Last year, Commonwealth Attorney-General Christian Porter commissioned the Australian Law Reform Commission (ALRC) to undertake an inquiry into Australia’s corporate criminal responsibility regime. The review comes at a time of heightened public focus on accountability for corporate misconduct, including heightened expectations on boards. The ALRC released a discussion paper for consultation in November 2019.
The ALRC proposals are far-reaching and will, if implemented, significantly reshape how corporations and individuals can be held criminally liable. Elements of the ALRC’s proposed reforms are commendable, including drawing a principled distinction between corporate criminal and civil liability, and recognition of the proliferation of inconsistent and excessive corporate criminal offences. However, the AICD has significant concerns about some key proposals relating to individuals and corporations.
Recognition of the role of the board
The ALRC review draws a welcome distinction between the role of the board and senior management. The discussion paper recognises that any new accountability measures should take into account the existing liabilities for non-executive directors and the governance role of the board, versus that of day-to-day management.
In a welcome step, the ALRC has not recommended increasing legal liability for directors, noting “in many cases, directors may not be the most appropriate target for responsibility in relation to misconduct arising from the day-to-day management of a corporation”.
In the AICD’s view, directors should be held accountable for breaches of their directors’ duties. However, non-executive directors cannot be made guarantors of corporate compliance through the imposition of further personal liability.
The ALRC comments align with legal research commissioned by the AICD from law firm Allens, which we shared with the inquiry. Our research shows that the Australian director liability landscape is already very complex and uniquely burdensome — covering a broad range of subject matter and imposing harsh penalties — compared with other common-law jurisdictions (see breakout below for key findings from the Allens research).
What the ALRC is proposing
The ALRC review is significant because its proposals, if adopted, would apply broadly and impact corporations and individuals across all sectors of the economy, including not-for-profits, SMEs and large entities.
The AICD has urged greater consideration of impacts on organisations other than major corporates.
The discussion paper seems to have been drafted with large, complex organisations in mind, drawing on the findings of the banking Royal Commission. While there is a strong case for clearer corporate and individual accountability for financial services misconduct, a range of sector-specific reforms — including the Banking Executive Accountability Regime for banks, now being rolled out across all prudentially regulated entities— and ASIC’s “why not litigate” stance, will shift the dial.
If implemented, the ALRC proposals would change the landscape for all corporate entities and their executives.
While dealing with these complex policy issues, the AICD continues to focus on proactive initiatives under our Forward Governance Agenda — a program of work seeking to respond to current debates on governance practice, accountability, and trust.
See our Forward Governance Agenda for more information. Contact the policy team via email to contribute to our work.
Practical governance resources
Over recent months, the AICD has released important new resources and practice statements for members on topical governance issues — minute-taking, ethics in the boardroom and governing culture.
- Joint statements on board minutes The AICD and Governance Institute of Australia explored critical issues for boards on minutes and released a joint statement supported by a barristers’ opinion.
- Ethics guide for directors Developed by the AICD and The Ethics Centre to support directors in considering ethical issues as they discharge their duties.
- Governing organisational culture A tool developed by the AICD to help shape the board’s approach to governing organisational culture.
Allens advice: Australia’s “uniquely burdensome” director liability environment
The AICD commissioned research from law firm Allens on director liability in Australia and similar jurisdictions. It shows that while similar frameworks for criminal and civil liability apply, Australia has unique and harsher features:
- Australia regulates a relatively broad range of corporate conduct through the imposition of director liability.
- Australia imposes criminal liability (with harsh penalties) on directors relatively liberally, particularly in relation to dishonest or reckless contraventions of their corporate governance obligations.
- Australia alone uses a public mechanism (allowing ASIC to take action) for civil enforcement of directors’ duties.
- The emergent doctrine of stepping-stone liability has the potential to further expand the ambit of director conduct that may be subject to public civil enforcement.
- Australia’s civil penalties are harsh, even compared with criminal pecuniary penalties.
- Australia has a unique corporate criminal liability model, which can compel analysis of corporate culture and expose directors to criminal action even when their own conduct is not impugned. Members can access the advice from AICD's Advocacy team.