Policy Update
Diversity mentoring program underway
Some of Australia’s most senior company chairmen and directors are participating in the Australian Institute of Company Directors’ mentoring program aimed at helping to increase the numbers of women on ASX 200 boards.
The ASX 200 Chairmen’s Mentoring Program involves 56 chairmen and senior directors of major companies working with 63 highly talented and qualified women in a 12-month mentoring relationship.
The program was designed to identify experienced and skilled women who were “ASX 200 board-ready”. They include women who already have experience on the boards of ASX 200 and other listed companies, unlisted public companies, large private companies, government bodies and not-for-profits as well as senior executive women within ASX-listed companies.
The program aims to help the women mentees develop connections with influential business leaders and gain knowledge and skills that will assist them in achieving director appointments and increase their understanding of how listed company boards work.
The mentors include former BHP Billiton chairman Don Argus, Caltex Australia chairman Elizabeth Bryan, Origin Energy chairman Kevin McCann, ASX chairman David Gonski, Stockland Corporation chairman Graham Bradley, Federal Sex Discrimination Commissioner Elizabeth Broderick, Australian Institute of Company Directors chairman Richard Lee and Victorian state president, Alison Watkins. For more information on this program, see p28.
OH&S: Due Diligence for Company Directors event
In late April, Gabrielle Upton FAICD, senior policy adviser and legal counsel at the Australian Institute of Company Directors, participated on a panel examining the new model occupational health and safety (OH&S) laws, specifically the obligation on company directors to exercise “due diligence”. Tom Phillips AM FAICD, chairman of SafeWork SA, and Justine Ross, Legal Policy Branch, branch head, SafeWork Australia, were also panel members. The event in Adelaide was facilitated by Karl Luke, a partner at Thomson Playford Cutlers. For more information, see p52.
AASB Differential Reporting Framework
We made a submission in late April and attended a round-table discussion on the Australian Accounting Standards Board’s (AASB) Exposure Draft 192 Differential Reporting Framework and the accompanying consultation paper, Differential Financial Reporting – Reducing Disclosure Requirements.
The AASB proposes a new differential reporting framework be adopted in Australia, adding a second tier of reporting requirements referred to as the Reduced Disclosure Regime (RDR). While we acknowledge that the RDR will reduce the burden for unlisted reporting entities when compared with the full International Financial Reporting Standards (IFRS), we raised concerns that the RDR was likely to increase the reporting burden for many entities, including those currently preparing special-purpose financial statements.
In summary, the Australian Institute of Company Directors’ view is that:
- IFRS for SMEs should be adopted in Australia as soon as possible as an option for unlisted reporting entities to use should they choose to do so;
- IFRS for SMEs should be available as an option rather than a mandatory standard;
- The reporting entity concept has been an important tool for alleviating the reporting burden for numerous entities and should be retained; and
- While financial reporting relief for many unlisted companies is long overdue, changes to Australia’s reporting entity framework, which increase the burden on an undetermined number of entities, should not be made until a full regulatory impact statement is undertaken.
ASX Corporate Governance Council
We have been working closely with the ASX Corporate Governance Council (ASX CGC) regarding the extent to which it should be amending its Recommendations, Principles and Guidance in the area of executive remuneration, diversity and market integrity, including share trades by directors. We will respond to the consultation paper released on 22 April and expect the final amended ASXCGC Principles and Recommendations to be released to the market on
30 June with a start date for the first financial year of listed entities beginning on or after 1 January 2011, with early voluntary adoption being encouraged.
Reversal of decision in Sons of Gwalia case: Corporations Amendment Bill (No 2) 2010
Minister for Corporate Law Chris Bowen released a draft bill for comment by 18 May 2010 giving effect to his decision to reverse the High Court decision in Sons of Gwalia Ltd v Margaretic [2007]. The bill states that all claims related to the dealing with shares be ranked equally and after all other creditors’ claims.
Government has gone too far with pay legislation
We believe the measures announced by the Federal Government on 16 April 2010 in response to the Productivity Commission’s Inquiry into Executive Remuneration will add more unnecessary regulation and have unintended consequences that could disrupt companies.
“We remain unconvinced that a legislated ‘two strikes’ rule, requiring a board re-election resolution to be put to shareholders if two consecutive remuneration reports received ‘no’ votes above 25 per cent, is workable, warranted or desirable, particularly as there is already a provision in the Corporations Act 2001 for a board spill at any time,” notes Australian Institute of Company Directors CEO John Colvin FAICD.
The decision to stop boards declaring “no vacancy” where the existing board has less than the maximum number of directors authorised by shareholders will also have adverse unintended consequences and will more likely hinder, rather than promote, greater board diversity.
We criticised the decision to prohibit all directors from voting undirected proxies on remuneration reports and related resolutions, saying the chairman of a board should not be precluded from voting proxies on behalf of shareholders in the usual way, which is well understood.
We are also extremely disappointed that the Government has rejected the PC’s recommendation to remove the current taxation impediment to deferred equity incentive pay, to allow deferral of equity incentives beyond the point where an executive ceases employment.
We also questioned the need for legislation making it mandatory for all companies to disclose their executive remuneration advisers, who appointed them and fees paid, going beyond the “comply or explain” approach recommended by the PC. And, we warned that the devil was in the detail of the Government’s new proposal for a clawback of executive and director bonuses based on financial information that was subsequently found to be materially misstated, a proposal which was not recommended by the PC nor canvassed with business before it was announced.
However, we did welcome the proposal to make remuneration reports reflect actual remuneration received and the appointment of the Corporations and Markets Advisory Committee as an expert panel to advise on changes. We will be proposing significant reforms of the law governing remuneration reports in the near future.
FAQ of the month
Question
We are looking to appoint a new director and are assessing the level of information that should be provided to the candidates. I understand directors are entitled to the company’s past board minutes and financials, but how far back is it reasonable to go considering there has been no formal appointment? Also, if either party elects not to proceed with the appointment, to what extent is the director candidate bound by confidentiality? Is it normal practice to request a specific confidentiality agreement before providing this information?
Answer
You are correct that directors of a company are entitled to access the minutes of the company and the company’s financial information (see sections 251B and 290(1) of the Corporations Act 2001 (Cth)). However, that right would not seem to extend to future or potential directors. The statutory rights identified only apply to individuals after they have been appointed as directors. Before that, access is up to the company. There is, of course, other important information that potential directors should seek as part of their due diligence process when deciding whether to join a new board.
Although, under equity principles, a duty of confidentiality may arise from the circumstances and the relationship between the parties, there is no guarantee that this will be the case. Moreover, the scope of the duty of confidentiality may be unclear. Thus, it may be wise to enter into a confidentiality agreement to be signed by potential directors, under which they agree not to disclose or divulge any information disclosed to them before their appointment. Of course, if there are real concerns about the potential candidate’s willingness to maintain confidentiality before appointment, this may affect the board’s opinion of the appropriateness of the candidate more generally.
The Australian Institute of Company Directors offers a number of resources that can assist boards in dealing with this question. They include guides, books and a range of courses. For further information, see our website at: www.companydirectors.com.au
Rob Elliott FAICD
General Manager
Policy and General Counsel
Australian Institute of Company Directors