Governance News 29 October 2018

60 mins  29.10.2018 Mark Standen, Siobhan Doherty, Kate Hilder

Governance News provides weekly summaries of key regulatory and governance developments in Australia and overseas. This issue includes (among other things) a summary of the findings of McKinsey's latest research into (gender) diversity in US corporations, and the latest AICD Director Sentiment Index which has ranked climate change as a key priority for the first time. 

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We provide weekly summaries of key regulatory and governance developments in Australia and overseas.


Diversity Navigation Show below Hide below

  • Top Story | Gender diversity in US companies has stalled: McKinsey's fourth annual study tracking progress on gender diversity has found that despite public commitment to the issue, the proportion of women in US corporations remains barely changed.
  • United States | Cynical about the focus on gender diversity but more open to consideration of social issues? PwC has released the results of its latest annual survey of US director views on various corporate governance issues including diversity, culture and board renewal.
  • United States | No progress on racial discrimination in the US job market since 1989?

Shareholder activism Navigation Show below Hide below

  • Lazard has released its latest quarterly review of global trends in shareholder activism for Q2 2018: though there was a decline in campaign activity in Q3, 2018 has seen a record number of companies targeted.
  • Board analyses not determinative, but 'helpful'? SEC has provided additional information about its views on the exclusion of shareholder proposals in a follow up to Staff Bulletin 14l which provides further information on the operation of Rule 14a-8 under the Securities Exchange Act of 1934.
  • Pushing for a second 'strike': Activist Premier Investments has written to Myer shareholders calling on them to vote against the remuneration report at the forthcoming AGM to deliver a second 'strike' and trigger a board spill (opening the door to appointing Premier nominees to the board).

Other shareholder news Navigation Show below Hide below

  • United States | A counterweight to short-termism? A group of prominent companies and institutional investors have released a revised and expanded version of the 'Common sense' Corporate Governance Principles.

Meetings and proxy advisers Navigation Show below Hide below

  • Recent AGM results: 40.1% support for a climate disclosure resolution at Whitehaven Coal, asylum seeker resolution defeated at Qantas; and a near 'first strike' at JB Hi Fi.

Disclosure and reporting Navigation Show below Hide below

  • Life Insurers will have a legal obligation to report data on claims and disputes under a new reporting standard released by ASIC and APRA.

Regulators Navigation Show below Hide below

Australian Securities and Investments Commission (ASIC)

  • ASIC Chair James Shipton has reiterated the need to ensure ASIC is 'right sized' to meet enforcement expectations and has committed to ensuring against 'regulatory capture'.
  • Consultation on stronger powers for ASIC: Draft regulations to implement the Corporations Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 reforms have been released for consultation. Consultation will close on 13 November.
  • An ASIC commissioned UNSW pilot study has found that despite concerns to the contrary, ASIC's use of enforceable undertakings do have a deterrent effect on financial institutions.
  • ASIC has released an update on the EU agreed with CBA advice subsidiary CFPL

Australian Prudential Regulation Authority (APRA)

  • APRA reviewing its enforcement approach: APRA Chair Wayne Byres has said that the review will consider the potential for greater use of by the regulator of its enforcement powers.
  • In Brief | In his address to COBA, APRA Executive General Manager Policy and Advice Division Pat Brennan has reiterated the need for smaller ADIs to prepare for implementation of the Banking Executive Accountability Regime (BEAR) and highlighted some of the areas on which they should focus. He also said that APRA would shortly write to smaller ADIs (that will be subject to BEAR from 1 July 2019) requesting submission, in the coming months, of an initial draft list of accountable persons and draft accountability statements for feedback to help them prepare for formal submission as 1 July 2019 approaches.

Australian Competition and Consumer Commission (ACCC)

  • In Brief | The government has extended Mr Rod Sims' term as Chair of the Australian Competition and Consumer Commission (ACCC) until 1 August 2022. 'Mr Sims' reappointment will ensure continued stability and strong leadership of the Commission, particularly with important inquiries currently underway including the impact of digital platforms such as Facebook and Google on Australian media and advertising markets, the supply and demand for wholesale gas in Australia and residential mortgage products' Treasurer Josh Frydenberg said.

Corporate social responsibility and sustainability Navigation Show below Hide below

  • BlackRock has reportedly signalled plans to become a global leader in sustainable investing.
  • In Brief | Defunding big tobacco? 45 Australian superannuation funds have reportedly signed on to the UN sponsored Tobacco Free Finance Pledge. The ABC comments that superannuation funds that declare they are tobacco-free may still be exposed on the retail level through shares in supermarkets Woolworths and Coles-owner Wesfarmers.

Financial Services Navigation Show below Hide below

Royal Commission into Misconduct in the banking, superannuation and financial services industry (Financial Services Royal Commission)

  • The West Australian reports that APRA has no intention of pushing for additional powers in its submission in response to the Financial Services Royal Commission's Interim Report.
  • In Brief | The Australian reports that the Commonwealth Director of Public Prosecutions (CDPP) has said it lacks resourcing to prosecute the expected influx of cases referred by ASIC in the wake of the Financial Services Royal Commission.

Other Developments

  • Review of UCT protections for SMEs: Treasury will review of the operation of the existing regulatory regime in place to protect small businesses from unfair contract terms. The review will commence in November 2018 and report to the Government by 1 February 2018.
  • Not encouraging? An EY study tracking the performance of 141 initial coin offerings listed on cryptocurrency exchanges in 2017 has found that 86% of the ICOs are below their initial listing price and 30% have lost 'substantially all' their value.
  • In Brief | Time to make breaches of banking codes of conduct a criminal offence? The Conversation argues that the way to address 'ineffective' banking codes of conduct is to 'enshrine' the principles highlighted by Commissioner Hayne in his Interim Report (obey the law, do not mislead or deceive, be fair, provide services fit for purpose, deliver services with reasonable care and skill and when acting for another, act in their best interests) and to make any breach a criminal offence.
  • In Brief | Ireland to introduce a Senior Executive Accountability Regime to ensure clearer accountability? The Central Bank of Ireland has released a report into the current behaviour and culture of the largest five banks which proposes greater accountability for senior individuals in banks, insurance firms and MiFID investment firms and flags its intention to 'enhance' its supervision of conduct and culture risk, especially in firms which pose the greatest risk to consumers.

Accounting and audit Navigation Show below Hide below

  • ISS has released revised draft voting policies for consultation. The questions of auditor independence, fees and credibility are the key focus for the UK, Ireland and the Asia-Pacific regions.
  • Not good enough: The UK Financial Reporting Council's annual review of corporate governance and reporting has identified a number of quality issues prompting the regulator to call on directors and finance committee chairs to make improvements in a number of areas including key accounting judgements and estimates, eliminating basic errors and how companies have applied the Principles of the UK Corporate Governance Code.
  • In Brief | More pressure to reform the UK audit sector? The UK shadow secretary John McDonnell has reportedly outlined plans for reforming the UK audit market flagging that a Labor commissioned review of the accountancy sector is expected to be published within a month and will be released for public consultation.
  • In Brief | ASIC has announced that it has deregistered, suspended or imposed conditions on 101 self-managed superannuation funds (SMSF) auditors for audit quality and independence issues or on fit and proper person criteria since the registration of SMSF auditors began in 2013.

Risk management Navigation Show below Hide below

Climate Risk

  • Top Story | AICD H2 Director Sentiment Survey 2018: Directors have identified climate action as a key long term priority for the first time.
  • Motivated by the need to maintain a social licence to operate and the pursuit of commercial gain? HBR identifies these as the key drivers behind the trend towards CEOs advocating for regulatory intervention on climate (and other social issues).
  • Time to put a price on carbon? BHP has reportedly renewed calls for a price on carbon to drive emissions reductions in Australia, following the release of the IPCC report, despite the government's rejection of the need to reconsider its current climate policies before the next election. Dr Fiona Wild, head of Sustainability & Climate Change at BHP reportedly said: 'We believe that the world must pursue the twin objectives of limiting climate change in line with current international agreements while providing access to affordable energy…And we believe there should be a price on carbon, implemented in a way that addresses competitiveness concerns and achieves lowest cost emissions reductions'.
  • In Brief | The Australian reports that Alan Finkel has said that defeat of the Liberal candidate in the Wentworth by-election signals community dissatisfaction with Australia's current policy settings on climate. Dr Finkel also reportedly called for the government to prioritise, and invest in building a hydrogen industry despite the government's rejection of calls to alter current policy settings.
  • In Brief | A constitutional right to a stable climate? The Conversation reports that a lawsuit (Julia v United States) lodged on behalf of 21 young people in federal court in Oregon challenges US energy policies on the basis that they are destabilising the climate and violating established constitutional rights to personal security. The plaintiffs are reportedly seeking to require that the government prepare and implement an enforceable remedial plan to phase out excessive GHG emissions that cause climate change. The trial is currently scheduled to begin on 29 October (unless delayed by the Supreme Court).

Cybersecurity and Privacy

  • Very far from compliant? A Global survey has found that 56% of companies are far from compliant or will never fully comply with the EU's General Data Protection Regulation one year after it was implemented.
  • In Brief | Delay in reporting data leak at Cathay Pacific? A data breach reportedly discovered by the company in March exposed 9.4m passenger's data to hackers. The company reportedly knew that personal information had been compromised in May but the leak has not been disclosed by the company until now. Reportedly some customers have already expressed concern over the delay. Cathay has reportedly responded: 'we believe it is important to have accurate information to share, so that people know the facts and we can support them accordingly.'
  • In Brief | Do banks require mandatory cybersecurity tests? IT news reports that in a panel discussion at the SIBOS conference, the Reserve Bank of Australia, JP Morgan and the European Central Bank said that financial authorities and institutions need to do more to address cyber risk, and reportedly floated the idea that lenders should be subject to 'penetration tests' conducted by regulators and that lenders should also be subject to annual assessments of their cyber 'roadworthiness'.
  • In Brief | Writing in the Australian, Australian Information Commissioner and Privacy Commissioner Angelene Falk has defended the Office of the Australian Information Commission's (OAIC's) approach to enforcement stating that it has been effective in delivering outcomes for those affected by breaches and adding that it 'has led to enforceable undertakings that have driven systemic change within organisations where personal information practices have been deficient'.

Corporate misconduct and liability Navigation Show below Hide below

  • Legislation to introduce tougher penalties for white collar crime has been introduced into the House of Representatives following consultation.
  • Financial adviser found guilty of breaching the FPA code of professional practice, sanctions yet to be determined.

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Past issues are available


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