Consequences of recent governance failures show that if a company doesn’t get governance right, it runs the risk of damaging headlines, a diving share price, potential class actions, and becoming vulnerable to a takeover.
As we move into the full swing of 2023, many companies are taking the time to revisit their governance arrangements to ensure they are:
- set up for efficient and effective decision making;
- monitoring and managing key environmental and social risks; and
- keeping across the market trends and developments in the environmental, social and governance space.
Below we talk through the impact of failures, emerging risks and relatively straightforward steps to avoid them.
Governance health check
Against a backdrop of corporate scandals, revelations from royal commissions and other inquiries, and a new regulatory focus on greenwashing, cybersecurity and the responsibilities of directors, companies need to ensure their frameworks, policies and processes are fit for purpose, meet legal and regulatory requirements and set them up for success in an ever evolving and increasingly complex environment.
Take for example one listed infrastructure services company which through a combination of an ‘accounting irregularity’, profit warnings and a general lack of accountability and transparency has experienced a share price crash, or the technology company facing shareholder lawsuits and regulatory action relating to governance and disclosure issues.
A simple preventative step is ensuring foundational company documents such as constitutions and charters, policies and training materials have been prepared and reviewed by independent expert oversight. In addition to benefiting from best-practice approaches, this can help ensure key corporate governance documents’ compliance with the Corporations Act, ASX Corporate Governance Council’s Principles and Recommendations, ASX Listing Rules and APRA prudential standards (as applicable).
ESG due diligence
With greenwashing in ASIC and the ACCC’s firing line, and ESG issues on everybody’s agenda, companies need to ensure due diligence investigations cover ESG issues.
While the scope of ESG due diligence will vary with the industry/company, recent enforcement action in the superannuation sector underlines the critical importance of ensuring TCFD and other corporate reporting and marketing materials are rigorously assessed for greenwashing risk. Today’s M&A preparation must consider the impact of a proposed transaction on ESG certifications (e.g. B Corporation), culture and conduct issues, risk registers and risk management documents and regulatory investigations, activist activity and community issues. Specialist advice may also be warranted, including cyber, data and privacy due diligence, wage compliance reviews, compliance with modern slavery, anti-bribery and corruption and sanctions requirements and reviews of whistleblower policies and frameworks.
Climate/Sustainability Governance and Reporting - TCFD / ISSB implementation
With mandatory climate reporting just around the corner, reviewing your governance of climate and other sustainability risks and opportunities now will give your organisation the time to implement robust systems that meet or exceed minimum requirements, are consistent with market practice and send a positive message to all stakeholders.
KWM helps clients develop these governance structures and reflect them in Board and committee charters and other documents, and set up due diligence processes for climate and sustainability reporting.
Cyber incident response planning
The high profile and high impact data breaches of 2022 have underlined the importance of establishing and regularly reviewing detailed cyber security risk, technology, data governance and data management plans. If you need help planning and preparing for a cyber incident, or you’re going through one and need someone to call, we’ve done it many times before and are here to help.
FAR implementation
A new year, a new FAR Bill. With the Financial Accountability Regime (FAR) progressing again, now is the time to start preparing for implementation if you haven’t already started.
Like BEAR, FAR is more than a compliance exercise. It involves a detailed examination of accountability practices, organisation structures, internal governance and reporting, remuneration design, and breach investigation and notification arrangements. Without proper preparation and stakeholder management, FAR implementation can be very disruptive to day-to-day operations, strategic initiatives, and senior management.
Best practice will see entities not only map ‘accountable persons’ and ‘significant related entities’ that will be caught by FAR, but also develop guidance and design information processes and systems to give accountable persons and the board confidence to discharge their obligations under FAR, tailor variable remuneration design to meet the requirements of FAR, and provide accountable persons and the board with comfort that legal aspects of a FAR program have been developed with precision and have been stress tested.
AGM assistance
The Annual General Meeting (AGM) is the biggest annual event on the corporate calendar. It’s the one time of the year when all eyes - in person or online, or both will be on your company. As AGM formats and styles continue to evolve, so too do activist shareholders and special interest groups increasing use of AGMs to advance and publicise their agendas. Companies can take steps to mitigate potential disruption at their AGMs and protect the reputation of the company and its board.
KWM tracks AGM trends and developments in real time, and annually report on the AGM season, to keep clients abreast of what they need to know (see our latest report here).
We can assist with notices of meeting and proxy forms, KMP voting exclusion matrices, chair scripts, FAQs, contingency planning protocols, shareholder requisitioned resolutions, negotiating with proxy advisers/institutions/activist shareholders ahead of the AGM, and real-time guidance during the AGM should any legal issues arise.
Workplace compliance review – Respect@Work
Workplace culture is undergoing a major change, driven by movements such as #MeToo, #TimesUp and #LetHerSpeak. Around the world, people are speaking up about their experiences of sexual assault and harassment. Importantly, they have compelled governments, businesses and leaders to do more to create safe and fair workplaces.
This is certainly the case in Australia. A series of inquiries, increased media coverage and high-profile incidents have shone the spotlight on the issue of sexual harassment. Now faced with new laws implementing the Respect@Work recommendations that will significantly change the compliance landscape, companies and their boards need to examine whether their organisation has the governance in place to confront the challenge of sexual harassment proactively and comply with significant new legal obligations.
Ensuring your organisation is protected and set up for success
