Australia's corporate regulation is overdue for an update

As the pandemic continues to force the digital transformation of business, it is vital that corporate rules and regulations catch up, writes AICD head of Advocacy Louise Petschler.

One of the most obvious impacts of COVID-19 on businesses and community services has been the fast-tracking of virtual operations to allow us to engage and work remotely. “Zoom fatigue” and internet outages aside, in a short period we have seen a real step change in virtual capability by organisations with corresponding shifts in community and consumer demand. The same change is now needed to update the physical and paper bias of the Corporations Act 2001 (Cth). This is one of the AICD’s regulatory reset priorities over the coming months.

COVID-19 disruption highlighted legal barriers to holding virtual annual general meetings (AGM), the electronic delivery of notices of meetings, electronic signatures and execution of legal documents. In response to calls by the AICD and others, the Treasurer provided emergency relief until 5 November using his COVID-19 special powers, allowing virtual AGMs and e-communication. The AICD is calling for these changes to be made permanent to modernise the law.

On AGMs, the AICD believes organisations should have the capacity to adopt the best format for meetings for their circumstances, members and stakeholders — physical, hybrid or virtual. Regulations should focus on the outcomes and purpose of meetings, not their delivery channel, enabling flexibility and technological neutrality. This is an issue for directors across all sectors.

In the AICD’s recent COVID-19 member survey, there was support for making capacity to hold virtual general meetings a permanent reform, with strong backing from NFP directors and listed sectors. AGMs are a critical forum to hold companies and boards to account. Fresh thinking and more flexibility on AGMs may also help reinvigorate the format. While the law should permit virtual AGMs, it should not mandate them. And for organisations that choose virtual and hybrid formats, proactive steps will need to be taken to facilitate full participation by all members, including retail shareholders for listed entities. Feedback from AICD members on virtual AGMs held so far in 2020 is positive, including supporting participation by geographically diverse members and retail shareholders.

The AICD is working with the Governance Institute on AGM reform. We have also joined The Law Society of NSW, Council of Small Business Organisations Australia, Australian Banking Association, BCA and others in calling for permanent digital friendly corporate settings.

NFP fundraising fix needed

Another priority for regulatory modernisation is not-for-profit fundraising. Our diverse NFP and charities sector is seeing rising demand for services and support. Yet the NFP sector is facing acute and worsening funding constraints. COVID-19 has made this challenge even more urgent. With opportunities for face-to-face fundraising curtailed, online fundraising is vital for the sector.

Unfortunately, Australia’s complex and duplicative regulations make this a huge challenge. Different registration, notification and approval requirements operate across states and territories, making a simple online campaign or “donate now” button a compliance nightmare. The AICD has been a long-time supporter of fixing NFP fundraising rules. Greater certainty on funding and fundraising were high priorities for NFP directors in the AICD’s recent COVID-19 survey.

In positive news, charitable fundraising regulators across Australia have committed to taking “a supportive and educative approach to compliance” for NFPs due to the impacts of COVID-19. A national working group is also examining permanent regulatory changes that will reduce red tape for fundraising across Australia.

These are welcome first steps, but more is needed. The AICD will continue to advocate for change.

Director IDs for life

In one of the most significant changes to directorship in Australia, new director identification numbers (DIN) are set to roll out from next year. All directors will be required to hold a unique director identification number, called a director ID, which will follow them for life. Director IDs will verify identity and provide traceability of a director’s profile and relationships over their director career.

Director IDs are tied to a new technology-neutral modern business registry regime combining existing registers and data standards. Director IDs are expected to be rolled out in the first half of 2021, with key details yet to be worked through on administration (proposed via MyGov) and publicly available information.

The AICD supports director IDs — which should help combat illegal phoenixing — while also acknowledging the implementation challenge ahead in rollout across millions of directors. Importantly, the new register data standards also provide scope to address the AICD’s long-standing privacy concerns about director personal information being publicly available on registers. The AICD is participating in an industry working group formed by government and will provide detailed updates to members on the new obligations as they are finalised.