The AICD has welcomed regulatory relief on virtual AGMs, but long-term reform will be needed to support economic growth after the pandemic, writes AICD head of Advocacy Louise Petschler.
COVID-19 relief extended
With Melbourne in stage four lockdown and concerning coronavirus outbreaks in other states, COVID-19 disruption continues to challenge boards, organisations and governments for the months ahead. Public health and safety must be the primary focus. As economists worldwide have noted, there can be no economic recovery until the pandemic is under control.
Just as organisations must adjust to uncertainty and disruption, so too must our governance and business regulations. Recognising this, the Treasurer enacted temporary (six-month) COVID-19 relief on issues such as insolvent trading liability, reporting, capital raising, securities class actions and virtual business operations. The AICD wrote to the Treasurer in July, seeking an extension of temporary relief until at least the end of the 2020 calendar year, given continuing COVID-19 uncertainty.
In positive news, the federal government has announced the extension of relief for virtual AGMs, communicating electronically with shareholders and members, and executing corporate documents electronically until March 2021. This is a welcome step that will provide certainty across the full 2020 reporting season. However, further extension of COVID-19 regulatory relief will be necessary on other fronts.
Reforming securities class actions
While urgent regulatory measures to deal with COVID-19 disruption remain the priority, focus is also moving to pro-growth reforms to boost growth and job creation. The AICD has identified several “regulatory reset” priorities (see breakout below) to support these objectives. One, securities class actions reform, has been in the spotlight recently. There are strong views on this issue and it is useful to set out our position for members.
First, the AICD supports continuous disclosure as vital to a well-functioning market and investor confidence. We do not advocate for a watering down of continuous disclosure obligations.
What we do support is a review of the settings that have made Australia today one of the most attractive countries for commercially funded securities class actions — where returns to litigation funders, not the public interest, drive cases.
The AICD has long held concerns about the interaction between Australia’s strict liability continuous disclosure laws and the securities class actions regime. There is evidence that the current settings are driving adverse consequences for businesses, shareholders and the economy — one example is the deterioration in the directors and officers (D&O) insurance market, which impacts all organisations.
The AICD has called for reform to the substantive law and court processes — without limiting continuous disclosure obligations or directors’ duties. We propose adding a “fault” element to civil breaches of continuous disclosure and misleading and deceptive conduct provisions, similar to the “fault” elements applying in other common law jurisdictions — building on the temporary COVID-19 measures that the Treasurer has introduced.
Companies and their directors who are reckless, negligent, or who knowingly seek to breach their continuous disclosure obligations or to mislead the market (by commission or omission) would face the full force of strong penalties and enforcement — as they should.
Continuous disclosure obligations, listing rules and criminal penalties for serious breaches would all continue to apply to listed companies and their officers — as they should.
The AICD has also questioned whether disclosure would be better regulated by a well-resourced Australian Securities and Investments Commission, rather than for-profit litigation funders, with other options to compensate investors who suffer loss. Access the AICD submission here.
AICD regulatory reset priorities
The AICD is calling for a regulatory reset to support growth and recovery, with priorities in:
- 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 companies.
- NFP funding reform to provide certainty and relief to the sector.
The AICD’s focus on not-for-profit funding challenges reflects strong feedback from our recent COVID-19 member survey, where 76 per cent of NFP directors cited this as the priority for sector support. We have also been lobbying for greater focus on the challenges facing the NFP sector in stimulus and support — extending insolvency relief to charities as one example.
Three AICD initiatives to support our NFP directors and members are worth highlighting:
- Our new NFP Matters podcast, with the AICD NFP sector lead Phil Butler GAICD in conversation with leading NFP directors. Access the NFP Matters podcast.
- 140 NFP scholarships for AICD NFP governance training for directors of smaller NFPs (under $2m in revenue), launching in September via our scholarships page.
- AICD’s 2020 NFP Governance and Performance Study will launch in October, with insights on governing through the pandemic and ongoing governance challenges facing the sector.
The advocacy team has also been keeping an eye on wage theft issues following high-profile instances of systemic underpayment of employee entitlements by large corporates. While federal reforms have been placed on hold during the COVID-19 crisis, new laws have been passed in Victoria criminalising dishonest withholding of employee entitlements (to commence next year) and are under review in Queensland (an offence of “stealing” — where an employer intentionally fails to pay employee entitlements).
The AICD has no issue with deliberate theft being punished. We also acknowledge that it is the employer’s responsibility to ensure employees are paid their entitlements. However, we do have concerns if directors are to be forced to prove their innocence against criminal charges for corporate misconduct. The AICD also prefers harmonised national workplace laws rather than different state approaches.
Directors should continue to exercise diligence in governing systems and controls for employee entitlements — and maintain a watching brief on further penalties in this area.
While Australian listed companies have made impressive strides in lifting gender diversity on boards, the heavy lifting done by the ASX 200 masks less impressive statistics further down the index. A recent report by KPMG and the 30% Club on board gender statistics of the ASX 201-300 showed while a quarter of this category have achieved the 30 per cent target, more than half have only one woman director, or none at all.
Drawing on interviews with leading directors, the report presents “learnings” for mid-cap firms on attitudinal shifts, leadership, the impacts of diverse boards and appointment process. As mid-cap companies look to expand their business and address challenges of the future, the AICD encourages directors to consider how diversity can better support future priorities and needs.
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