All articles in Volume 13 Issue 6

Privacy rules bite

1 April lead image

Telecommunications company Optus has entered into an enforceable undertaking with the privacy regulator after it was found to have breached tough new laws which came into effect last year.

It is the first time such an undertaking has been made under the new laws and highlights the issues that directors need to take into account when assessing their organisations' capacity to protect personal information.

The enforceable undertaking is the result of an investigation that commenced in July last year after Optus notified the privacy regulator that three breaches of privacy had occurred within its organisation.

Optus had taken steps to contain the incidents once it became aware of them, and cooperated with the regulator’s investigation.

The Australian privacy commissioner was concerned that Optus may not have taken reasonable steps to secure the personal information it held, as required by so-called privacy principle 11 (which relates to the security of personal information).

The Australian Privacy Principles came into force on 12 March last year and significantly raised the bar on how businesses and federal government agencies collect, store and handle individuals’ personal information. The privacy regulator is able to levy penalties of up to $1.7 million or impose enforceable undertakings on organisations that breach the principles.

The issues at Optus related to information contained in the White Pages directory; the settings on modems used by its customers; and the password security on voicemail information retrieved from outside the Optus network.

The undertaking requires Optus to complete certain reviews and certifications and implement any recommendations from these activities. It must also provide a report by an independent third party to the regulator certifying that the specified actions have been completed.

Full details of the incidents at Optus and the enforceable undertaking can be found here.

The Australian Institute of Company Directors has published a book, Privacy Governance: A Guide to Privacy Risk and Governance for Directors and Boards, to help directors comply with the Australian Privacy Principles. Go to our online bookstore to purchase a print or an elctronic version.


Room for improvement

A landmark report has revealed the most innovative not-for-profit (NFP) organisations in Australia, while the sector overall received an innovation index of 66 per cent, indicating there is significant room for improvement.

The 2015 Innovation Index - The Australian Not-for-Profit Sector, unveiled by Australia Post and digital giving provider, GiveEasy, surveyed 700 professionals working in the sector.

It used a peer-based ranking to name Movember, Oxfam and Charity Water as the top three most innovative NFPs and also found a direct link between how innovative an organisation is and how much revenue it raises.

Small to medium-sized organisations were revealed to be the most innovative as they are more likely to be “nimble and market-responsive”, the survey said.

It found organisations with between 11- 25 employees tend to be the most innovative, while innovative performance appears to decline in line with an increase in employee numbers beyond this size.

Although 83 per cent of respondents to the survey said they felt it is worthwhile being innovative in their organisation, and 67 per cent agreed that innovation is central to their organisation’s success, only 18 per cent said that funding was available for testing innovative initiatives and only one third of respondents believed they would be promoted faster for being innovative.

While internal collaboration was identified as an important determinant of innovation, relationships and networks between NFP organisations and external stakeholders were highly valued as a way of stimulating and supporting innovation.

The survey also found that NFP organisations concerned with the environment, youth and education areas were more likely to have a clearly defined innovation strategy.

To download the report, please click here.


Protecting small business

The Commonwealth Government has extended the unfair contract protections that apply to consumers to the small business sector.

The new small business protections will allow the courts to declare void a term within a contract that is unfair. For example, a term that allows a big business to unilaterally change the price or key terms during the course of the contract could be considered unfair. Businesses that offer low value standard form contracts will have to comply with the new law.

The government has provided $1.4 million to the Australian Competition and Consumer Commission to ensure businesses comply with the new rules, while the minister for small business has written to state and territory consumer affairs ministers asking them to agree to the changes.

A new jobs and small business package will also be announced over the coming weeks. It will include a small business company tax cut on 1 July, which is expected to be at least as big as the 1.5 per cent already flagged.

Announcing the changes, The Hon Bruce Billson, minister for small business said: “Small business is the engine room of Australia’s economic future. We want to ensure that small businesses have access to a level playing field so they can continue to grow, invest and create jobs.”

In March, the government announced draft legislation to establish an Australian small business and family enterprise ombudsman, which would be a Commonwealth-wide advocate for small businesses and family enterprises; a concierge for dispute resolution; and a contributor to the development of small business friendly Commonwealth laws and regulations.


Guide to principle 7

Professional services firm Deloitte and Group of 100, the peak body for finance executives from the major listed entities, have launched a guide to implementing principle 7 of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations.

The third edition of the Principles and Recommendations set the benchmark for good corporate governance practices for listed entities in Australia. The updated principles take effect for an entity’s first full financial year commencing on or after 1 July 2014.

They introduce key recommendations and changes to Principle 7, further refining the recommendations to improve and strengthen risk management and increase the effectiveness of board oversight.

Four key recommendations, 7.1. to 7.4, have been substantially enhanced. Recommendation 7.1 focuses on the need to set up and manage a risk committee to oversee risk, and 7.2 on the need to annually review the risk-management framework.

The two new recommendations in the third edition are 7.3. and 7.4, with 7.3 recommending where a listed entity should disclose whether it has an internal audit function, how it is structured and what role it performs. Unlike recommendation 7.3 in the second edition, this will apply to financial statements for half yearly and quarterly reporting periods as well as year-end financial statements.

Recommendation 7.4 arose in response to an increasing focus by investors on a listed entity’s ability to create or preserve value. It is modified from principle 3 from the second edition to “act ethically and responsibly”, and is about assessing and managing economic, environmental and social sustainability risks.

To help guide companies with the implementation of the principle 7, Group of 100 and Deloitte have developed and launched a Better Practice Guide to assist members and businesses.

The guide highlights useful local and global approaches for entities to consider when implementing or reviewing the effectiveness of their risk management frameworks so they can better implement the Principles and Recommendations. However, it does not specify or adopt a particular model or approach.

To download the guide, please click here.


Super sector falling short

The superannuation industry must do more to improve and uphold governance standards within the sector.

In a speech at a super fund conference earlier this month, Helen Rowell MAICD, a member of the Australia Prudential Regulation Authority (APRA) suggested that while governance within the superannuation industry had improved, more needed to be achieved.

Rowell stated APRA’s aim was to ensure the prudent management of super funds by APRA-regulated trustees.

Discussing conflicts of interest, Rowell said that a third of funds reviewed by APRA were said to have “conflict management frameworks” that were weak or vulnerable. While acknowledging that done correctly, related party arrangements can be beneficial, Rowell warned trustees to ensure:

  • They understood the arrangement.
  • They rigorously checked its appropriateness to member best-interest obligations.
  • They reviewed and monitored the arrangement on an ongoing basis and that the arrangement in fact delivered the member benefits.

Rowell stated clearly that boards needed to provide strong oversight and a “robust challenge” to management.

Independence of view amongst board members was also vital, and APRA’s experience over many years suggests: “having some independent directors…best supports sound governance outcomes”.

Compliance with new remuneration disclosure rules (SRF600.0) has been disappointing with anomalies and errors on fund websites when compared with APRA reporting, Rowell added.


China CSR improving

A recent study of the corporate social responsibility (CSR) landscape in China reveals that while substantial improvements have occurred, weak enforcement of legislation is considered the major obstacle in the development of sustainability in China.

However, the report, from the Embassy of Sweden in Beijing and CSR Asia, states that continued efforts by the government and regulatory authorities will help to overcome the obstacles.

The report states that the survey respondents: “view understanding and implementing CSR in China as currently largely limited to philanthropic activities. Respondents believe that the most important CSR themes for companies in China are economic performance, environmental impact and workplace issues. They believe fair operating practices such as anti-corruption and fair competition are considered the least important.”

It reveals that Chinese businesses see their main corporate responsibility as economic performance. Voluntary disclosure about anti-corruption and fair competition remains low.

Respondents also view the lack of enforcement as stifling development of sustainability in China but they also expect that their government will continue to strengthen the enforcement regime and that the media will increase their focus on CSR matters in the future.

Multinational companies are seen as the leaders in integrating CSR into daily operations in China though some respondents felt that multi-national corporations’ CSR efforts in China differed from their efforts globally. This may reflect the realities of localising global CSR strategies in China.

To read the report, click here.


Directions 2015

More than fifty per cent of directors see industrial relations laws and issues as a regulatory challenge for 2015, according to a survey of 130 directors by law firm King & Wood Mallesons (KWM).

The report focuses primarily on the legal and regulatory issues and challenges facing Australian directors and boards.

It found that 43 per cent of respondents have not taken steps to prepare for incoming free trade agreements, while 69 per cent of respondents have had engagement with people they consider to be activists.

Uncertain global economic and political conditions were also cited as a challenge in terms of cross-border investments by 41 per cent of respondents, while 90 per cent indicate that repeal days have had minimal to no impact on cutting red tape.

Occupational health and safety laws, executive and director remuneration and continuous disclosure regulations and practices were ranked the top three regulatory reform issues that have received the most attention over the past year, while just over 40 per cent of respondents considered the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations on independence of directors to restrict optimal board composition.

The survey said: “The scepticism of our survey respondents regarding the unqualified benefit of independence echoes a number of international studies which have found that increased independence does not, by and large, enhance company value.”

To read more on the report, please visit our Centre of Governance Excellence and Innovation.


Changes to Veda board

Geoff Hutchinson has resigned as a director of Veda Group, having served on the board since July 2011.

Hutchinson was on the board for four years, as a director both under private ownership and following the transition to public ownership in December 2013.

In addition, Steven Sargent MAICD has been appointed the company’s board of directors. Sargent’s appointment follows his formal retirement from General Electric on 13 March 2015, where he most recently held the role of president and chief executive officer (CEO) of GE Mining.

Prior to this, Sargent was president and CEO of GE Australia & New Zealand, which is GE's largest revenue generating region after the US. He has also served as president and CEO of GE Capital Asia Pacific, GE Capital Australia & New Zealand, and GE Commercial Finance.

---

G8 Education has appointed Matthew Reynolds as a non-executive director (NED). Reynolds’ appointment follows the announcement that former NED, Andrew Kemp has decided to step down. Reynolds has experience in the childcare industry having been a member of the G8 Education board between 2011 and 2013. He will be considered for re-election at the company’s next annual general meeting in accordance with the listing rules.

----

Not-for-profit membership organisation, Scrum Alliance has announced Lisa Hershman as the newest member to its board. Hershman is the founder and CEO of the DeNovo GroupTM, a global consulting, training, and research firm focused on leadership and innovation through process management and redesign. 


Boardroom Report disclaimer: The opinions in Boardroom Report do not necessarily represent the views of the publisher nor the publication. Every effort has been made to ensure accuracy, but no responsibility is accepted for errors. All rights reserved.