07/10/2019

Welcome to Edition 130 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.

In this Edition, we consider ASIC’s report on non-financial risk management, an update on approach to director scheme recommendations and ASX’s latest monthly activity report.

YOUR KEY BOARDROOM BRIEF

ASIC releases report on non-financial risk management. The report is based on a review by ASIC’s Corporate Governance Taskforce of seven large financial institutions which involved extensive documentation review and 60 interviews with directors and other officers. Key findings include: (i) management often operates outside of board-approved risk appetites for non-financial risks, particularly compliance risk; (ii) a company’s risk position is often unclear; (iii) material information about non-financial risk is often buried in dense, voluminous board packs; and (iv) boards need to take ownership of management reporting (in terms of form and content, eg, requiring a clear hierarchy and prioritisation of non-financial risks) and ensure board risk committees meet more frequently so material risks are clearer and management can be more easily held to account for operating within stated risk appetites. Non-financial risks can have significant financial implications. Directors should take account of the ASIC report when considering their governance practices and accountability structures for non-financial risk management.  Further reports from the Taskforce, which is charged with identifying good and poor practices and recommending improvements to lift corporate governance standards, can be expected.  ASIC Chair James Shipton’s speech reminds us of the increased focus in the area. You can access ASIC’s podcast on the report here.

Update on scheme recommendations by interested directors. The decision by the Supreme Court in Re GBST Holdings Ltd [2019] NSWSC 1280 has added weight to a line of authority supporting the position that directors who will receive a benefit on the successful implementation of a scheme of arrangement can recommend to shareholders they vote in favour of it provided the benefit is reasonable and sufficiently disclosed. In approving the scheme, the court followed the reasoning in Re SMS Management & Technology Ltd [2017] VSC 257, Re Nzuri Copper Ltd [2019] WASC 189, Re Ruralco Holdings Ltd [2019] FCA 878 and Re Kidman Resources Ltd [2019] FCA 1226 and did not follow the reasoning in Re Gazal Corporation Ltd [2019] FCA 701 and Re Navitas Ltd (No 2) [2019] WASC 218. Schemes of arrangement are increasing in popularity as a mechanism to implement change of control transactions – as is the attention on related disclosure. Directors considering or involved in a scheme should follow developments (especially given the ongoing tension between the two lines of authority on whether directors can recommend schemes despite receiving benefits) to ensure conditions and disclosures are appropriate.

ASX releases activity report for September 2019. Total capital raised during September 2019 was $5.4 billion, down 33% on the previous corresponding period (pcp). The average number of daily trades was 30% higher than the pcp and the average daily value traded on-market was $5.4 billion, 17% higher than the pcp. Average daily options volume was up 91% on the pcp, while the value of securities held in CHESS was 6% higher. Directors with plans to raise equity in the calendar year should ensure preparations are well underway by the end of the current quarter. You can access the report here.

THE WEEK AHEAD

“Unconventional measures” – are we headed for QE in Australia?  The RBA’s decision to cut the official cash rate to 0.75% last week, coupled with strong hints it might go lower, sent the Aussie dollar tumbling, closing at its lowest level since the depths of the GFC in March 2009. Goldman Sachs has suggested that the RBA may be only one or two cuts away from the level at which lower rates have no effect on growth, and from there, suggest $200 billion in easing (through bond purchases) would be required to achieve its inflation and unemployment targets.

Consultation on new ASIC powers closes this Wednesday. Among the proposals are strengthening ASIC's licensing and banning powers, harmonising ASIC's search warrant capabilities and improving ASIC’s access to intercepted information for investigating or prosecuting serious offences. The various proposals and explanatory material are accessible on the Treasury’s consultation page.

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