Have your say on key AICD governance issues

Louise Petschler, AICD head of Advocacy, calls for member feedback on several governance issues, including directors' duties and managing stakeholder voices in the boardroom.

One of the key insights in the AICD’s recent joint publication with the Governance Institute of Australia, Governance through a Crisis: Lessons from COVID-19, is the focus that boards are placing on stakeholder considerations.

Our research showed that for many organisations, COVID-19 has caused a rethink of stakeholder engagement, including the role of the board. This was especially pronounced among not-for-profit (NFP) directors but evident, too, across listed and private company director feedback. Technology has also opened up new avenues for bringing stakeholder voices to the board table directly, along with new platforms to convey key messages.

Recent corporate scandals have demonstrated how critical it is for boards to consider evolving community expectations, including in response to corporate failures. Australian directors will be considering how cases such as those at Rio Tinto and AMP fell drastically short of community, stakeholder and shareholder expectations.

Building on our Forward Governance Agenda, over the coming months the AICD will be developing practical guidance to support directors in elevating stakeholder voices in the boardroom. We will also undertake a fresh review of the director’s duty to act in the best interests of the corporation. Members who are interested in these projects can contact our national Advocacy team here. 

Regulatory reporting oversight — lessons from Westpac

In September, Westpac and AUSTRAC announced the proposed settlement of substantial AML/CTF reporting breaches by the bank, which agreed to pay a $1.3b corporate fine — an Australian record. The Federal Court must approve the proposed settlement.

AUSTRAC says Westpac admitted to contravening the AML/CTF Act on more than 23 million occasions, “exposing Australia’s financial system to criminal exploitation” by doing so. According to the regulator, the “unacceptable” breaches over a long period of time could have been avoided with better assurance and oversight processes.

Westpac’s breaches have been well aired. They include the most serious failure to adequately monitor and report the transactions of 262 customers matching risk factors for child exploitation crimes. The ramifications for the bank’s reputation and leadership have been significant.

While the specifics of the Westpac case are unique, directors across all sectors should take the time to reflect on the Statement of Agreed Facts and Admissions, released by Westpac to the ASX on 24 September 2020, and to revisit Westpac’s Advisory Panel Report released on 4 June 2020.

Westpac’s breaches were not a consequence of any deliberate intention to contravene the law.

The Statement of Agreed Facts notes that, “At all times the Westpac board and senior management sought to ensure that Westpac would comply with its obligations under the AML/CTF Act.” The board and senior management sought regular and detailed reports on AML/CTF issues, and “[w]here issues were identified, the Board and senior management sought to ensure these issues were addressed.”

Despite these important moves, the Statement of Agreed Facts acknowledges that, among other items, reporting to the board and senior management was incomplete. Some areas of risk were insufficiently understood internally and relevant risk and compliance functions were not adequately resourced. And while the board and senior management oversaw a range of measures aimed at resolving these issues, these “could and should have been made earlier”.

The June Advisory Panel Report is worth re-reading in light of the agreed facts with AUSTRAC. It discusses expectations of what boards can and can’t do, noting benefits and limitations of the independent non-executive director role. It also reflects on the quality of reporting to the board, processes for board oversight and urgency of response.

One issue highlighted in this case is the challenge of (unintentionally) incomplete or misleading reporting to the board. As the report highlights, in Westpac’s case this was not deliberate as “[w]hat was not known by management could not be provided.”

While the specifics of the Westpac case are unique, the case serves as a timely reminder for directors in all sectors to consider their governance oversight of regulatory reporting obligations:

• How closely does your board oversee regulatory reporting compliance? Could internal control gaps be impacting the quality of reporting to the board?
• Is reporting compliance externally validated? Is it periodically independently reviewed?
• Do directors have a clear picture of key regulator interaction across the organisation?
• Do directors have a clear picture of current and evolving key regulator priorities?
• Is the board’s urgency on compliance and, if necessary, remediation adequately reflected in culture and resourcing?

ACNC extends COVID-19 insolvency relief for charities

The Australian Charities and Not-for-profits Commission (ACNC) will continue to apply relief for insolvency trading under Governance Standard 5 (which requires Responsible Persons to ensure a charity does not operate while insolvent), following the Treasurer’s extension of Corporations Act relief. In positive news, the ACNC has reconsidered its approach and confirmed it is dropping the condition that a charity must notify its members and the ACNC if trading while insolvent, following strong advocacy from stakeholders, including the AICD.

Charity fundraising reform

In August, an Intergovernmental Charitable Fundraising National Working Group, consisting of officials from the states and territories together with the ACNC, released proposals for harmonising fundraising. This is an important charity reform long supported by the AICD. The proposal is a minimalist model, in which each ACNC-registered charity would be deemed to hold a local fundraising authority in each participating entity. This would overcome individual applications in each jurisdiction and support online fundraising. While welcome steps, more work is required on aligning notification, audit and reporting rules.

CATSI Act Review

The National Indigenous Australians Agency is undertaking a review of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act). The AICD has lodged a submission on encouraging a more flexible legislative framework that accommodates cultural practices and supports self-determination. We have supported removal of overly prescriptive rules on AGMs, contacting members and forming subsidiaries, and back the further review of related party provisions and other governance issues. We have also cautioned against transposing some Corporations Act obligations into the CATSI Act given their complexity.

Members with views are encouraged to contact Christie McGrath, Senior Policy Adviser via email here.