Making amends

Reconciliation is a national governance issue, writes Louise Petschler GAICD. Audit quality and modern slavery laws are also in the spotlight, with member views sought.

Reconciliation: a national governance issue

In last month’s Company Director we introduced Justin Agale MAICD, the AICD’s Sector Lead — First Nations, who is part of our Governance & Policy Leadership team at AICD.

The AICD is the leading governance body in Australia. Through our governance education, membership services, and governance and policy leadership, we have a unique role, and an important responsibility, to strengthen society through good governance.

With 50,000 members, the AICD has the largest membership of any director institute in the world, and our broad membership covers all sectors of Australia — including First Nations directors and organisations. The AICD contributes to national governance debates and regulations as part of our core mission.

Over coming months, members will see the AICD working to promote reconciliation in our services and advocacy, and in our resources and education. Why is this relevant for the AICD and our members?

Good governance: Every Australian organisation, and every Australian board, operates on Aboriginal or Torres Strait Islander land. AICD’s guidance on stakeholder governance highlights First Nations stakeholders as a key consideration. The AICD can support all directors in their engagement with reconciliation as a governance issue.

National governance: Australia is an outlier among Commonwealth nations in recognition of First Nations peoples and enshrining a First Nations Voice in national decision-making. The AICD supports effective national governance — and national reconciliation will strengthen this.

Inclusion: AICD membership includes many First Nations directors and governance leaders. The AICD can do more to connect, support and engage our First Nations members.

Leadership: As the leading national voice for governance, the AICD has a responsibility to set the tone, just as boards set the tone for their organisations.

Insights: Australia is home to the longest living culture in the world, with a governance mindset that has ESG in its DNA. A truly Australian model of governance could bring insights from Aboriginal and cultural governance together with corporate governance models.

As AICD chair John Atkin FAICD said at our Annual Governance Summit earlier this year, “We are interested in the governance of our society and it is entirely appropriate we have a focus on the values of the society we live in as we work towards achieving reconciliation. We will be far stronger as a society when we achieve reconciliation with our First Nations people.

We must go about that task with humility and respect for each other and the communities in which we work.”

Audit quality: a new guide for boards

Overseeing the financial sustainability and solvency of their organisations is a core responsibility of all directors. External audit is an important support for directors of most organisations in meeting this obligation.

To support boards and audit committees in their oversight of audit quality, the AICD has released a new guide with the Auditing and Assurance Standards Board. The guide sets out a framework for a “deep dive” on external quality, recommending as a starting point that organisations undertake this every five years.

While our guide is particularly relevant for listed company audit committees, we recommend that all boards consider adopting this process, tailoring it to their own circumstances.

Modern slavery governance obligations

Australia’s modern slavery laws — which set out specific governance and reporting obligations for modern slavery risks — are undergoing a major review. Under the Modern Slavery Act 2018 (Cth), Australian entities (or entities operating in Australia) with a turnover of more than $100m are required to lodge a modern slavery statement with the government each year. The law applies to for-profit and NFP organisations alike.

Modern slavery statements must be approved by the board and signed by a director. They require a description of the risks of modern slavery practices relevant to operations and supply chains, and the actions taken to address these risks.

Recent reviews by the government have criticised the quality of modern slavery reporting and risk management. Currently, there are no penalties for breaching reporting requirements, however, all statements are public. The statutory review of the modern slavery laws is led by Professor John McMillan AO. An issues paper was released in August. Submissions are due by 22 November, with the final report due in March next year. The key issues for the review are whether:

• Reporting thresholds should be lowered — for example, from $100m turnover to $50m
• Penalties should be introduced — with strong support for this from stakeholders
• A new agency should be created to oversee modern slavery risks and mitigation.

Modern slavery is a human rights issue. Educating and supporting boards on this issue is an important part of improving Australia’s national resilience. However, legislating penalties and new reporting is not a simple solution to this complex challenge.

To date, the AICD has resisted the introduction of penalties, arguing that transparency and good practice guidance is a better focus. We have also argued that penalising smaller organisations is counterproductive. However, the public policy arguments in favour of penalties for large or significantly exposed entities are stronger given the quality of modern slavery reports to date.

The AICD has also argued, to date, that imposing reporting obligations on smaller organisations risks creating regulatory burdens for limited effect. A focus on education and good practice guidance with government support and resources could deliver better outcomes.

The AICD welcomes member feedback to inform our submission at policy@aicd.com.au