Pushing the directors policy agenda

A monthly review of the Australian Institute of Company Directors’ policy and advocacy team’s projects and issues.

ACNC abolition

With a large percentage of our membership involved in the governance of not-for-profit (NFP) organisations, the NFP sector continues to be a priority focus area for us. Throughout the NFP reform process we have lodged numerous submissions developed in consultation with our membership and broader stakeholders.
Our latest submission was to the Senate Economics Legislation Committee which is reviewing the Australian Charities and Not-for-profits Commission (Repeal) (No.1) Bill 2014.

We are concerned that despite the lack of information and detail provided about an alternative regulator for the NFP sector, the government is committed to abolishing the Australian Charities and Not-for-profits Commission (ACNC). Until the government releases sufficient detail on its proposed alternative model of regulation, we do not support the abolition of the ACNC.

Since the commencement of the NFP Reform in 2010-11 and through a range of submissions, Company Directors has consistently repeated its view that the charity (and the broader NFP sector) would benefit from:

• A reduction in red tape.
• A harmonisation of federal, state and territory regulations.
• A “one-stop-shop” for reporting to government(s).

We are of the view that simply abolishing the ACNC without providing certainty or clarity as to the alternative regulatory regime will not achieve these goals. For us to support the abolition of the ACNC, the government must provide more detail on how these objectives are to be met by the proposed National Centre for Excellence and other regulatory arrangements.

We have also expressed our concern as to the consultation approach the government has followed on this issue. There has been little to no consultation with the sector until this senate committee and the decision to abolish the ACNC would appear to be at odds with sentiment across most of the NFP sector.

Guiding principles of good governance

In line with our goal of being recognised as a key player in achieving world-leading performance of Australian boards and directors, we have developed a set of guiding principles of good governance for directors and boards.

We recognise that there are a number of good governance principles in the market, including the ASX Corporate Governance Council’s Principles and Recommendations and our own Good Governance Principles and Guidance for Not-for-Profit Organisations. However, there appeared to us to be a gap in the market for other types of organisations including private companies, small businesses and government organisations.

Importantly, these new guiding principles have been developed by directors for directors. Many of the other principles have been written from the perspective of regulators, shareholders, members or other stakeholders.

The guiding principles are not intended to be prescriptive because we have long argued that there is no “one size fits all” good practice solution for effective governance. They provide companies of all sizes and types with a starting point or guide for the development or review of their own governance arrangements, taking into account their particular circumstances.

The final guiding principles can be viewed on the page opposite and also on our website.

Amendments to Corporations legislation

In early April the federal government released for consultation the Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014 (the Bill), which contained a number of initiatives aimed at reducing the regulatory burden on Australian business.

The Bill forms part of the government’s commitment to reduce red tape, a strategy we have advocated will go a long way to increasing productivity, competitiveness and investment in Australia. We support all of the measures in the proposed Bill and in particular proposed amendments to the “100 member rule”, dividends test and disclosures in the remuneration report.

The removal of the “100 member rule”, which allows 100 members to requisition an extraordinary general meeting of members, would provide a good example of the type of deregulation that would allow business to operate more efficiently, without compromising the fundamental rights of shareholders.

We have consistently advocated for the need to have an express solvency test for the payment of dividends in the Corporations Act 2001 and support measures proposed in the Bill to achieve this. By decoupling the dividends test from the accounting standards and creating a clear link to the consideration of solvency when paying dividends, these amendments will enable entities that have sufficient cash resources to pay dividends to their shareholders. 

We are also of the view that the proposed amendments relating to the remuneration report will assist in reducing the regulatory burden of those entities required to prepare remuneration reports.

However, we did strongly encourage Treasury, as a separate exercise, to consider revisiting all disclosures within a remuneration report, as the remuneration report continues to be unduly complex and places a significant burden on preparers, resulting in information that is of very limited use to shareholders and other users. 

Super changes in budget

Despite a raft of coverage following the federal government budget, some may have missed the announced changes to superannuation contributions which provides welcomes news for many directors. In the past, mandatory superannuation guarantee (SG) contributions in respect of each directorship may have been combined to exceed the concessional (pre-tax) cap which, in turn, would have affected the non-concessional contribution cap. If directors exceeded the non-concessional contribution cap, the amount in excess of the cap could have been taxed at up to 93 per cent. Under the changes announced in the budget, individuals will have the option to withdraw non-concessional contributions made from 1 July 2013 that are in excess of the cap without penalty. Earnings that are withdrawn will be taxed at the individual’s marginal rate. If the option is not taken up, excess non-concessional contributions will still be taxed at 46.5 per cent.

The announced changes follow our advocacy on this issue over a number of years, including our latest submission to Treasury in late 2012.

Guiding principles of good governance

Principle 1 The board plays a key role in approving the vision, purpose and strategies of the organisation. It is accountable to the organisation’s members as a whole and must act in the best interests of the organisation.

Principle 2 The board sets the cultural and ethical tone for the organisation.

Principle 3 All directors should exercise independent judgment and provide independent oversight of management.

Principle 4 Taking into consideration the scale and nature of the organisation’s activities, the board should comprise an appropriate number of directors who have a relevant and diverse range of skills, expertise, experience and background and who are able to effectively understand the issues arising in the organisation’s business. Where practicable, the chairman of the board should be independent, with the role of the chairman being separate from the role of the CEO.

Principle 5 The board should have an appropriate system of risk oversight and internal controls put in place.

Principle 6 Directors should act diligently on an appropriately informed basis and have access to accurate, relevant and timely information.

Principle 7 The board would normally delegate certain functions to management.  Where it does so, there should be a clear statement and understanding as to the functions that have been delegated.

Principle 8 The board is responsible for the appointment of the CEO and the continuing evaluation of his or her performance.

Principle 9 The board should ensure that the organisation communicates with members and other stakeholders in a regular and timely manner, to the extent that the board thinks it is in the best interests of the organisation, so that they have sufficient information to make appropriately informed decisions regarding the organisation.

Principle 10 The board’s performance (including the performance of its chair, the individual directors and, where appropriate, the board’s sub-committees), needs to be regularly assessed and appropriate actions taken to address any issues identified.