Kathryn Jane Campbell AO CSC GAICD
• Mary Josephine Capps AM GAICD
• Prof Helen Christensen AO MAICD
• Simon John Duffy AM GAICD
• The Hon Patricia Forsythe AM FAICD
• Prof Bevil Milton Glover AO MAICD
• David Carlyle Griffith AM MAICD
• Peeyush Kumar Gupta AM FAICD
• Richard Michael Haddock AO AM FAICD
• Virginia Howard OAM MAICD
• Anita Jacoby AM MAICD
• Ronni Kahn AO MAICD
• Carmel Krogh OAM GAICD
• Roger Brian Massy-Greene AM FAICD
• Prof Judy Agnes Raper AM FAICD
• Prof Jaswinder Samra OAM GAICD
• Peter Schutz OAM GAICD
• Timothy James Sims AM FAICD
• Paul Sinclair AM MAICD
• The Hon Warwick Leslie Smith AO AM MAICD
• Ian Steward OAM GAICD
• Robert Bain Thomas AO FAICD
• Jane Thornton OAM MAICD
• William Alexander Webster AM MAICD
• Anastasia Whittaker OAM MAICD
• Alan Young PSM MAICD

Northern Territory

• Deborah Fracaro AM MAICD
• Katrina Mary Fong Lim AM GAICD

Queensland

• Jeffrey Raymond Close OAM MAICD
• David Phillips OAM FAICD
• Andrea Staines OAM FAICD
• Ashley van de Velde OAM FAICD
• Dr Ian Airey OAM FAICD
• John Bolger AFSM GAICD
• Graeme Brady OAM MAICD
• Kuot Buol OAM MAICD
• Grant Cassidy OAM FAICD
• Dr Eleanor Chew OAM FAICD
• Susan Forrester AM FAICD
• Prof Sandra Harding AO FAICD
• Anthony Hawkins AM GAICD
• Dr Carmel Hillyard AM FAICD
• Darryl Johnson APM MAICD
• Bronwyn Morris AM FAICD
• Karl Morris AO FAICD
• Dr Beverley Rowbotham AO FAICD
• Prof Paul Simshauser AM FAICD
• Major General Stephen Porter AO FAICD
• Matthew Vanderbyl APM GAICD

South Australia

• Susan Mary Chase AM FAICD
• Prof Mehdi Doroudi PSM MAICD
• Prof Judith M Dwyer AM FAICD
• Dr Angela Margaret Evans AM MAICD
• Grant William Kardachi AM MAICD
• Gregory Hugh Nettleton AFSM GAICD
• Moira Were AM MAICD
• Stephen Wedgewood Young CSM MAICD

Tasmania

• Christopher Arnol AFSM GAICD
• Dr William Holm OAM MAICD
• Graeme Lynch AM FAICD

Victoria

• Deborah Beale AO MAICD
• Anna Burke AO GAICD
• Helen Coleman OAM FAICD
• Timothy Conolan AM MAICD
• Louise Davidson AM MAICD
• Vernon Fettke OAM FAICD
• Karen Hayes AM FAICD
• Councillor Andrew Jessop OAM GAICD
• Peter Lardner APM GAICD
• James McCarthy OAM MAICD
• Dr Robert Mitchell AM MAICD
• Dr Garry Nolan AM FAICD
• Jon Rolfe OAM MA,FIA,MIPA MAICD
• Judith Vanrenen OAM FAICD
• Maria Wilton AM FAICD

Western Australia

• John Windsor Barrington AM FAICD
• Mayor Heather Henderson OAM GAICD
• Kennon Richard Lewis AM FAICD
• Anthony Domenic Macri OAM FAICD
• Michael Norman Norton OAM FAICD
• Eva Desiree Rita Skira AM FAICD
• Dr Paul Vogel AM MAICD