Regulatory updates during COVID-19

AICD head of Advocacy Louise Petschler outlines three regulatory changes to assist directors during the pandemic, plus updates to board diversity priorities.

With the national cabinet charting the course to a COVIDSafe community and economy, significant attention is being paid to the settings and stimulus to accelerate growth and job creation. As the prime minister has warned, this will not be “business and usual”.

We face the most challenging domestic and global economic environment Australia has seen outside wartime. We need to pull every lever we can in meeting these challenges.

One of the AICD’s long-standing concerns, Australia’s “uniquely burdensome” director liability environment, must be part of the mix.

To promote innovation, ambition and investment across the private and community sectors, Australia needs boards to be bold and diligent. To support this, we need to look at director liability settings with fresh eyes.

Australian directors face much greater personal liability for corporate actions than other comparable jurisdictions — too often, even where they have acted diligently, honestly and without direct fault. Australian penalties are harsher, our defences more constrained, and our business judgement rule more limited. Safe harbours that protect diligent disclosure in other countries don’t apply, making us one of the world’s most enticing litigation funding markets for securities class actions.

Rebalancing director liability doesn’t mean watering down directors’ duties or ignoring misconduct. The AICD is a passionate supporter of high standards of governance practice — and of effective, well-targeted enforcement against directors who engage in misconduct. Just as importantly, however, directors acting in good faith, with care and diligence, and in the best interests of their organisation, must have confidence to govern for growth and, where needed, defend their decisions.

This is a key part of the regulatory reset needed to boost growth and jobs post-COVID — one that is relevant to every director in the country. The AICD will continue to be a strong voice for reform.

COVID-19 regulatory updates

The AICD advocacy team has been working with government on COVID-19 regulatory hot spots including the following three priorities (to learn more, visit our COVID-19 hub here).

• Securities class actions — temporary relief: Since the start of the pandemic, we have been speaking with government about heightened risks of speculative class actions due to COVID-19 uncertainty. In May, the Treasurer announced temporary relief under the Corporations Act 2001 so that companies and directors will (for six months) only be liable for continuous disclosure breaches if there is “knowledge, recklessness or negligence” with respect to updates on price-sensitive information. This is a welcome positive step, but there is more to do.
• Reporting — timing and guidance: The Australian Securities and Investments Commission (ASIC) has implemented the AICD’s call for an extension on reporting deadlines for all 30 June companies (listed, unlisted and NFPs). The AICD has engaged closely with regulators and standard setters and has welcomed subsequent guidance from ASIC, the Australian Accounting Standards Board and the Auditing and Assurance Standards Board to assist directors deal with their reporting obligations during COVID-19.
• Increasing the spotlight on NFP issues: The AICD has called for a heightened focus on NFP impacts on the sector, calling for a targeted NFP rescue package and government funding certainty. Simplified fundraising rules, the extension to charities and NFPs of the temporary insolvent trading safe harbour applied to corporates, and the inclusion of NFPs in stimulus measures are priorities.

Board diversity

Another important component of the AICD’s advocacy agenda is our commitment to promoting and improving the representation of women on Australian boards. In 2009, when the AICD first began tracking statistics, just eight per cent of the board seats in Australia’s largest 200 listed companies were held by women.

Late last year the AICD was delighted to report that a significant milestone had been reached. Our voluntary target of 30 per cent women directors on Australia’s big company boards — supported by the AICD, the 30% Club and many influential stakeholders and investor groups, such as the Australian Council of Superannuation Investors, had been achieved.

In May, we released our quarterly Gender Diversity Report which tracks the appointment of women to ASX boards. With female representation holding steady at just over 30 per cent, we have retained a position of strength that we aim to build upon. What happens next is important.

We hope that continuing media and stakeholder interest will continue in conversations around the board table and see diversity remain on the agenda, even in this challenging environment.

The AICD encourages all organisations — from the largest listed companies and charities to small firms and NFPs — to embrace the 40:40:20 model as good practice for gender diversity on boards and a contributor to performance. Now more than ever, we need to recognise the value that diverse teams bring.

Last month, McKinsey released its third report in their series on the business case for diversity in leadership. It shows that the relationship between diversity on executive teams and the likelihood of financial outperformance has strengthened over time. Companies have an opportunity to “seize this moment — both to protect the gains they have already made and to leverage diversity and inclusion to position themselves to prosper in the future”.

Larger companies with established resources will often seem better positioned to maintain a focus on diversity, especially with the uncertainty and challenges of the COVID-19 environment. However, there are many practical measures and strategies that smaller organisations can apply and supporting materials can be found on the AICD website and Australia’s 30% Club website.

A recent Global Institute for Women’s Leadership post (@GIWLkings Chair @JuliaGillard) highlighted the need for careful planning to ensure that in the light of COVID-19 disruptions, progress on gender equality continues. Vigilance and intent is required to make this happen. This is an opportunity for organisations to consider how diversity can better support future priorities for their organisations — including in a time of crisis.

Virtual connections

Like many of our face-to-face programs, the AICD’s diversity initiatives have required a rethink over recent months to accommodate COVID-19 public health measures. One particular challenge has been delivering the valued networking opportunities for emerging female directors participating in the AICD’s flagship Chair’s Mentoring Program.

With a focus on connecting participants with our cohort of ASX 200 Mentors, we have progressed bespoke events and remote connections during this period of disruption. Feedback on recent ASX Director Talks events on Zoom has been extremely positive — indicating we are delivering intimate, accessible virtual sessions connecting mentees with highly experienced listed company directors.

We’re excited at the idea of building on this new capacity for virtual connections — and for this accessible format becoming an established component of this and other AICD programs.

For further information on AICD diversity programs, go to our Board Diversity page here or contact diversity@aicd.com.au.