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11/03/19

Boardroom Brief: Week commencing 11 March 2019

YOUR KEY BOARDROOM BRIEF

Federal Court orders first ever “gun-jumping” penalties. In an Australian first, the Federal Court has ordered Cyrosite Limited to pay penalties of $1.05 million for cartel conduct in relation to its entry into an asset sale agreement with Cell Care Australia Pty Ltd (Cell Care). On signing the asset sale agreement, Cell Care made an upfront, non-refundable payment to Cryosite in return for Cryosite referring all customer enquiries to Cell Care before the acquisition had completed (the parties being, at this time, the only competitors for supplying cord blood and tissue banking services in Australia). Directors, when negotiating acquisitions, should be mindful of transitional provisions being viewed by the ACCC as “gun-jumping” – in essence, where competitor parties combine or coordinate their conduct before completion of the deal. The decision serves as a reminder that parties must remain independent and continue to act as competitors until completion. See G+T article “Practical implications of first Australian M&A gun-jumping penalties: ACCC v Cryosite Limited” for more commentary.

Whistleblower exposes potential $40 million fraud against NAB. Last week, a former chief of staff to ex-NAB CEO Andrew Thorburn was charged a $40 million fraud against the bank — by allegedly receiving bribes (to the value of $5.4 million and in the form of personal expenses) from a contractor to secure and maintain contracts with NAB and approve overstated invoices. Neither the former CEO nor anyone else at NAB has so far been implicated — but investigations are expected to lead to further arrests. The exposure of the fraud by a whistleblower reminds us why the Government has pushed to strengthen the protections available to whistleblowers, who too often bear the personal costs of shining the spotlight on wrongdoing. Such revelations might become a common theme once the new whistleblower regime — yet to receive royal assent — kicks in. Despite criticisms these reforms do not go far enough (mainly because no reward system for whistleblowers is being introduced), the notable enforcement culture changes among the regulators ought to see Directors paying serious attention to compliance.

AICD and KPMG release report on the Board’s role in a post-Royal Commission world. The Report released by the Australian Institute of Company Directors (AICD) and KPMG last week followed a survey conducted in December 2018 of over 600 AICD members. The Report is an interesting (and relatively short) read on the post-Royal Commission issues for Directors and what practical steps Directors should be taking in 2019. Customers and employees emerged as a top priority for Directors, ahead of stakeholder or other considerations — indicating an increasing recognition that pursuit of the company’s best interests is not a binary choice between customers and shareholders, but also includes consideration of employees and the community. Customer centricity and ethical conduct have moved onto boards’ agendas and strategies. The survey results mark the fact that conversation in boardrooms is changing and decisions are already being made through the lens of what the community will think.

ASIC Commissioners give keynote address at ANU Climate Update 2019. Last week, ASIC Commissioners Sean Hughes and Cathie Armour gave a keynote address at the ANU’s 2019 Climate Update. The address underlined ASIC’s active engagement in the area over the last 12-18 months, which it sees as an issue of increasing importance in financial markets. Its address — predominantly directed at listed companies and their directors — focused on ASIC’s view of baseline corporate legal and regulatory requirements relating to climate change, increasing pressure from investors for meaningful climate risk disclosure and the key findings of ASIC’s September 2018 report on climate risk disclosure by ASX-listed companies. Of note, the Commissioners stressed the duties of directors to consider the impact of climate change on the company’s business and ensure effective corporate governance practices are in place for identifying and managing emerging and complex issues.  Interestingly, despite the ASX dropping its controversial “social licence to operate” proposals in the final form of the 4th Edition of its ASX Principles and Recommendations, the Commissioners encouraged Directors to be cognisant of this broader issue when evaluating climate change risk. Directors (and also senior managers) should be adopting a probative and proactive approach to climate change risk — starkly highlighted by the World Economic Forum’s 2019 Global Risk Report (released last month) which placed “extreme weather events” and “failure to mitigate or adapt to climate change” as two of the top three global risks in terms of both likelihood and impact.

ASX releases Activity Report for February 2019. ASX’s Group Monthly Activity Report for February 2019 notes that total capital raised during the month was $1.3 billion, down 58% on the previous corresponding period (pcp). The average number of daily trades was 24% higher than the pcp and the average daily value traded on-market was $5.0 billion, 3% higher than the pcp. Average daily options volume was up 71% on the pcp, while the value of securities held in CHESS was 4% higher.

THE WEEK AHEAD

Corporate governance in 2019. It will be interesting to see whether law reform in the area of corporate governance makes it onto the Federal Election policy field. The Hayne Royal Commission provides the perfect backdrop for politicians to take a “populist” stand, and Directors should be alert to the risks this poses. The AICD, probably the most recognisable representative organisation for directors, appears determined to get ahead of the curve (perhaps trying to buttress self-regulation as a defence against more intrusive Government regulation), announcing its forward governance agenda for 2019 at its annual summit. The agenda focuses on Directors' duties, standards and professionalism, enhancing accountability and governance and remuneration.    

Upcoming periodic reporting deadlines. 

  • This Friday — Half yearly accounts for mining exploration and oil and gas exploration entities (June year-end).
  • Friday 29 March — Full year audited accounts (December year-end).
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