Policy Update: Budget inflicts big loss on business community

A monthly review of the Australian Institute of Company Directors’ policy and advocacy team’s key projects and issues.

CAMAC Abolition

Following the Budget, we communicated our disappointment to the federal government about its intention to abolish the Corporations and Markets Advisory Committee (CAMAC).

We believe disbanding CAMAC would be a great loss for the Australian business community and have encouraged the government to reconsider its position. 

We believe the hallmark of any solid deregulation agenda is not just removing unnecessary regulation, but also ensuring that the regulation which remains is working as effectively as possible. 

CAMAC has played a critical role in this regard by identifying, explaining and analysing corporate law and market-related problems.
As a result, the government’s decision to disband CAMAC and lose the expertise of this cost-effective body is likely to increase red tape in the long-term.

CAMAC’s recent work has included a review into shareholder engagement and a report on the contemporary issue of crowd-funding.

It has provided valuable and objective analysis of issues important to corporations and directors during its 25 years of existence. Its contribution to the debate on corporate issues, for example on personal liability for corporate fault, has made a marked and positive difference to the outcomes for all stakeholders.

The fact that we may have disagreed with CAMAC on some issues only highlights the healthy debate CAMAC has promoted in the corporate community.

The government’s efforts to reduce unnecessary bureaucracy that can stifle business are welcome. However, in this instance, we believe it has made the wrong call on an organisation that has easily proven the value of its existence.

Litigation Funding And Class Actions

For a number of years we have advocated that litigation funders be subject to a tailored licensing regime, enforceable by the Australian Securities and Investments Commission (ASIC).

It is pleasing to note that our view was echoed by the Productivity Commission (PC) in its draft report Access to Justice Arrangements.

We believe that the fundamental objective of the court system is to facilitate justice and to resolve real disputes between aggrieved persons. A regulatory regime which encourages the proliferation of class actions for third-party profit is not in the best interests of the Australian economy or the community.

Among other suggestions, the PC’s draft recommendations stated: “Third party litigation funding companies should be required to hold a financial services licence, be subject to capital adequacy requirements and be required to meet appropriate ethical and professional standards. Their financial conduct should be regulated by ASIC, while their ethical conduct should be overseen by courts.”

We are, however, concerned about the PC’s draft recommendation to remove the prohibition on lawyers charging contingency fees in Australia.

We are of the view that allowing lawyers to charge contingency fees will undermine the well-respected integrity of the legal profession and the primary role of lawyers as officers of the court.

The role of lawyers as officers of the court should be to quell, not promote, disputes.

As this is a draft report, we await the PC’s final recommendations, post-consultation. In the meantime, we continue to advocate our position to relevant members of the government and Opposition.

I spoke about this issue in detail with Chris Merritt, the legal affairs editor at The Australian, in an online interview on 6 June. You can see this interview on The Australian’s website.

Short-termism

In late May, the Global Network of Director Institutes (GNDI) released its latest perspectives paper Curbing Excessive Short-Termism.

The paper describes the global perspective of the GNDI on the problem of excessive short-termism by corporate decision makers.

It outlined the business, economic and social consequences of excessive short-termism and provided recommendations for companies to address the issue.

It also included a survey of key global efforts, developments and available resources.

Excessive short-termism is described in the paper as “a focus on short-term objectives that disregards (whether intentionally or otherwise) the potential adverse effect of those objectives on long-term value creation”.

The paper argues that there is a current imbalance in decision-making by the leadership of major listed companies in favour of short-term perspectives and objectives which, if left unchecked, could lead to a reduction in the value of share markets over the long-term.

This imbalance has arisen from a number of causes.

Some are external to the company, such as an absence of concentrated shareholdings in individual companies, a substantial rise in financial intermediaries over the past decade and the growth of high-frequency traders and exchange-traded funds, both of which put pressure on corporations to produce short-term results.

The paper concludes, as many others are also advocating, that a greater emphasis on longer-term considerations is now needed.

This will require boards to be committed to working with management to extend their focus beyond the shorter-term and influencing management to increase its focus on long-term value creation, as well as for boards to provide support if management face short-term pressures.

GNDI, of which we are a founding member, increased its membership to 13 of the world’s most influential governance groups after peak directors’ bodies in Hong Kong, Singapore and Mauritius joined its ranks in late May.

This reflects GNDI’s growing influence across international markets and further increases its capacity to advocate on behalf of the global director community.

ASIC deregulatory initiatives

We have provided feedback to ASIC on its deregulatory initiatives report.

It is pleasing to see that the government’s commitment to deregulation is extending to its agencies.

ASIC, along with other agencies, has the ability to enable compliance cost savings for regulated businesses.

Our feedback largely focused on areas we believe ASIC can influence through its ongoing discussions with federal Treasury and the government. These include:

• Introducing a broad-based defence for directors in the Corporations Act 2001.
• Inserting a tailored licensing regime for litigation funders in the Corporations Act (enforceable by ASIC).
• Reinstating CAMAC.
• Reconsidering financial reporting thresholds.

We also provided feedback on potential improvements to ASIC’s processes and forms.

ACNC Abolition

The Senate Economics Legislation Committee has recommended that the Bill to abolish the Australian Charities and Not-for-Profits Commission (ACNC) be passed by the Senate.

We have been deeply involved throughout the not-for-profit (NFP) reform program introduced by the previous federal government and have lodged many submissions leading up to the establishment of the ACNC.

Broadly speaking, we believe the arrangements for directors under the ACNC represented a positive step forward.

We remain disappointed at the current government’s decision to abolish the ACNC, particularly given the lack of any detailed information about its intended replacement, the National Centre for Excellence.

However, we will continue to work with the government and other stakeholders as further information is revealed.

Vale Tony Hulett

We were deeply saddened to hear the news of Tony Hulett’s passing last month.

Tony was a valued and well-respected member of our Law Committee and a member of the corporations law panel for our Director Assist service.

We have appreciated Tony’s contribution to the Law Committee and to the wider activities of our organisation over many years.

We are sad to lose a friend and colleague. It has been a privilege to work with Tony, who was well-known for his kindness, generosity and professionalism.

Tony’s willingness to assist our policy development and to share his insights and expertise on legal and director issues for the benefit of our members is acknowledged.

We extend our condolences to the Hulett family.