AICD's position on class action reforms, social licence to operate and the ASX Corporate Governance Principles. How does it affect your board?

    AICD backs class action reform

    Funded class actions play an important and legitimate role in facilitating access to justice. The AICD is concerned, however, that Australia’s current securities class action framework is increasingly subjecting companies, directors and ongoing shareholders to unintended and adverse consequences. As one illustration, according to King & Wood Mallesons, over the past decade, the quantum of settlements has increased more than tenfold, to over $1.5 billion in 2016–17.

    We recently responded to an important discussion paper on class actions and litigation funding by the Australian Law Reform Commission (ALRC), supporting many of the ALRC’s recommendations. We have warmly welcomed the ALRC’s call for a review of the legal and economic impact of the interaction of Australia’s continuous disclosure laws, and misleading and deceptive conduct provisions with regards to the propensity for companies to be subject to class actions, the impact on shareholder value and the availability and cost of D&O insurance.

    The AICD strongly supports continuous disclosure as being critical to market integrity and investor protection. However, as the ALRC has noted, our statutory provisions have some “peculiar” characteristics. This is especially so when compared with other common law jurisdictions, such as the UK, Canada and the US, which provide companies and directors with greater certainty where they have acted with due care and diligence.

    The ALRC paper also proposed licensing of litigation funders — a reform that the AICD has called for over many years and one that the government should embrace as a priority. Regulation of litigation funders will, in our view, improve outcomes for all stakeholders, including class members.

    Among other items, the AICD also supported proposals to enable courts to more efficiently address competing class actions, and argued against introducing class action contingency fees in Australia.

    Click here to read our submission in full.

    Social licence and the Principles

    As covered in last month’s Company Director, the ASX Corporate Governance Council (of which the AICD is a long-standing member) is consulting on revised Corporate Governance Principles & Recommendations — referred to as the Principles.

    All listed entities report against the ASX Principles on an “if not, why not” basis — that is, how they meet the Principles or, if they choose not to comply with specific recommendations, explaining why. This “if not, why not” approach is critical, in our view. As the Principles state: “Which governance practices a listed entity chooses to adopt is fundamentally a matter for its board of directors”.

    Recently, David Murray AO FAICD, chair of AMP, sparked public debate by questioning the role and scope of thePrinciples, arguing that they risk distracting boards from core governance functions.

    It is important that the ASX Corporate Governance Principles and Recommendations remain tightly drafted and principles-based.

    The AICD supports the Principles — and the “if not, why not” framework — but it is important that they remain tightly drafted and principles-based. In the view of the AICD, the Principles have served the investor and business communities well for the past 15 years, and continue to be an important reference point for governance practice.

    The AICD has, however, raised concerns about the level of prescription in the consultation draft and argued against including subjective concepts of social licence and social responsibility. Click here to read our submission in full.

    More NFP scholarships

    The AICD has a strong commitment to good governance in the NFP sector. One of our more tangible signs of this commitment is our NFP scholarship program for AICD training. This year, we’re delighted that the AICD has been able to expand our program to fund 140 scholarships around the country for NFPs with turnover of less than $2 million. The AICD received more than 550 applications for the program this year.

    As OzHarvest Canberra manager Dave Burnet wrote about his experience of the program: “Being a not-for-profit organisation, funding for high-level training is not a luxury we can take for granted… The day was very worthwhile… covering all aspects of the role of a board member or director.”

    Watch this space

    This year, Company Director is monitoring progress on the AICD target of 30 per cent women on boards by the end of 2018.

    The AICD remains committed to promoting increased gender diversity in Australian boardrooms. In 2015, the AICD set a target for 30 per cent representation of women on boards, calling for the ASX 200 to meet this voluntary benchmark by the end of this calendar year. While our focus remains on this voluntary target, the AICD recognises there are many more facets to diversity. With this in mind the AICD has recently collaborated on two new studies on different aspects of diversity on boards.

    Beyond 200: A Study of Gender Diversity in ASX 201–500 companies, released in August, looks at gender diversity on ASX 201–500 boards. Conducted in partnership with executive search firm Heidrick & Struggles, the report found that the figure for women on boards was 15.8 per cent, significantly lower than the 27.9 per cent on the boards of the ASX 200. Interestingly, the study found that newly listed companies have a significantly higher percentage of female directors (25.3 per cent). Where small capitalisation companies are chaired by ASX 200 chairs, their boards tend to have a higher proportion of female directors (22.9 per cent). The report also provides insight into the reasons for slower progress towards gender diversity across the ASX 201–500. Access the full report at

    Beyond the Pale: Cultural Diversity on ASX 100 Boards, conducted by the University of Sydney’s Business School and launched in late July, is a qualitative research project based on interviews with non-executive directors and executive search firms. The report examines the drivers and inhibitors to cultural diversity, with recommendations for action for boards wishing to explore cultural diversity in greater detail. 

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