All articles in Volume 13 Issue 11

10 June BRR imageASIC pinpoints corporate culture

The corporate watchdog is pushing to make it easier to prosecute company executives and directors for overseeing poor corporate cultures that lead to poor outcomes for consumers.

Speaking before a senate economics committee in Canberra in early June, Australian Securities and Investments Commission (ASIC) chairman Greg Medcraft said individual company officers should be penalised in situations where poor business culture leads to poor business performance.

Pinpointing culture as a big driver of conduct in the financial industry, Medcraft said that bad culture often leads to bad conduct, which can inevitably lead to poor outcomes for consumers. This, he said, is “a polite way of saying people are getting fleeced.”

As a result, Medcraft said that ASIC is planning to incorporate culture very strongly into its role as a conduct regulator and enforcement agency. The areas it plans to target are those where poor practices may increase potential for poor conduct; therefore increase the risk to trust, and investor and consumer trust and confidence.

This will include incorporating culture into its risk-based surveillance reviews; using surveillance findings to better understand how culture is driving conduct among those that regulate; and communicating to industry and firms where the regulator has problems with their culture and conduct.

“Let me add, we will intend to enforce where we see the wrong culture that is driving bad outcomes,” he said.

Medcraft said ASIC was limited in how it could address the issue of corporate culture under existing laws adding that the existing criminal provisions relating to corporate culture enshrined in section 12.2 of the Commonwealth Criminal Code were hard to prove and did not cover financial products or services.

However, he added that ASIC wants to be able to try company officers "as accessories" under new civil laws covering financial offerings.

“This law states that a company can be held responsible as an accessory for a breach of certain Commonwealth laws by its employees if the company's culture encouraged or tolerated the breach.

“We believe that this current penalty should now be not only available under criminal law; more importantly, it should be extended to non-criminal sanctions. Therefore, there should be civil penalties and administrative sanctions that can be applied to both companies and officers as accessories. We think the same offence should be able to be actioned by ASIC in the civil courts just like we are able to now do for other misconduct,” he said.

Australia's competitiveness declines

Australia has dropped another place in world competitiveness rankings, falling further in economic performance and government efficiency, raising concerns about the country’s competitiveness as a smart economy.

The Australian results of the IMD World Competitiveness Yearbook ranks and assesses 61 countries. The overall result is drawn from rankings for four key areas – economic performance, government efficiency, business efficiency and infrastructure. It found that Australia has slipped significantly in all these areas over the last five years.

Australia’s economic performance dropped four places to 28 from last year, with an overall drop of 15 places in the last five years. Worsening domestic economic conditions, rising unemployment and lower international investment have been the biggest contributors to the drop in the overall economic performance ranking this year.

While Australia only slipped one place compared to last year and five places in five years on infrastructure, the fact that the two areas where Australia slipped the most in this category was technological infrastructure and scientific infrastructure.

The Committee for Economic Development of Australia (CEDA) stated that this suggests Australia is losing ground as a smart economy, and lacks the infrastructure in place to compete in research and development.

While Australia has only dropped one place compared to last year on business efficiency, overall it has dropped 10 places in five years with productivity and efficiency highlighted as key weak areas.

Australia’s government efficiency ranking also dropped five places this year compared to 2014 – a drop of seven places in five years. The country’s ranking in public finance is the biggest contributor to this drop, slipping from 13 last year to 28 this year. The reasons behind this fall have been cited as worsening budget deficit as a share of GDP and rising real government debt growth.

The US retained the number one spot in the rankings followed by Hong Kong, Singapore and Switzerland. The top four have remained the same since 2014 with Hong Kong and Switzerland swapping places this year.

For the first time in 18 years, New Zealand has jumped ahead of Australia in the rankings, moving to 17 from 20.

Further details on Australia can be found here.

The complete rankings can be found here.

ASIC updates insolvency guidance

The Australian Securities and Investments Commission (ASIC) has released updated regulatory guidance for insolvent or financially distressed companies and registered schemes.

The regulator’s updated regulatory guide 174 Relief for externally administered companies and registered schemes being wound up follows consultation launched in August 2014.

ASIC has issued a new legislative instrument which provides companies with a liquidator appointed with an exemption from financial reporting and, if the company is also a public company, with annual general meeting (AGM) relief in certain circumstances.

Companies in other forms of external administration with an uncertain future are permitted to delay preparing their financial reports under ASIC’s relief. ASIC’s new instrument also provides exemption relief from financial reporting to insolvent registered managed investment schemes.

To provide information to members of insolvent registered managed investment schemes, ASIC’s instrument requires those in charge of the winding up to periodically report to members and creditors by making certain information available.

For externally administered companies, the law already requires that members and creditors have access to certain public information that is prepared periodically by the external administrator and lodged with ASIC.

In addition, ASIC’s instrument ensures that members of externally administered companies and registered managed investment schemes being wound up can obtain information by requiring the external administrator of the company or person having responsibility for winding up the registered managed investment scheme to have arrangements in place to answer any reasonable questions asked by a member without charge.

More information can be found here.

Embracing disruption

The idea of disruption excites some people and terrifies others, but according to an article by US-based business consultant, Greg Satell in the Harvard Business Review, it is time to stop arguing about whether disruption is good or bad for incumbent businesses.

Satell argues that successful disruption does not merely destroy; it creates a paradigm shift in mental models. He says it is essential that the mindset of “good” and “bad” with regards to innovation and disruption be changed.

Citing a book by Harvard Professor Clayton Christensen titled The Innovator’s Dilemma, Satell states: “His research showed that once-successful firms often failed not because they lacked competence or conscientiousness, but because they were operating according to a defective model.

Satell explains that since ancient times, from Aristotle to Ptolemy, leading all the way up to the present day, we have built working models to explain how the world works and we act on those models to solve problems.

However, as time progresses, we inevitably find that even the most successful models are incomplete. “When an anomaly first appears it is usually treated as a ‘special case’ and is worked around. However, at some point, we realise that the old theory is fundamentally flawed and that we need to shift paradigms.”

Therefore, disruption should be viewed as a means to create successful new models, which often include elements of the old ones. Citing Christensen again, he points out that there comes a time in which the practices derived from established mental models fall short.

This means that businesses that fail are often not the feckless bumblers they’re made out to be. Rather, by diligently following the precepts of incomplete models taught in business schools, they fall prey to assumptions that do not apply.

This, he says, is why there can be both disruptors that set out to destroy, and disruptors that aim to create. Successful disruptors might break old models, but they build better ones that benefit us all, which is why we embrace them.

The full article can be read here.

Regulator outlines focus areas 

The Australian Investments and Securities Commission (ASIC) has announced its focus areas for the 30 June 2015 financial reports of listed entities and other entities of public interest with many stakeholders.

Key areas of focus are:

Impairment testing and asset values

Preparers and auditors of financial reports have been encouraged to carefully consider the need to impair goodwill and other assets. Fair values attributed to financial assets should also be based on appropriate models, assumptions and inputs. Particular focus should be given to assets of companies in extractive industries and mining support services, as well as asset values that may be affected by digital disruption.

Accounting policy choices

Preparers and auditors should focus on the appropriateness of key accounting policy choices that can significantly affect reported results. These include off-balance sheet arrangements, revenue recognition, expensing of costs that should not be included in asset values, and tax accounting.

Material disclosures

ASIC’s surveillance continues to focus on material disclosures of information useful to investors and others using financial reports, such as assumptions supporting accounting estimates, significant accounting policy choices, and the impact of new reporting requirements. ASIC does not pursue immaterial disclosures that may add unnecessary clutter to financial reports.

Role of directors

Even though directors do not need to be accounting experts, they should seek explanation and professional advice supporting the accounting treatments chosen if needed and, where appropriate, challenge the accounting estimates and treatments applied in the financial report. They should particularly seek advice where a treatment does not reflect their understanding of the substance of an arrangement.

Other entities

ASIC will continue to review the financial reports of proprietary companies and unlisted public companies based on complaints and other intelligence.

More information can be found here.

NFPs need diversified investment

Australian not-for-profit (NFP) organisations are missing out on potential investment income by allocating large proportions of their capital in cash and deposits, despite the low interest rate environment, according to a new report.

The 2015 Koda Capital Non- Profit Sector Review found that NFP organisations' investment income had fallen by 10.2 per cent as a result of their focus on cash and deposit investments.

Some of the recommendations of the report include:

  • NFPs should be diversifying their income streams and taking steps to reduce their overall dependence on external funding.
  • Australian NFPs need to build, protect and commercialise intellectual property like never before. They need to think about the commercial and social value of their products and services in a global as well as local context
  • If charities want to attract significant philanthropic support, they should be helping wealthy Australians to structure their philanthropy and showing them how much they can get from giving.
  • NFPs should be looking to take advantage of Australia's highly trained, highly educated workforce and Australia’s volunteer culture to build strong networks of skilled volunteers who are prepared to lend their talents as well as their time.

Koda Capital partner and head of philanthropy and social capital, David Knowles, said the sector was "a key driver of the Australian economy", but stressed the need to look to non-government revenue sources.

"With an ageing population and a continued reliance on the NFP sector to deliver critical services, NFPs must continue to explore new ways to generate income and capital to solve social issues," he said.

Knowles added that with government funding under significant pressure, many organisations will find themselves in a challenging financial position. This means many should be examining their business models closely and assessing the strength of their organisation's balance sheet and ensuring there are no lazy assets.

"They need to focus on diversifying their income streams and looking for opportunities to derive self-generated revenue,” Knowles said.

The report can be found here.

Online guide for small business

The Australian Securities and Investments Commission (ASIC) has released a new online resource to help small business owners understand their role and responsibilities as company directors.

ASIC's guide for small business directors provides an overview of directors' duties under the Corporations Act with a focus on small business directors. It also provides useful information for small businesses looking to change from a sole trader to a company business structure.

The guide covers the following topics:

  • What it means to be a company director.
  • How to become a company director.
  • Directors' key responsibilities.
  • Directors' liabilities when things go wrong.
  • How to resign as a director.

“Small businesses need clear and accessible information so they can make informed decisions about their business structure and meet their responsibilities” said ASIC commissioner, Greg Tanzer.

The guide is part of a suite of resources produced by the Australian Taxation Office, the Department of Industry and Science, and ASIC to help small business owners.

The guide can be accessed here.

Novogen names two NEDs

Dual-listed drug discovery and development company, Novogen, has appointed two new non-executive directors. Bryce Carmine and Ian Phillips will extend the board to six members, inclusive of five non-executive directors and an executive chair.

Carmine comes with 36 years of experience and is currently chair and CEO for HaemaLogiX, a newly formed Sydney-based biotechnology company.

Phillips comes with a background in wholesale banking at a senior executive level. He will chair the board's strategic planning committee.


Aurizon Holdings has announced it will appoint Tim Poole as its new chair, following the planned retirement of John B Prescott AC FAICD in September.

Poole was previously chairman of rival rail business Asciano and currently heads AustralianSuper's investment committee. He will be appointed to Aurizon's board of directors from 1 July and will take over from Prescott on 1 September. 


Electrical infrastructure firm, SCEE has appointed Karl Paganin as an independent non-executive director.

Paganin has 15 years experience in investment banking, specialising in transaction structuring and equity capital markets.

Prior to that he was director of major projects and senior legal counsel for private trading company, Heytesbury.

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