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Reflecting on five years leading the regulator, Joe Longo says the fundamentals of governance remain unchanged.
Directors must understand how their organisations operate, how they make money, the risks they take and how technologies such as AI are shaping them.
In a more complex regulatory and technological environment, curiosity and active engagement in the boardroom matter more than ever.
Outgoing ASIC chair Joe Longo has backed fellow commissioner and current deputy chair Sarah Court to take the corporate regulator forward when she succeeds him in June, saying she inherits a stronger, more confident organisation than the one he took over five years ago – and warning directors they cannot afford to be passive in the face of rising governance expectations.
“Sarah and I started on the same day,” Longo told Company Director on the sidelines of the AICD’s Australian Governance Summit in Sydney. “She has an exceptional enforcement background. I’m confident she’ll take the regulator forward. She’ll do it in her own way.”
Longo, who steps down after five years at the helm, used his final AICD address to lay out his parting message for directors – the fundamentals of the role remain unchanged, even as community expectations, technology and regulatory complexity continue to rise.
Curiosity is the director’s core duty
“The fundamental duty of any director is to understand the business,” said Longo in an exclusive interview. “There are lots of duties, but that’s a pretty good starting point.”
Directors are not expected to run day-to-day operations, he said, but they must develop a working understanding of how the organisation operates, where it takes risks and the legal and regulatory landscape it faces.
“If you’re going to be a director of a company, then you have to understand the business, how the company makes money, what risks it takes in making money and what the key legal or regulatory challenges are,” he said.
“How do you understand the business? By being curious. By asking lots of questions. You’re not expected to be the day-to-day person, but you need to understand how the company makes money and what challenges it faces.”
Technology now underpins every organisation, he said. “I don’t think there is any entity in the country that can successfully operate without having a grip on systems, processes, data, technology and now AI… Talk to any successful tradesperson, they’re on top of technology to provide a service, invoice and track the information they need. It’s fundamental.”
With these growing demands, admitted Longo, “The boardroom seat just isn’t as comfortable as it once was”. Still, he believes the pressures can be “overstated”, and directors with a genuine passion for the organisations they serve are better placed to handle them.
“You should only take on directorships where you really care about the business of the company and you’re really interested in it.”
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Not engaging in AI is risky
AI is emerging as one of the most significant risks and opportunities for boards, said Longo, stressing his biggest concern is inaction rather than misuse.
“This may surprise you,” he said. “I’m more worried that they’re not dabbling at all. Inaction is as risky as action… You cannot put your head in the sand. AI will affect everything in our community.”
He said directors should be asking management the right questions.
“If you’re running a business or you’re a director of a company, you should be asking: What AI are we using? How do we use data? What are the opportunities for AI that we’re not utilising at the moment? Are there entities we’re dealing with that are using AI and providing a service to us? Are we on top of the benefits and risks?”
Boards cannot be passive
Longo also emphasised the lessons from the recent Federal Court judgment in ASIC’s proceedings against former Star Entertainment executives and directors. While non-executive directors were cleared of breaches, Justice Michael Lee outlined clear expectations for board engagement.
“One of the messages coming out of Justice Lee’s decision is that directors have control over the information they do get,” said Longo. “He uses the expression that they can’t be a ‘passive recipient’. Rather than catastrophise, it goes back to basics.”
Directors, he said, must actively engage with management and the information they receive – what he calls “interrogating management”.
“When I talk about interrogating management, I’m not talking about giving them a hard time,” he said. “It’s more about actively engaging with management so you get what you need to do your job. If the board packs are too long and impenetrable, then you’re going to call that out.”
At ASIC, Longo takes a very hands-on approach. “There’s lots of material for commission meetings,” he said, noting he insists on knowing the three or four key issues, what to focus on, the risks involved and where the material is addressed in the papers.
It all comes down to the virtuous circle of curiosity and trust. Directors must do the work, ask the right questions and build confidence in senior executives. “If you’re engaged and active, you’re far more likely to get it right”.
Longo’s legacy
Reflecting on his tenure, Longo said he inherited a regulator that was risk-averse and grappling with legacy governance issues. Over five years, he said, ASIC has become “confident, modern and ambitious”.
“We’ve restored a formidable enforcement capability and we are pulling our weight on what I would call regulatory changes and forward leadership, around innovation, regulatory complexity, private and public markets.”
He emphasised enforcement alone does not define the regulator, which also seeks to support markets and innovation while providing guidance to businesses and investors.
“What I’m really proud of is that I think we’ve got the balance of that right,” said Longo, adding that while the role had its highs and lows, he is broadly proud of all the regulator has achieved during his tenure.
After stepping down, Longo plans to take a break, but does not intend to retire.“I plan to remain active,” he told Company Director, leaving open what form that might take.
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