Advocacy

The AICD’s advocacy team represents the interests of members in public debate and to governments.

AICD recommends board for ASIC

The Australian Institute of Company Directors (AICD) has recommended to the Federal Treasury that the Australian Securities and Investments Commission’s (ASIC) governance structure be changed to improve its accountability and culture with the introduction of a board of directors. We believe having a board with a majority of non-executive directors will provide greater oversight for ASIC and set the cultural tone for the organisation “from the top”. While we do not criticise the current executive management of ASIC, the ongoing ASIC capability review has highlighted significant issues in ASIC operations that may need addressing.

The introduction of a board comprising a majority of non-executive directors would bring an additional layer of oversight, objectivity, independent thinking and external perspectives to ASIC. The responsibilities of such a board would include setting ASIC’s culture, strategic priorities and a framework for ASIC’s decision-makers to work within, as well as having oversight of ASIC’s governance, internal control framework, financial reporting and compliance with relevant legislation. It would also provide a mechanism through which ASIC could receive greater practical insight from practising directors.

We propose that the executive chair of ASIC be appointed to the board of ASIC as chair, similar to the structure of the Reserve Bank of Australia, where the governor is the chair. The non-executive directors appointed should represent an appropriate mix of skills, experience, and diversity of backgrounds. To get directors with the relevant skills and experience on the board, it will be necessary to recognise that the directors appointed to the board are likely to have business interests outside of their role on the ASIC board.

Conflicts of interest would be dealt with by the new ASIC board in the usual manner, with existing potential conflicts being declared at the commencement of their appointment and any that arise during their appointment being immediately declared to the chair or company secretary. Where any actual conflict arises with respect to a matter being considered by the board, appropriate steps would then be taken to ensure that the conflicted director is not involved in the decision-making process.

Internationally, there are a number of examples of regulators with board structures in place, including authorities that regulate capital markets and corporate conduct. For example, in the UK, both the Financial Conduct Authority and the Financial Reporting Council have boards of directors (with a majority of non-executives) as their governing body. Similarly, the Financial Markets Authority in New Zealand has a board with a majority of non-executive directors as its governing body.

Internationally, there are a number of examples of regulators with board structures in place, including authorities that regulate capital markets and corporate conduct. For example, in the UK, both the Financial Conduct Authority and the Financial Reporting Council have boards of directors (with a majority of non-executives) as their governing body. Similarly, the Financial Markets Authority in New Zealand has a board with a majority of non-executive directors as its governing body.

Definition of charity in the ACT

At the time of writing, the Australian Capital Territory (ACT) Government is considering legislation that amends the definition of “charitable organisation” in the territory so that it excludes various bodies from taxation exemptions.

The advocacy team has spoken to members of the Government, Opposition and the Greens to express our disappointment in the proposal. While we understand that the changes will impact only a small number of charities in the ACT, we are of the view that the definition of charity or charitable organisation should be consistent across Australia. Ideally, there would be one definition in the Charities Act 2013 administered by the Australian Charities and Not-for-profits Commission (ACNC).

The move by the ACT Government to amend the definition of “charitable organisation” in the territory hinders one of the key objectives of the ACNC to streamline regulatory requirements.

Lifting board performance

A safe harbour for directors under insolvency laws would be a positive step forward in fostering innovation and assisting companies to work out of financial difficulties.

The Productivity Commission’s inquiry into Business Set-Up, Transfer and Closure recommended this reform in a draft report earlier this year. Its final recommendations are expected to be tabled in Parliament in early 2016.

The AICD has argued that the Honest and Reasonable Director Defence or an appropriately limited safe harbour for directors would encourage more businesses to restructure, saving jobs and preserving value in companies that might otherwise move too quickly to voluntary administration.

Current laws force directors to focus on avoiding personal liability from insolvent trading. A well-drafted safe harbour provision that allows directors to consider turn-around options would improve the current regime. This is important in fostering innovation and the growth of start-ups – priorities identified by Prime Minister Turnbull.

It is critical, however, that the insolvency regime continues to protect stakeholders, including creditors.

The AICD will consider the Productivity Commission’s final recommendations when they are released.