Governance News 11 September 2019

60 minute read (PDF download) 10.09.2019 Mark Standen, Siobhan Doherty, Kate Hilder

This week's issue features (amongst other developments) coverage of the CEW's ASX200 CEO census, Lord Sales advocating climate-focused law reform, ASIC appealing Westpac lending case, and Macquarie Business School's strategies for minimizing unethical employee behavior.

Boards and Directors Navigation Show below Hide below

Is the independent board model still workable? Senior Fellow at Harvard Law School Program on Corporate Governance Stephen Davis suggests that it may be time to provide independent directors with their own dedicated staff support to close the information gap
In Brief | What are the key challenges for future focused boards? A recent discussion paper jointly released by IOD and MinterEllisonRuddWatts identifies that technology is likely to play a key role in support a shift in the way director's meet, monitor organisations and make decisions. In addition, the report suggests that directors will spend more time outside board and committee meetings developing a deeper understanding of the business and closing the information gap with management. 'Tomorrow's directors will be constantly learning – always on duty' it's suggested

Diversity Navigation Show below Hide below

Going backwards? Though there has been some progress towards gender balance in senior executive roles in ASX200 companies, the CEW's latest senior executive census has found that the number of female CEOs in ASX200 companies has fallen from 14 (7%) in 2018 to 12 (6%) in 2019
In Brief | Why so few CEOs? Only 5% of S&P 500 CEOs are women. Based on analysis of the findings of nearly 160 studies published during the past 25 years into the effects of gender on different aspects of CEOs' careers, researchers have found that stereotypes and favouritism pose significant barriers to the career progression of aspiring female leaders

Remuneration Navigation Show below Hide below

The WSJ reports that Nissan CEO Hiroto Saikawa will return a portion of his performance-based pay, after Nissan auditors found that the amount was too high. Reportedly Mr Saikawa has also flagged his intention to step down as CEO
In Brief | The Australian Reports that Bendigo and Adelaide Bank executives will receive zero short term incentives after the bank failed to clear the required cash-earnings hurdle to establish a bonus pool

Regulators Navigation Show below Hide below

Operators of loyalty schemes 'on notice': The ACCC has released a draft report flagging 'significant concerns' about customer loyalty schemes and recommending law reform
The House of Representatives, Standing Committee on Economics has announced that APRA Chair Professor Graeme Samuel will appear at the next public hearing on 11 September

Corporate social responsibility and sustainability Navigation Show below Hide below

Top Story | A 'case for law reform'? In a recent speech UK Supreme Court Justice Lord Sales suggested that 'there is a clear case' for law reform to provide a 'greater impetus to boards and individual directors to accord greater attention and weight to climate issues than has until now been considered appropriate'
Investment in adapting to climate change makes sound economic sense? The Global Commission on adaption report calls for urgent action on climate adaption, arguing among other things that doing so could deliver significant economic returns
Retail investors care about non-financial considerations? A report from KPMG/Acuity research has found that Australian retail investors expect more of companies than short term financial returns
Insights from UK FRC Chair Sir Win Bischoff on the theme of rebuilding trust and the role of strong governance in this context: Speech to the Governance Institute of Australia National Conference
BHP will reportedly review its membership of lobby groups in response to investor pressure
In Brief | The AFR reports that Medibank will exit the Business Council of Australia in the interests of cost cutting. The AFR comments that decision comes as the BCA faces increasing pressure from conservation groups over its climate stance
In Brief | MSCI has announced that its subsidiary, MSCI Barra (Suisse) Sàrl, will acquire Zurich-based environmental fintech and data analytics firm, Carbon Delta AG, a 'global leader' for climate change scenario analysis. MSCI and Carbon Delta plan to create 'an extensive climate risk assessment and reporting offering for the institutional market', providing global investors with solutions to help them better understand the impact of climate change on their investment portfolios and comply with mandatory and voluntary climate risk disclosure initiatives and requirements

Financial Services Navigation Show below Hide below

Top Story | Loan and swap structuring in a low interest rate environment
The government is consulting on a proposed model to implement an industry-wide deferred sales model for add-on insurance products (excluding policies of comprehensive motor insurance) in response to recommendation 4.3 of the Financial Services Royal Commission
Still a live issue? ASIC has filed an appeal against the recent responsible lending test case against Westpac
Why not litigate (again)? The Australian Securities and Investments Commission (ASIC) has commenced proceedings against Bendigo and Adelaide Bank and separately, against the Bank of Queensland over (alleged) unfair small business loans
Should penalties be in place for breach of UCT provisions?
ASIC takes action on FSRC insurance case study: ASIC has commenced proceedings in the Federal Court against Select AFSL for (alleged) breaches of the law arising from phone sales of life and accidental injury insurance
Should banks be required to notify customers that they are outsourcing mortgage application processing to third parties located overseas?
In Brief | Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 (which proposes to implement the government's response to FSRC recommendation 2.4) has progressed to third reading stage in the House of Representatives
In Brief | APRA is consulting on revisions to the capital framework for authorised deposit-taking institutions (ADIs) to implement 'unquestionably strong' capital ratios and the Basel III reforms. More particularly, the regulator has started a second consultation on the requirements of a draft prudential standard that aims to strengthen the framework for interest rate risk in the banking book (IRRBB). APRA is proposing changes to both the capital calculation and the risk management requirements. The deadline for submissions is 6 December 2019. The proposed implementation date of APS117 (once finalised) is 1 January 2022 to align with the Basel Committee's internationally agreed implementation of the risk-based capital framework
In Brief | ASIC has extended licensing relief for foreign financial services providers until to March 31, 2020, to allow them to provide 'certain financial services' to Australian wholesale clients without needing to hold an Australian financial services licence
In Brief | Treasury is consulting on an exposure draft Bill and Regulations, and supporting explanatory materials proposing to implement 'minor and technical amendments' to the Treasury portfolio laws relating to taxation, superannuation, corporations and credit to correct 'technical or drafting defects', remove anomalies and address 'unintended outcomes'. Consultation closes on 27 September
In Brief | Increased competition? Reportedly, 86 400 has become the first publicly available neobank in Australia to offer transaction and savings accounts. APRA has also recently granted Xinja Bank Limited a licence to operate as an authorised deposit-taking institution (ADI) without restrictions under the Banking Act 1959. Xinja Bank Limited was previously licensed by APRA in December 2018 as a Restricted ADI. Reportedly Xinja intends to also offer transactions accounts
In Brief | Reportedly Lloyds Banking Group and Barclays have each said that their initial estimates of the cost of compensating customers for missold payment protection insurance (PPI) were too low because they each failed to anticipate the spike in complaints in the run up to the 29 August deadline. Reportedly both lenders will increase provisions accordingly. Lloyds reportedly expects to take another PPI charge of between £1.2bn and £1.8bn in the third quarter, and Barclays expects to put aside between £1.2bn and £1.6bn

Risk management Navigation Show below Hide below

Why does unethical behaviour occur and how can the risk of unethical behaviour most effectively be mitigated? Research from Macquarie Business school identifies considerations leaders should keep in mind