Policy Update
Open Letter to Government
On 16 July 2010, we sent an Open Letter to the next Government of Australia, including all Federal government ministers and Opposition shadow ministers, calling for action and better consultation on key issues for directors and a new approach to deregulation.
We saw the election as offering an opportunity to state our case and urge the incoming Government to rethink not only the way it approaches some key issues but how it conducts its relationship with business.
We believe that getting the regulatory process right will be a key issue for the Government. We believe deregulation – both stemming the growth in new regulation and cutting back existing red tape – is a crucial part of the Government’s economic task and a key element of the agenda for boosting national productivity.
Structural reform, proper consultation with business on policy proposals and legislation to ensure unintended consequences and practical problems can be identified and dealt with are all high on our wish list.
As a non-partisan organisation, our letter stressed that it is the policies that are important, not the party implementing them.
The key issues for directors:
Director liability
Reform of corporate regulation, and especially laws that directly affect directors and the way they operate, is a significant issue for the business community, for the economy and ultimately, for Australian society as a whole.
We are particularly concerned about the number of laws that hold directors personally liable in one way or another as they are stifling business, investment and job creation. They are anti-business and are in urgent need of reform.
Reinvigorate the Council of Australian Governments (COAG) reform process
Governments around Australia are now supposed to be undertaking legislative reviews to reform and harmonise laws on director liability after the states and territories conduct audits of their legislation on the basis of agreed benchmarks. However, there appears to be little progress on this process, which has been given low priority by state governments.
The new Federal Government should redouble its efforts to ensure the states carry through with their reviews. There should be renewed talks with the states about applying more rigorous and consistent benchmarks for reform of director liability legislation, with real key performance indicators and consequences if they are not met.
Creating a ‘safe harbour’ for directors
We strongly believe there is a need for a broad-based business judgement defence or safe harbour for directors, consistent across Commonwealth, state and territory laws, or alternatively, an overriding Federal law.
Insolvency law reform
Current laws on insolvent trading make trading out of insolvency not only extremely risky but they prohibit it for the directors of a company in solvency stress. Each director faces being held personally liable for any further debts incurred, unless the company is placed into external administration.
The critical element to addressing our concerns about the current laws on insolvent trading would be a broad business judgment rule defence that allows directors and companies a “fair go” to salvage companies for the benefit of all.
Occupational health and safety (OH&S) law reform
We welcomed last year’s agreement by the Workplace Relations Ministers’ Council, following on that of COAG, to harmonise state and territory legislation and to implement a uniform national approach to OH&S.
The new Federal Government should make it a high priority to ensure the spirit of this vital reform is reflected in the legislation to be implemented at state level.
Structural reform is needed
The processes that create new regulations must ensure they are genuinely needed and are as efficient as possible, that proper consultation takes place with business and that red tape is frequently reviewed, rigorously assessed and vigorously pruned back as necessary. We need better regulation, not more regulation. The system of creating and removing regulation needs to be reformed, not just the regulations themselves.
At the Federal level, there needs to be a whole-of-government approach. There must be a commitment by every minister and within every department to a better regulation and deregulation agenda. This must be properly resourced.
Targets need to be set, progress monitored and gains regularly quantified by a suitable independent body, preferably the Productivity Commission.
Reform must be national in focus. A reinvigorated national reform plan is needed, which includes improving the mechanisms used by the Commonwealth and the states to create new regulations and assess existing ones.
At Commonwealth and state levels, basic principles such as “one in, one out” should be the “default mode” for reform.
There must also be a requirement to frequently review existing regulations, to rigorously assess them against cost-benefit principles and to remove them where they are no longer justified.
In addition, there should be a firm requirement to consult business when formulating new regulation.
Governments should include sunset clauses and review provisions in legislation to provide a mechanism to ensure new regulations are assessed after a period of time and removed if found to be ineffective or no longer required.
Good regulation principles
In 2006, the Government endorsed the six principles of good regulatory process set out in the Banks Report:
- A case for regulatory action must be established.
- Regulatory proposals should not be put forward without an examination of the alternatives to regulation.
- The likely cost to business of proposed regulation needs to
be rigorously calculated.
- Effective consultation with stakeholders should occur at all stages of considering and preparing regulatory proposals.
- An adequate Regulatory Impact Statement must be prepared.
- Post-implementation reviews must be conducted.
Directors, and the business community more generally, endorse these principles.
Better consultation with business
When governments are considering new laws, there should be appropriate consultation with business before measures are announced as firm policy, to ensure that unintended consequences and practical problems can be identified and dealt with.
There should be a commitment by the incoming Government to consult business when formulating new policy and legislation affecting business in any way.
Improving policymakers’ understanding of business
Innovative ways of improving the understanding of business among policy makers and politicians are needed.
The new Government should consider and institute executive exchange and secondment programs to allow government officials and ministerial advisers to work in the private sector and to similarly allow private-sector executives the opportunity to work in government.
Diversity
New scholarships to increase diversity on boards
On 29 July 2010, we announced our latest initiative to address the issue of board diversity, a new scholarship program aimed at helping to lift the representation of women on Australian boards.
Assisted by $200,000 in funding from the Australian Government, the program is intended to be a practical way to help achieve greater diversity on boards by providing talented women with the knowledge they need to help them secure private-sector and public-sector directorships.
Over 70 scholarships will be awarded to high-performing board-ready women over the next two financial years, giving them the opportunity to attend our highly regarded Company Directors Course or Mastering the Boardroom course for free.
They will also receive free membership of the Australian Institute of Company Directors, giving them access to a wide range of information and services, which will help them achieve their goal of securing a board position.
Candidates for the scholarship program will be selected by a committee of representatives of the Australian Institute of Company Directors and the Australian Government Office for Women.
Enquiries and expressions of interest can be directed to: diversity scholarships@companydirectors.com.au
Free booklet on new Corporate Governance Recommendations on Diversity
On 30 June 2010, the Australian Securities Exchange (ASX) Corporate Governance Council introduced a number of changes to its Corporate Governance Principles and Recommendations, including three new recommendations and other amendments relating to diversity.
The changes apply to all ASX-listed entities and to an entity’s first financial year starting on
1 January 2011. However, the council is encouraging early transition to the changes from 1 July 2010.
To help ASX-listed entities get started in embedding diversity within the culture of their organisations, we have prepared a booklet that explains the changes and provides some practical tips. At the end of the booklet is a “checklist”, which companies will hopefully find useful.
Standard Business Reporting Opens for Business
On 1 July 2010, the Federal Government’s Minister for Finance and Deregulation announced the start of Standard Business Reporting (SBR).
SBR offers businesses, accountants, bookkeepers, tax agents and payroll professionals a quicker and simpler way to complete and lodge reports to government.
Using SBR-enabled software, businesses and reporting professionals will be able to pre-fill and complete government forms directly from their own accounting systems and lodge these electronically with participating government agencies using the single secure sign-on AUSkey.
Rob Elliott FAICD
General manager policy and General Counsel
Australian Institute of Company Directors