Corporate governance in action

Board oversight of culture remains a top priority as the AICD pushes ahead with its Forward Governance Agenda, writes AICD head of Advocacy Louise Petschler. Plus an update on the latest gender diversity stats.

In 2019, 1200 members responded to our consultation paper, which sought views on areas where the AICD should increase its focus or change its approach to strengthen governance practice. This helped guide the AICD’s priorities in response to current governance debates, and targeted initiatives have been ongoing under the key themes of: Standards and professionalism; Duties and stakeholders; Demonstrating accountability; and Culture and remuneration.

As we accelerate into a post-pandemic world, the Forward Governance Agenda remains essential to fulfilling the AICD’s mission “to be the independent and trusted voice of governance”. The AICD has since refreshed its resources on directors’ duties to reflect contemporary practice, released an ethics in the boardroom guide, developed new resources to support members in the governance of culture and released a joint statement with the Governance Institute of Australia providing guidance on board minutes.

The Forward Agenda reaffirmed that the quality of board oversight of culture is clearly a priority for directors and there was strong member appetite for additional culture resources to support them.

In late 2020, we released a joint report with the Australian Council of Superannuation Investors on cultural oversight (see our Governing Culture story here), which aims to provide directors with practical guidance on overseeing, assessing and influencing company culture.

Last year saw organisations needing to adapt swiftly to circumstances, to protect staff and secure stakeholders. In 2021, organisations will turn their minds to a return to the office as we learn to live with COVID-19 while focusing on rebuilding the economy. These challenges cast a new light on the questions asked in the Forward Governance Agenda consultation. One of the main themes to come out of the consultation was a strong demand for AICD guidance on elevating stakeholder voices to the board. The COVID-19 pandemic further highlighted the importance of proactively communicating and engaging with key stakeholders. With that in mind, the AICD is working on new guidance to elevate these voices, outlining the benefits of stakeholder engagement.

Later this year, the AICD will also release a resource on board oversight of climate change risk, and we have commissioned a leading barrister to provide an opinion on the scope of the best interests duty, including consideration of stakeholders and creditors. We are committed to implementing the Forward Governance Agenda program across the AICD, with initiatives underway on reviewing the membership code of conduct, and the introduction of ethics obligations.

Aged care

The AICD lodged a submission in November to the Royal Commission into Aged Care Quality and Safety. We agreed that, given the deeply disturbing evidence of failures in Australia’s aged care sector heard by the Royal Commission, there was a need for major changes to governance practice and regulation. The final report was provided to government on 26 February.

Sexual harassment and the board

In September 2020, the AICD partnered with the Australian Human Rights Commission (AHRC) to discuss the findings of the AHRC’s landmark Respect@Work: Sexual Harassment National Inquiry Report 2020. For directors, the message from the Respect@Work report was a call to action for boards on zero tolerance cultures, and a shift from a reactive, legal lens to one of culture, risk prevention and early intervention. The Champions of Change Coalition has embraced these directions.

The AICD recognises that workplace sexual harassment is an important governance issue for boards — and one that requires heightened attention. Consultation with our division councils and advisory committees has highlighted a strong demand for increased guidance and support. The AICD will consult with the AHRC on its recommendations for director education — and the new Respect@Work Council that will lead industry collaboration on this issue. The AICD is also working on practical tools to assist directors on the questions they can ask of management, and the oversight role of the board in combating workplace sexual harassment.

Safe Work Australia has recently released a new guide — Preventing Workplace Sexual Harassment — aimed at assisting officers and directors discharge their duties under WHS laws to eliminate the risk of sexual harassment occurring in the workplace. 

Women in leadership

As we witness a variety of interventions to accelerate the representation of women in leadership in other markets (see our article, Is your board under-represented, here.), Australia can be pleased with the progress we have made on boards using voluntary targets.

The AICD’s latest gender diversity statistics reveal that both the ASX 200 and ASX 300 have hit the 30 per cent threshold target. However, while that puts us in a leading position at an aggregate level, our quarterly reporting consistently reveals those at the lower end of the ASX have been slow to realise the potential of gender diversity on their boards.

This year the AICD and the 30% Club will be focusing efforts on the companies that are almost there, those that are lagging behind, and those that still need convincing. This International Women’s Day (8 March), we’re challenging directors and chairs to ensure their boards are equipped with the range of perspectives to meet the needs of their organisation’s future.

Class actions

In December 2020, the AICD backed calls by a Parliamentary Joint Committee for substantial reform to Australia’s securities class action settings. The committee found that shareholder class actions are “generally economically inefficient and not in the public interest” with shareholders in net terms no better off.

The AICD has argued that the COVID-19 temporary move (due to expire March 2021) to reintroduce a fault element in continuous disclosure laws should become permanent — a view backed by the committee. We have also called for similar reform of misleading and deceptive disclosure thresholds contributing to securities class action claims. Such reforms would preserve Australia’s strong continuous disclosure rules, and continue to hold accountable, companies and boards that knowingly or recklessly breach them.

The committee has also recommended reforms to the broader class action and litigation funding market that would improve its operation and outcomes for claimants. Rebuilding the economy post-COVID-19 will require an environment that encourages investment and risk-taking while building business and market confidence. The AICD has called upon the federal government to make reform of our securities class action setting a priority in 2021.