A simpler regulatory environment

The AICD is committed to playing its part in ensuring we have simpler and more effective regulation, writes AICD CEO Mark Rigotti MAICD. 

Since the beginning of this year the federal government has been consulting on three significant pieces of legislation that impact business. The review of the Privacy Act, the proposed introduction of mandatory climate reporting and the 2023–2030 Australian Cyber Security Strategy all have major implications for the way organisations operate and the AICD has been active in the consultations.

Individually, each of these reforms contains well- targeted measures that can benefit stakeholders and the economy. However, given they are all being conducted independently, we need to consider the cumulative effect of the regulations and their potential impact on the whole economy.

The Australian regulatory landscape is already daunting for business. The Corporations Act alone runs to more than 3,900 pages. Former High Court Chief Justice Sir Anthony Mason described its complexity as Byzantine and the Australian Law Reform Commission (ALRC) is running an inquiry into its simplification.

The ALRC has noted that the intricacies of the Corporations Act hinders organisations from knowing how to comply with the law, and prevents regulators from enforcing it. This is before you consider the multitude of other pieces of legislation and regulation that businesses have to comply with. The ALRC gives the example of a financial services context where organisations must consult the Corporations Regulations 2001 (over 1,300 pages), more than 270 ASIC legislative instruments, 200 regulatory guides and 200 information statements (collectively comprising many thousands of pages).

A force for good

There is no doubt sensible regulation is necessary to help ensure that businesses behave appropriately and appreciate their critical role in society. Each new regulation from our parliaments, or indeed enforcement action by regulators, rightly shifts the behaviour in boardrooms. That’s why the AICD strongly supported the introduction of a positive duty on employers to eliminate sexual harassment in the workplace. We agreed that the existing legal framework unduly placed a burden on individuals and that employers needed to take more proactive and preventive action.

But the regulatory environment has never been more complex or demanding, with an increasing array of stakeholder interests and expanded non- financial, as well as financial, disclosures required of boards. We must remain vigilant to ensure the accumulating regulatory burden does not lead to overly conservative decision-making and lost opportunities at both management and board levels. In the AICD’s 2022 innovation study, many of you said that legislative and regulatory compliance had the greatest impact on your organisation’s ability to focus on long-term growth.

The burden is particularly heavy on small businesses, not-for-profits and the care sector, where resources may be diverted from core operations to compliance. Business leaders in the aged care sector have cited the increased cost of complying with new regulation — which is well intentioned but piecemeal — as one of the factors forcing the closure of facilities.

It is critical that governments and regulators keep this in mind. Take the proposed mandatory climate reporting standards. Elevating standards of climate governance has been a policy and practice priority for the AICD. We fully support the federal government’s goals to promote high-quality, comprehensive and comparable disclosures to the market. The shift to mandatory reporting is an important step in combating climate change and time is of the essence.

The regulations, though, risk creating a heavy liability burden if there aren’t changes to Australia’s existing disclosure settings, which were designed for financial, not climate, reporting. Directors don’t have a crystal ball. We want boards to be able to make fulsome disclosures without being held to an unreasonable standard that requires them to foresee the future, and without undue fear of litigation.

The AICD also supports the Privacy Act review, which is an important opportunity to foster a digital economy where individuals and businesses engage in innovative ways. But, again, the recommendations should be considered holistically with other potential reforms, including the development of the 2023–2030 Australian Cyber Security Strategy. When it comes to regulation, the left hand has to know what the right hand is doing.

“An issue for all of us”

The challenge for governments and regulators isn’t simple. How do you reward and encourage good directors and stamp out the bad behaviour of a few? Always resorting to additional layers of regulatory obligation on complex issues is not the answer. In fact, it makes the job of regulators harder.

Joe Longo, ASIC chair, was frank in his conversation with me at the Australian Governance Summit, when he responded to a question about the compliance burden. He said: “Australia has had a love affair with complex regulation since the 1990s. We now have a situation of an extraordinarily complex legal and regulatory culture... It really is an issue for all of us.”

As the voice of directors, the AICD is committed to playing its part in ensuring we have simpler and more effective regulation.

Get your heart checked

Last month, ahead of the federal budget, Heart Foundation CEO David Lloyd joined Health and Aged Care Minister Mark Butler to announce that the Medicare Heart Health Check program would be funded for another two years.

The program provides a 20-minute check-up for adults aged 45 years and over, or 30 and over for First Nations people. A GP will check your blood pressure, cholesterol and blood sugar, and ask key questions about nutrition and exercise, as well as your medical and family history. These factors allow the GP to assess your risk of having a heart attack or stroke and develop a tailored plan to drive down risk.

Heart Health Checks are important because all too often the first sign or symptom of heart disease is a heart attack. I encourage eligible members to take advantage of the program. You can find more information at the Heart Foundation’s website. 

This article first appeared under the headline ‘A Simple Plan’ in the June 2023 issue of Company Director magazine.