04/02/2019

Welcome to Edition 95 of Boardroom Brief.

This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.

YOUR KEY BOARDROOM BRIEF

Final report of the Financial Services Royal Commission will be released today.  Last week, the Government confirmed the final report into Misconduct in the Banking, Superannuation and Financial Services Industry will be released at 4.10pm today, following the close of trading on the ASX.  After its release, the Treasurer will hold a press conference at Parliament House.  The inquiry has already deflated dangerous levels of distrust and embarrassingly exposed poor executive decision-making and systemic regulatory failings.  Ethical failures and irresponsibility are not in themselves, though, criminal offences and, as Commissioner Hayne has intimated, the question of whether law and morality can be connected is tricky.  Ultimately, if the saga is written off by banks as a cost of doing business, the royal commission — seen as one of the few trusted mechanisms of oversight left in Australia — risks being judged a failure.  Directors should brace themselves for more of the same commentary on Board responsibility and oversight and the need for companies to better align with community expectations.

Mergermarket report on 2018 M&A activity and 2019 outlook.  Mergermarket, in association with Merrill Corporation, has published a report on key M&A geographic and sector trends, showing 2018 was another exceptional year for dealmaking.  Global M&A value hit a three-year high at US$3.5 trillion, with the US and Canada the biggest contributors (although, unsurprisingly, deal value and count fell in Europe, Asia-Pacific (excluding Japan) and Latin America as political and economic factors took their toll). PE activity was the highest in a decade and is expected to remain hot.  While the outlook for 2019 is favourable, companies considering major transactional activity should be wary of political developments in key markets which could see more turbulent 2019 M&A waters. 

ASIC reports on 2018 AGM season.  On 31 January 2019, ASIC published Report 609; the second of its kind to provide ASIC’s observations on the AGM season.  The Report confirms a trend from the 2017 season for significant shareholder engagement, with heightened focus in 2018 on environmental, social and governances (ESG) issues with climate change risk and sustainability emerging as the most frequently raised ESG issue.  Shareholders are increasingly using the AGM as an avenue of direct engagement with company boards; the upsurge in ‘against’ votes on remuneration reports being a prime example.  Remuneration reports that received a strike were not limited to remuneration amount or structure but were used to show discontent with Board and share price performance or other conduct issues.  ASIC also noted an increased tendency for chairpersons and CEOs to use their opening addresses at AGMs to acknowledge failings by the company and commitment to improve.

Gender diversity on ASX200 boards hits all-time high. According to the Australian Institute of Company Directors (AICD), as at 31 December 2018, women accounted for 29.7% of all ASX200 board positions (with women having accounted for 45% of all appointments to ASX200 boards in 2018 and almost 50% of them being first-time appointments). The AICD has confirmed that Australia is the first country in the world to achieve 30% gender diversity in top 100 boardrooms without regulatory intervention or quotas and considers the latest statistics show concerted efforts on the part of boards to look beyond their existing talent pool. See AICD’s media release.

Treasury consults on ICOs.  The Treasury has released an Issues Paper on Initial Coin Offerings (ICOs). The Paper seeks views on whether the existing regulatory framework in Australia is well placed to appropriately manage the risks posed by ICOs and whether there are actions that could be taken to best position Australia to capitalise on new opportunities  In particular, the Paper discusses: (i) the challenges in categorising ICO tokens; (ii) the drivers of the ICO market and related opportunities and risks for industry, consumers, investors and the economy; (iii) domestic and global approaches to regulating ICOs; and (iv) tax treatment of ICOs.  Submissions can be made until 28 February 2019.  Directors or companies dealing with crypto-currency assets or considering ICOs to raise funds should be aware of tighter regulatory scrutiny in this area (ASIC having flagged potential harms from such emerging markets as one of its focus areas for 2018-19).

ASIC releases its “Year in Review” report for 2018.  ASIC has reported a 99% and 100% success rate with its civil and criminal proceedings respectively for 2017-18.  Key statistics include:

  • Of the 16 criminal prosecutions that completed, 22 convictions, the imprisonment of 13 persons, 13 non-custodial sentences or hefty fines resulted.
  • Of the 111 civil enforcement proceedings that completed, $351.6 million (in compensation and remediation for investors and consumers) was recovered and $42.2 million was imposed by way of civil penalty fines. 
  • ASIC entered into 27 enforceable undertakings.
  • 55 infringement notices were issued worth just over $2 million.

Of general note to Directors is the significant uptick in ASIC’s investigative and enforcement activities – expected to remain a dominant theme for this year.

THE WEEK AHEAD

Major mining companies back an indigenous voice in Parliament.  BHP and Rio Tinto have backed a high-profile campaign to give indigenous Australians a constitutionally guaranteed parliamentary voice — last Thursday, they issued a statement in support of a constitutionally enshrined body to advise parliament on indigenous matters.  This marks a notable trend of business to take leadership on public policy issues of relevance to their stakeholders and it will be interesting to see if others follow suit.

US-China trade negotiations.  Closed-door talks between the world’s two largest economies are ongoing with details being scant and muted hopes for an agreement that will head off Trump’s planned 2 March tariff increase on US$200 billion ($275 billion) in Chinese goods.  China’s attempt to fast track through Congress its new foreign investment law next month— intended in part to tackle a key source of friction with the US by banning forced technology transfers and enhancing IP protections — underscores China’s eagerness to reach a deal.

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