Deregulation initiatives

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

We remain committed to advocating on issues that improve the regulatory environment for directors and boards and recently wrote to Josh Frydenberg MP to provide additional suggestions on areas where the government can remove unnecessary red tape.

Deregulatory initiatives are not just about removing regulations but ensuring that existing regulation is working as effectively as possible.

The specific deregulation initiatives we recommended included the need to:

• Insert an honest and reasonable director defence for directors into the Corporations Act.
• Reinstate the Corporations and Markets Advisory Committee (CAMAC).
• Accommodate greater flexibility for entities trying to change their financial year end.
• Amend Commonwealth director liability legislation that reverses the onus of proof.
• Regulate the litigation funding industry.
• Retain the Australian Charities and Not-for-profit Commission (ACNC), or at least core components of it.
  
  

In addition to these specific initiatives, we highlighted a number of broader issues that the government must tackle.

Areas such as workplace health and safety, industrial relations and environmental compliance laws have been identified by directors in successive Director Sentiment Index’s as the red tape most impacting productivity.

If these structural areas are not addressed it is unlikely director sentiment relating to the levels of red tape will significantly shift.

Finally, we urged the government to consider thorough reviews that simplify corporations and taxation laws.

Shareholder Primacy

Late last year the Governance Institute of Australia (GIA) released a paper titled Shareholder primacy: is there a need for change?

At its core, the paper asks whether corporate law needs to change so directors can take into account the interests of a broader set of stakeholders, not just shareholders.

Our response to the paper emphasised that the law already allows this.

This issue has been comprehensively canvassed by previous government inquiries which concluded that the existing law regarding the interests directors could consider was sufficiently flexible to keep pace with changing societal expectations.

We stated that duties owed by directors continue to be owed to the company itself; not to a broader class of stakeholders. Allowing directors to serve only one master, the company, ensures that effective decision-making is possible. Directors can weigh up the interests of a range of stakeholders and effectively determine what is in the best interests of the company.

Remuneration disclosure

In November 2014, federal Treasury released draft regulation aimed at reducing the complexity of remuneration disclosures.

We have long advocated for the need to reform remuneration reporting requirements that have become overly complex, prescriptive and onerous.

We are broadly supportive of the recommendations in the exposure draft which include amendments to ensure consistency between these provisions and existing reporting requirements.

However, we are concerned that by substituting “issuing entity” with “disclosing entity” in this regulation, Treasury is limiting the disclosures that are required to only additional information about the disclosing entity and not any subsidiary entities.

Integrated Reporting

In July last year, the International Integrated Reporting Council (IIRC) released a paper, Assurance on <IR> an exploration of issues.

The paper sought to spark debate and discussion on the overall assurance of integrated reporting, the role of assurance and the benefits and challenges it provides.

We have consistently advocated that the International Integrated Reporting Framework (the framework) should be a “principles-based”, “market-driven” framework that does not increase the reporting burden on entities.

Further, we have highlighted the potential personal liability for directors for the disclosures included within the integrated report, particularly in Australia’s regulatory environment. Under this environment, Australian entities and their directors will struggle to make meaningful forward-looking disclosures as envisaged by the framework. 

We are of the view that significant additional work is required, not only by the IIRC but other standard setters including the International Auditing and Assurance Standards Board to enable the development of an appropriate audit regime to provide an independent opinion on the integrated report. 

Further, it is our view that once they understand the significant cost to the entity for such an audit the vast majority of users of the integrated report (especially shareholders whose funds will be used), are unlikely to be convinced of the benefits. 

In addition and most importantly, the auditing profession does not have auditing standards that adequately cover the range of non-financial information likely to be included in integrated reporting, narrative or future-oriented information.