The COVID-19 crisis triggered significant and novel regulatory challenges for boards and directors across all sectors. The dramatic early disruption of the pandemic demonstrated all too clearly that many of our regulatory settings were outdated, excessively punitive and overly complex.
The AICD has been a vocal and active advocate for regulatory relief and reform in support of governance, viability and jobs across all sectors. We have successfully pursued urgent relief on issues from insolvent trading relief to not-for-profit (NFP) fundraising reform and electronic document execution.
What’s needed now is a permanent regulatory reset to deliver a modernised and fit-for-purpose environment that supports boards and directors to govern through recovery, adaptation and growth.
In our 2020 Director Sentiment Index (DSI) surveys, AICD members have highlighted the importance of JobKeeper and related federal government assistance to their organisations.
We have been on the front foot in encouraging these measures and calling for phased wind-back of support given the ongoing impact of COVID-19 across the economy.
One of the most accessed topics in the AICD’s COVID-19 Resource Hub, and a measure we were firmly in favour of, has been temporary relief for directors from personal liability for insolvent trading. Following advocacy by the AICD and others, this and additional temporary relief has been extended from its initial six-month application.
We also were heartened by the early stance of key regulators ASIC, ACNC and APRA on hard reporting deadlines and “business as usual” obligations, welcoming “no action” positions and recognition of the COVID-19 disruption on governance and corporate obligations.
The AICD teamed up with professional accounting bodies CA ANZ and CPA to produce guidance on how to approach financial reporting and make disclosures on COVID-19. Learn more here.
Backing the NFP sector was also a priority. The AICD called on federal, state and territory ministers to provide a stronger rescue and support package for NFPs. While we welcome moves on charity fundraising, much more work is needed. The AICD’s 2020 Not-for-Profit Governance and Performance Study reflects this call to action.
The shift to remote working also created very practical issues — given the Corporations Act 2001 remains drafted for wet signatures and physical meetings. Temporary changes to permit virtual annual general meetings for the 2020 reporting season, as well as electronic communication, were crucial; their extension to May 2021 continues to be critical to provide certainty for planning.
Resetting the agenda
The AICD has identified regulatory reset priorities that we are prosecuting to deliver an agile, updated and fit-for-purpose regulatory environment. These are:
- Better balanced director liability settings that encourage diligent directors to govern for growth, not excessive personal liability risks.
- Modernised laws that support virtual governance and operations.
- Reducing the risk of opportunistic securities class actions for Australian organisations.
- NFP funding reform to provide certainty to the sector.
Securities class actions
An early concern for listed directors was the risk associated with the potential rise in securities class action as a consequence of COVID-19 uncertainty. The AICD advocated for urgent regulatory relief and welcomed the government’s temporary changes to reintroduce a “fault” element into continuous disclosure breaches.
Shareholder class actions were also in the spotlight throughout 2020. This time last year,
the first judgment in a shareholder class action was handed down by Justice Beach of the Federal Court in the Myer case. At the time of writing, Australia’s second shareholder class action judgment was handed down, by Justice Gleeson of the Federal Court, in Crowley v Worley Limited.
With 2020 bookended by these two significant cases and punctuated by a parliamentary inquiry into the class action industry, the debate around Australia’s continuous disclosure regime will be ongoing. The AICD will continue to push for sensible reform as part of our regulatory reset priorities.
Corporate governance standards and community expectations remain central to the debate.
The bushfires that opened 2020 drew fresh focus on climate change risk as a policy and governance issue. Climate change is one of the top five issues “keeping directors up at night”, according to the DSI survey. It remains a key policy frustration for them and is rated in the survey as the highest priority for federal government action in the short and long term.
Workplace sexual harassment was in the spotlight, too, with the Australian Human Rights Commission’s Respect@Work report highlighting systemic issues, plus high-profile cases such as AMP highlighting a gap in governance practice and community expectations.
The year also saw the largest-ever proposed settlement of a civil penalty case in Australia for Westpac’s breaches of the AML/CTF Act. The bank published its own review-panel findings of governance and accountability (covered in the November issue of Company Director magazine).
Rio Tinto’s response to the destruction of the Juukan Gorge caves also saw questions raised about governance and accountability, with an initial board review and financial sanctions replaced with management departures after shareholder and community dissatisfaction.
Governance and accountability are common threads across these examples and, as community expectations continue to grow, boards will face increasing demands in these areas.
Forward Governance Agenda
The AICD is creating more resources for members as part of our Forward Governance Agenda program. Over the coming months, we will issue insights on the governance of culture (with the Australian Council of Superannuation Investors), a detailed review of the duty of directors to act in the best interests of the corporation, and a guide to bringing stakeholder perspectives to the boardroom. Further guidance on the governance of climate change risk and workplace sexual harassment will also be developed.
2021 regulation and priorities
As we head into the new year, directors continue to favour a radical reset to drive COVID-19 economic recovery.
In our most recent Director Sentiment Index survey, directors said they want a smarter, more innovative Australia that invests in infrastructure and green energy. Directors want governments to act on climate change and energy policy settings as priorities, while acknowledging their own need to focus on the governance of culture.
Regulatory issues include:
- Director IDs: Significant changes to Australian directorship will advance, with pilots of new mandatory director IDs. These will stay with directors for life, verifying identification and providing scope to address the AICD’s longstanding privacy concerns about accessibility of directors’ personal information.
- Governance of culture: The spotlight will continue to shine on corporate conduct and culture. Regulatory interventions, including director liability, will be proposed where gaps between community expectations and practice continue.
- Governance of remuneration: Listed entities and financial services companies can expect a new APRA standard, as well as a continued focus on consequence management and remuneration decisions by boards.
- Insolvency reform: As COVID-19 relief expires, further reform to Australia’s insolvency settings will be considered, including a review of safe harbour protections.
- ACNC review: The deferred Australian Charities and Not-for-profits Commission review recommendations — including proposals to introduce direct duties for charity directors — will require action.
- Aged care governance: New governance standards and obligations have been proposed to respond to the serious issues identified in the current Royal Commission.
- Underpayment of wages: New federal and state laws to counter serious underpayment issues in companies — including new criminal offences.
- WHS reform: The recommendations of the Boland review and adjustments for COVID-19 requirements will drive further reform of national and state settings.