Advocacy update

Federal Budget updates

As part of our commitment to keep members informed on the important issues that impact them, we sent a number of updates following the Federal Budget in May.

In our view, the Budget was a good one for business, based on boosting small business with tax cuts and investment support, cautious spending cuts off-setting new expenditure, carefully targeted tax tightening, a gradual acceleration in economic growth and continued progress towards getting the bottom line back to surplus.

This Budget was an economic and political balancing act for the Abbott Government. It had to lay down a credible path back to surplus based on cuts in spending and tightening in some areas of taxation, but not cutting so severely that, in the short term, it damages an economy that is facing major international and domestic headwinds.

At the same time the Budget must achieve the political balance of delivering measures that are electorally popular, minimise the pain of budgetary adjustment and are seen as “fair” – making its passage through the hostile Senate less difficult than last year’s Budget – while still presenting a believable timetable to deliver on its promise to repair the budget bottom line and rein in debt.

On the face of it, it has gone at least some of the way to achieve that.

In May, managing director & CEO of the Australian Institute of Company Directors, John Brogden, spoke at the Australian Council of Superannuation Investors’ annual conference. John outlined our views on Australia’s current director liability framework and why we believe it is broken.

It provided an opportunity for us to further explain our proposed honest and reasonable director defence to the investor community. A short edited excerpt of his speech is below:

“The last thing we want is for the reputation of directors to be damaged by the actions of those who don’t do their job properly.

Equally the overwhelming effort of boards must be to focus on the performance of the organisation rather than compliance obligations. Only this will drive long-term value for shareholders.

I’m also confident that boards want to provide investors with more information to help with their investment decisions, where appropriate and where it doesn’t include commercially sensitive information.

But it’s extremely difficult to provide this information in the current regulatory environment. An environment where directors are held personally liable for a decision they make or information they provide which, with the benefit of hindsight, turns out to be wrong through no fault of their own.

Fundamentally, our system of regulation needs to acknowledge that in the pursuit of opportunity not all risks will, or can, be mitigated. Some businesses will fail, mistakes will occur and honest people will sometimes make the wrong decisions in hindsight.

There’s no doubt that directors should be held liable in certain situations, particularly for any criminal or reckless behaviour, but I wanted to provide you with some examples of where I think the laws have gone too far.

The former Government passed a law which holds directors personally liable for the unpaid superannuation guarantee entitlements of their companies. Some may argue that this liability is appropriate.

However, what is extraordinary about this particular law is that it makes directors liable for the unpaid superannuation, even if this occurred before they became a director of the company.

...another example regarding insolvency.

The practical reality of our insolvency laws in Australia ... is that they encourage directors to opt for voluntary administration, days and sometimes even weeks, before it is necessary. The primary driver for this is a deep concern for their own personal liability.

The law discourages attempts to rescue businesses which might otherwise be saved. This isn’t consistent with a culture that encourages innovation, entrepreneurialism or value creation.

Whilst it’s a fine balancing act, I firmly believe the pendulum has swung too far and as a result we have a risk-averse decision-making culture in Australia.”

Tracking our 30 per cent target

Following the launch of our new gender diversity policy we have recently updated the diversity page on our website at www.aicd.com.au/diversitystatistics. This page captures real time information on S&P/ASX 200 boards and how they are progressing against a target of having 30 per cent female directors on their board by 2018.