Christian Gergis (CG): The first big event of 2019 from a governance perspective will be the Royal Commission Final Report, which is due by the first of February. The interim report was voluminous, hundreds of pages. There was a limited focus on governance in that interim report. I think the final report will have a much stronger focus on governance, particularly given some of the bank chairs and the regulators have featured in that final round of hearings.
So I think that will have some really interesting observations and recommendations for policy reform. I think it's fair to say any government, whether it's the current government or a new government after the next election, will feel pretty impelled to take those recommendations very seriously, if not to introduce them. So I think that's the key first milestone of the year.
Louise Petschler (LP): I think the one certainty is it's going to be a busy year. I think the fallout from the Financial Services Royal Commission and the spotlight that will be the Aged Care Royal Commission will have a translation into regulation, one way or the other. So it will be important for the AICD to be there and to be part of those debates.
Federal Election 2019
CG: I think the federal election in the first half of 2019 may see a change in government. We don't know. There's no point in crystal-balling, but in this current environment, I think there will be, again, much more of a focus around director accountability. You know, who's really accountable in these structures and these companies, and potentially pushing for more regulation, given that some of the outcomes in recent years haven't been satisfactory.
LP: A lot of the debate about executive remuneration in the Financial Services/Royal Commission space has been around listed entities, and that's a particular dynamic… there's still a bit of community frustration around the stubbornness of incentive payments. And we're seeing that play out in this AGM season with some big strikes against some of the major banks for paying any bonus. I think those debates are going to be really interesting - to see how Commissioner Hayne might tackle those in his final report and what conclusions he might come to.
We'll certainly see greater transparency. We've seen the opposition, for example, propose it will introduce a CEO to median worker ratio that will bring a bit more visibility around the quantum of pay. So there's a lot more to go in terms of executive remuneration.
CG: I think this is a live debate. It's been a long time since the Australian market has looked at how directors' duties are formulated, and whether stakeholder interests should be explicitly recognised.
The last time this really occurred was in 2006 with the CAMAC (Corporations and Markets Advisory Committee) review. In 2007, the UK changed its legislation to explicitly require directors to take in to account certain stakeholders when acting in the best interest of the company as a whole, essentially, over there. In Australia, I think the environment is ripe for this kind of debate, and I think the AICD needs to have a leading voice in making sure we're providing a measured, evidence-based perspective on events, and not really shy away from the debate but lean in to it.
LP: Something as fundamental as the framing of directors' duties in the Corporations Act - that's obviously a key concern for us at AICD… there’s a temptation to revert to directors' duties to address other areas of corporate misconduct. It's quite high, because obviously it catches everything in the mindset of the board, and we do want boards to be absolutely focused on ethical conduct and fulfilling their obligations with due care and diligence. But a better way to target instances of corporate misconduct might be to go after those instances of corporate misconduct to the full extent of the law.
Compliance – Modern Slavery and Whistleblower laws
CG: In 2018, we saw Modern Slavery reforms passed toward the end of the year. Whistleblower protection legislation has also gone through the Senate and will be likely passed in the first sitting of 2019. So these are new obligations on corporates which really go to this point, once again, around corporate conduct and making sure corporations are acting ethically. So I think we can expect to see more of this kind of debate and more proposals about how corporates conduct themselves and whether they really match up and live up to the expectations of the community.
New governance guides - ASX Principles & NFP Principles
CG: The Fourth Edition of the ASX Corporate Governance Principles’ will be released in early 2019. We were a member of the drafting group, and that process is now being finalised. The new edition has a strong focus on conduct and ethics for listed companies. That's a really important document. And given that it has widespread market acceptance and support, the ASX Principles are really one pillar of the overall corporate governance framework in Australia.
The AICD is also finalising the new version of our ‘Good Governance Principles and Guidance for not-for-profit organisations, which is the result of extensive consultation with the membership base and other stakeholders. That's really a useful guide for NFP's, whether large or small, in how to govern.