Sufficient time must be allowed to thoroughly examine proposed changes to laws and regulations to guarantee a fair and effective outcome. The overhasty review period for the Banking Executive Accountability Regime is a case in point.
Good laws require good consultation
The current trend towards short consultation periods on complex law reform is a significant concern for the AICD. It is poor governance for our national decision-makers to rush complicated reforms through without the opportunity for consultation and review.
In late September, the Federal Government provided a week for stakeholders to provide views on draft legislation to implement the wide-ranging Banking Executive Accountability Regime (BEAR). The BEAR is a complex regime that cuts across the role of boards and management and goes to the heart of the regulation of our banking system. Such important reforms deserve careful consideration, particularly where they have the potential to impact on the governance of our critical banking sector.
The blink-and-you’ll-miss-it consultation period for the draft legislation came after a three-week consultation period on the scheme’s high-level design. In our response to that time frame, we noted that such a brief period was inadequate for stakeholder review.
Compare this to the UK’s approach with its Senior Managers Regime, which involved about four months of consultation with subsequent detailed engagement with industry. The US Federal Reserve Board is also currently consulting on the introduction of a package of new governance expectations for large financial institutions, with an initial 60-day period of consultation. That is twice the amount of time that the Australian Government has provided in total for a far more complex regime.
Stakeholder efforts to provide meaningful feedback were made harder by the fact that similarly short consultation periods on superannuation governance and APRA crisis powers overlapped with consultation on BEAR. These reforms go to the heart of our financial system. Stakeholders were given 16 days for the former, and just three weeks for the latter, despite the explanatory memorandum alone running to 174 pages!
This rushed approach to major reform increases the risks of poor policy-making and unintended consequences. It certainly runs counter to a focus on the long term and good governance. The AICD is encouraging political decision-makers to ensure major reforms are carefully analysed, considered and improved through genuine consultation.
Blowing the whistle
The AICD strongly supports more robust whistleblower protections, as the current legislative regime fails to encourage a culture of disclosure or adequately protect whistleblowers.
The Parliamentary Joint Committee on Corporations and Financial Services recently tabled its report on reform options, calling for stronger protections for people who report illegal conduct. The report recommends a number of improvements supported by the AICD, including consolidating existing private sector whistleblowing protections into a standalone act, the establishment of a Whistleblower Protection Authority, broadening the definition of “disclosable conduct” and extending protections to current and former staff, contractors and volunteers, and anonymous whistleblowers. The report also recommends stronger protections against victimisation.
Notably, it recommends removing the requirement of “good faith”. The committee has proposed it be replaced with a more objective test (that a person be required to have a reasonable belief of the existence of disclosable conduct), which the AICD welcomes.
The report also recommends extending protections to disclosures made to the media where a law enforcement agency has not taken action within a “reasonable” amount of time. Financial incentives, or bounties, for whistleblowers have also been recommended. The AICD will raise its concerns about these proposals with the Government’s new expert advisory panel on whistleblower protections.
Safe harbour reform
The AICD has welcomed the passage of new laws creating a safe harbour for directors from personal civil liability in insolvency, in certain circumstances. The AICD has been a vocal and active supporter of this reform.
One is the loneliest number
In the AICD’s recent Gender Diversity Quarterly Report, we highlighted the companies who have had only one female director on the board for a long period of time. The report tracks progress towards the AICD target of 30 per cent female representation across ASX 200 boards by the end of 2018. As of 31 August, there were 64 ASX 200 companies with only one female director. Our analysis found there were 10 companies where the lone female director has been on the board for three or more years and multiple male directors have been appointed in the succeeding years. In some cases, as many as seven or eight men have been appointed since these boards gained their first female.
The Federal Opposition has announced FutureAsia, its policy for deeper Asian engagement. Shadow treasurer Chris Bowen launched the policy in a headland speech to the Asia Society in late September. As part of a range of initiatives, he announced that an incoming Labor government would allocate $3 million to work with the AICD on a pilot program for mentoring Asia-capable potential board directors. The objective is to get more Australians with Asian business experience on our boards.
This focus is timely, as it follows a report by PwC for Asialink - Match Fit: Shaping Asia Capable Leaders, which found that 67 per cent of ASX 200 board members showed no evidence of extensive operating experience in Asia and 55 per cent demonstrated little or no knowledge of Asian markets. Just 14 per cent of senior executive teams showed Asia capability, with senior women scoring higher. Larger companies showed higher levels of Asia capability, as did private companies.
The AICD welcomes the Opposition’s focus on engagement with Asia. Business, society and government all have important roles to play in supporting better economic ties with the region.
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