Regulatory compliance in 2024

As we head into 2024, boards must stay alert to the key global risks and regulatory developments shaping governance practice, writes Louise Petschler GAICD. 

The governance environment

Through our policy leadership work at AICD, we are committed to helping members be at the forefront of contemporary governance. We do this by offering guidance on current issues and by contributing to a regulatory environment that supports good governance outcomes.

Today’s boards are expected to navigate a range of increasingly difficult challenges. These include regulatory complexity, geopolitical risk and the blurred line between board and management, as well as rapidly evolving expectations of corporate accountability and stakeholder engagement. Once seen as matters for management, issues such as social change, ESG reporting, non-financial risk and corporate culture are increasingly dominating the agendas of Australian boards.

As we head into a new year, there are three big issues on the agenda:

• Cyber governance: Cybercrime remains the key issue that is “keeping directors up at night”, according to AICD’s most recent Director Sentiment Index survey.

• Climate governance: Directors cite climate change as the most important long-term issue for the federal government to address in public policy.

• Stakeholder governance: Increasing expectations from diverse stakeholders. 

Of course, performance — delivering on an organisation’s purpose and long-term value creation — is the north star for all directors and boards.

There are also some significant regulatory changes in 2024 that boards must be across, as outlined below. The AICD has resources to support directors as they navigate these waters (see Contemporary Governance Resources breakout, below right).

National Cyber Security Strategy

At the time of writing, AICD is awaiting the federal government’s release of the 2023–2030 Australian Cyber Security Strategy. The strategy aims to make Australia the world’s most cyber-secure nation by 2030. The AICD has been an active contributor, having hosted director roundtables with the Minister for Cyber Security Clare O’Neil and the strategy’s expert panel.

We anticipate the strategy will launch a significant program of regulatory and business actions to boost Australia’s cyber resilience, and we will update members on key governance elements. The AICD’s Cyber Security Governance Principles, developed with the Cyber Security Cooperative Research Centre, are a key resource for directors on cyber governance.

Preventing sexual harassment

A change to the Sex Discrimination Act 1984 means that all Australian employers now have a positive duty to prevent workplace sexual harassment and other harmful conduct. From 12 December 2023, the Australian Human Rights Commission (AHRC) has the power to monitor and enforce compliance.

The AICD encourages all Australian boards to include the positive duty and organisational compliance on their agenda. To support members, we have issued the publication Positive Duty to Prevent Workplace Sexual Harassment: A Director’s Guide. The guide outlines key governance steps for boards and suggests questions directors can ask management, which draw on the AHRC’s seven standards for compliance. Members of AICD can also access a complimentary webinar, presented by the author of the guide, Dr Karen O’Connell, and Australian Sex Discrimination Commissioner Dr Anna Cody.

Criminalising wage theft

Industrial relations reforms are likely to dominate political and parliamentary debate in early 2024. One important element is the government’s commitment to criminalise wage underpayment. This is a key issue for directors, with potentially significant liabilities and high regulatory and stakeholder focus.

The AICD supports strong penalties and regulatory action against employers who intentionally underpay workers or maintain business models that allow systemic underpayment. We have argued, however, that criminalisation should apply to intentional conduct. The complexity of Australia’s industrial relations system as a root cause of underpayment also needs separate focus.

Encouragingly, the draft legislation before parliament limits criminalisation to intentional conduct, reflecting the input of stakeholders (including AICD). The bill includes a new wage theft criminal offence for intentional misconduct, lowering of the civil liability threshold for wage underpayment and a substantial increase in penalty amounts.

In an effort to incentivise self-disclosure, the government has proposed a cooperation agreement that will provide limited immunity from criminal prosecution in certain circumstances. The AICD has raised additional concerns in a Parliamentary Committee review process, which is due to report in February 2024. We welcome member input on this issue through policy@aicd.com.au

Planning for nature-related risks

A new legal opinion published online by Pollination (one of AICD’s Climate Governance Initiative partners) and the Commonwealth Climate and Law Initiative, argues that Australian directors have a duty under corporations law to consider their company’s exposure to nature-related risks. It suggests directors who do not act to identify and appropriately manage material nature-related risks expose themselves to potential legal consequences.

Adoption of disclosure for nature-related risks remains voluntary at both a global and Australian level. However, investors and stakeholders will increasingly be looking for organisations to adopt nature-positive initiatives.

The AICD encourages directors to think carefully about their organisation’s impact and dependency on nature, and to consider steps they might take to manage any material risks in the ordinary course of discharging their duties. The AICD and MinterEllison have issued Biodiversity as a material financial risk: What board directors need to know. 

This article first appeared under the headline 'Looking Ahead’ in the December 2023 / January 2024 issue of Company Director magazine.