This is a service specifically targeted at the needs of busy non-executive directors (NEDs). 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 discuss the joint report published by the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB) on trends in climate-related disclosures by entities listed on the ASX, and the report published by the Governance Institute of Australia (GIA) in relation to data governance by Australian organisations. We also examine the $12 million penalty imposed on Mercer Financial Advice (Australia) Pty Ltd (Mercer) for fee disclosure failures and misleading representations.
In Over the Horizon, we take a look at the rejection of the proposed acquisition of Origin Energy Limited (ASX: ORG) (Origin) by way of a scheme of arrangement and discuss the challenges of public M&A transactions where the interests of a substantial shareholder may not align with the target’s board.
AASB and AUASB publish joint report on trends in ASX climate-related disclosures. On 27 November 2023, the AASB and the AUASB published a joint research report titled “Trends in climate-related disclosures and assurance in the Annual Reports of ASX-listed entities”. This report builds on another report previously issued by the regulators by extending the 2018-2021 sample period to include data from 2022. The report indicates that there has been an increase in disclosure rates among listed entities, rising from 36.1% in 2021 to 42.8% in 2022. The report indicates that entities in climate-sensitive industries are more likely to disclose climate-related information in comparison to entities in other industries. However, most climate-related disclosures are outside of the financial statements and therefore not subject to audit. Further, of the entities that referenced additional third-party assurance of climate-related information in their Annual Report (which made up approximately 5% of entities sampled), the vast majority only provided limited assurance. See AUASB media release and joint report.
GIA releases report on data governance by Australian organisations. On 22 November 2023, the GIA released a report titled “Data governance in Australia” which summarises the findings of the GIA’s survey of 345 chief executive officers and C-suite executives, non-executive directors and senior governance and risk professionals. Given the importance of cyber security in today’s business environment, standout concerns from the report include a lack of understanding by boards of data governance challenges and a lack of appropriate data governance frameworks. The report states that 58% of respondents do not believe their board has sufficient understanding of their organisation’s data governance challenges, and more than half of the organisations concerned do not have a data governance framework in place, mostly due to lack of capacity or resources. The report also makes several recommendations for organisations in relation to data governance, including providing greater education and training to members (including senior leadership), developing guidelines to ensure an effective data governance framework is utilised, and clearly defining the roles of all members of the organisation involved in maintaining cybersecurity. GIA Chair Ms Pauline Vamos emphasised that “[i]t is critical that organisations design, introduce and implement an effective data governance framework to maximise customer service and the commercial value of data while also minimising risk – particularly reputational risk”. See GIA website.
Mercer ordered to pay $12 million penalty for fee disclosure failures and misleading representations. On 23 November 2023, the Federal Court of Australia found that Mercer breached the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) by failing to provide fee disclosure statements, providing misleading information in the fee disclosure statements it did provide, and by charging clients for services they did not receive. Mercer’s offending conduct occurred over a three-year period from 1 July 2016 and 30 June 2019. The Court found that these failures were caused by Mercer’s lack of adequate systems and processes ensure that its fee disclosure statements complied with financial services laws, and ordered the company to pay a $12 million penalty. Australian Securities and Investments Commission (ASIC) Deputy Chair Ms Sarah Court stated that “ASIC expects businesses to invest properly in their compliance systems. As today’s outcome shows, if they fail to do so, they face significant penalties”. See ASIC media release and Australian Securities and Investments Commission v Mercer Financial Advice (Australia) Pty Ltd  FCA 1453.
OVER THE HORIZON
Substantial shareholders: a substantial hurdle? On 4 December 2023, shareholders of Australia’s largest listed energy company, Origin, rejected the ‘best and final’ offer proposed by a Brookfield-led consortium of investors and EIG Global Energy Partners to acquire Origin for approximately A$20 billion. The bid has been one of Australia’s largest and lengthiest takeover battles in recent years. Although the Board of Origin continued to officially recommend the scheme, Origin’s largest shareholder, A$300 billion superannuation fund AustralianSuper – which controlled 17% of the vote – opposed the deal. The rejection of the Brookfield and EIG bid is the latest development highlighting the challenges that target boards have faced in attempting to win shareholder support for large buy out bids in 2023. In August 2023, Azure Minerals Limited (Azure) announced a recommended A$1.6 billion takeover bid from its largest shareholder, Sociedad Química y Minera de Chile S.A. (SQM), which immediately triggered buying by interlopers Mineral Resources and Hancock Prospecting, and now seems unlikely to proceed (at least in the form contemplated). In October 2023, Abermarle Corporation walked away from its A$6.6 billion tilt at Liontown Resources Limited (Liontown) following sustained buying by Hancock, which was opposed to the transaction. Although a takeover battle generally presents a boon for target shareholders, execution risks can also create downside risks particularly for arbitrage funds and those buying at or around the proposal price. Directors of target boards must exercise considerable judgment in balancing the conflicting objectives of long and short-term focussed shareholder groups when considering control proposals: a task made all the more difficult when there is a divergence of opinion on the underlying value drivers of the target’s business.