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Australian companies need to comply with a raft of changes to corporate governance laws. Not a big deal. Adopt a few new policies, put them on the website and its all done.  Or is it?

What are the changes and what do I need to do?

• The new whistle blower regime imposes potentially substantial penalties on companies whose officers and senior managers do not handle whistle blower complaints correctly.
• The modern slavery laws require companies to be aware of the actions of their suppliers and report on them.
• The new Corporate Governance Principles and Recommendations (fourth edition) (CGC 4) will require all ASX listed entities to consider and report against recommendations that include whether the entity has any material exposure to environmental or social risks and, if it does, how it intends to manage those risks. The CGC 4 also encourages entities that believe they do not have any material exposure to environmental or social risks to carefully consider their basis for that belief and to benchmark their disclosures against those made by their peers.

These changes are not just administrative.  They require company’s directors to carefully consider and understand its corporate governance practices and procedures.

Even more importantly, the changes represent a gradual shift in the required focus of companies and their directors from maximising returns to shareholders at all cost to the need for companies to consider all stakeholders in their decision-making processes.  This includes employees, the society in which they operate and the environment.

This broadening of focus is evident from all of the recent changes to Australian corporate governance laws.  Issues such as sustainable practices, diversity and inclusion and dignity and respect are set to become important considerations for Australian companies.  Investors are also increasingly being encouraged to measure companies more on their social impact than solely on their returns.

ASX listed entities would benefit from having this mind set when considering and implementing the overriding principle of the CGC 4 that:

“… listed entities should view their corporate governance statement not as a compliance document but rather as an opportunity to demonstrate that their board and management are alive to the importance of having proper and effective corporate governance arrangements and to communicate to security holders and the broader investment community the robustness of their particular approach to corporate governance. This includes not only outlining the governance arrangements it has in place but also explaining how they are being implemented in practice.”

What is bringing about these changes?

While the changes are consistent with the Haynes Royal Commission report, the notion of companies having a social conscience was in train well before that.

The international community is strongly influencing the actions Australia is taking on corporate governance issues.

These include:

• The G20 countries committed in 2010 and 2012 to put in place adequate measures to protect whistle blowers, and to provide them with safe, reliable avenues to report fraud, corruption and other wrongdoing.
• ASIC recently reviewed its regulatory guides in relation to climate change to ensure financial stability. This evolved from the Australian Government endorsing the recommendations of the Task Force on Climate-related Financial Disclosures set up by the G20’s Financial Stability Board on climate-related financial risk disclosures.
• In the Senate’s final report on the Modern Slavery Act inquiry it notes that the inquiry contributes to the growing international momentum to combat modern slavery, highlighted by initiatives such as Alliance 8.7 and the UK Prime Minister’s call to action to address modern slavery, endorsed by members and observers, including Australia, at the United Nations General Assembly on 19 September 2017.

The US Business Roundtable recently announced the release of its new “Statement on the Purpose of a Corporation” signed by 181 CEOs who commit to lead their companies for the benefit of all stakeholders.  Since 1978, the US Business Roundtable has periodically issued principles of corporate governance.  Each version of the document issued since 1997 has endorsed principles of shareholder primacy that corporations exist principally to serve its shareholders.

In a recent “about face”, the latest “Statement on the Purpose of a Corporation” states that “..we share a fundamental commitment to all of our stakeholders ..”. This includes delivering value to customers, investing in employees, dealing fairly and ethically with suppliers and supporting the communities in which they work as well as generating long-term value for shareholders.

The move to a broader stakeholder approach is supported by current global discontent, especially among young people, over issues such as income inequality, harmful products, poor working conditions and climate change.

In slamming Prime Minister Scott Morrison’s support for new coal mines and lack of action on climate change during a recent interview with Tom Tilley on Hack (ABC), Sir David Attenborough stated that “We have to convince bankers and big business that, in the end, the long-term future lies in having a healthy planet. And unless you do something about it … you’re going to lose your money.”

How can Automic Governance help?

Automic Governance is a new service offering within. The team comprises of Automic’s company secretaries and lawyers from its corporate/commercial practice.

We would be pleased to discuss how company directors can be on the front foot in complying with their new, broader corporate governance obligations. For ASX listed entities that will need to report against the new Corporate Governance Principles and Recommendations (fourth edition), Automic Governance has developed its own legal bot that we can send to you to interact with.  Your responses to the bot will provide us with the information we need to prepare a customised scope of work and fee estimate for you.

Please contact Automic Group.