Transcript Future Savvy Leaders - Better Boards Australasia

MELBOURNE SYDNEY BRISBANE
1
2
Better Boards
Conference
Melbourne 29 July 2012
3
A. Duties of Board Members

Directors’ duties are on the increase.

Who do these duties apply to? It is widely accepted that the
principles behind directors’ duties, as imposed by the
Corporations Act and common law, apply to all people who are
on some form of governing committee.
Centro Case

Example: the Centro case. When the Federal Court handed down
its decision in June 2011, it was in the context of whether or not
the directors of Centro had breached their duties under the
Corporations Act.
4
Decision
The decision was handed down that the directors – both executive and
non-executive – had breached their duty of care and diligence by failing
to:
(a)
take all reasonable steps to focus and consider for each of
themselves individually the content of the financial statements;
and
(b)
make enquiries of management, the board audit committee or
other directors as to proposed statements in the financial
statements.
It was held that directors are required to have the ability to read and
understand the financial statements.
The case also held that directors are not required to have infinite
knowledge or ability, and that they are entitled to:
(a)
(b)
(c)
delegate to others;
seek help in carrying out their responsibilities; and
rely upon others.
5
Nevertheless, there is a limit to the extent of this reliance. There are
some duties which cannot be delegated because of how serious they
are.
This case also had implications for audit committees. Centro had a
committee of directors called the ‘board audit and risk management
committee’. His Honour held that although an audit committee has an
important role of oversight and monitoring, this is not to the exclusion of
the role of a director to consider the financial accounts for himself or
herself.
OH & S / WH & S

An example of another recent change which has an impact on the
duties of board members.

The duties of board members and managers have changed. A
breach of such duties has serious consequences.

Do your board members know of the new legislation (if it has
commenced operation in your state)?
6

Does OH&S feature on your board agenda at least once or twice a
year, allowing you to report on your management of this risk?

Have you offered your board members the opportunity to attend
seminars on the new laws?

Due Diligence duty - personal liability for officers.
Consequences

What does this mean for you?
It means that you need to keep abreast of these sorts of legal
developments as they could be relevant to your boards. You are in a
position to assist your boards in being legally compliant.
This is an integral part of any risk management strategy you have for
your organisation.
7
Ideally, your boards would benefit if you could:
(1)
arrange for new board members to have an appropriate induction
and training.
(2)
identify and bring to their attention any changes in the law insofar
as it applies to them (you yourselves will need to have a good
understanding of their legal duties, otherwise it will be difficult for
you to determine what is relevant).
(3)
suggest any appropriate training your board members should
undertake as a result of that legal change.
(4)
prepare board papers/reports which assist the board members in
meeting their obligations, i.e. papers which assist your board
members in knowing what they need to know.
In the preparation of your board papers, are you bringing relevant
issues to their attention?
Board papers should contain sufficient information to provide for
an informed decision, but not contain so much information that the
critical elements are obscure.
8
(5)
Directors must have appropriate skills and competence to perform
the role of directors. You can assist by identifying any requisite
skills which are lacking in any board member (this requires some
diplomacy) – may be easier to do through a board review using a
skills matrix.
(6)
Are you aware of your own legal duties, especially if you
yourselves are on the board? If you are on the board, you are an
executive officer, which may result in you having greater duties
because of your greater understanding and knowledge of the
operation of your organisation.
(7)
Do you ensure that matters are left on the agenda until they have
been satisfactorily resolved or completed?
9
(8)
Conflicts of interest are something that many NFPs struggle with
at board level. Do you have an effective conflicts of interest
policy? Does your policy:
(a)
Help identify potential conflicts of interest?
(b)
Provide strategies in how to avoid them?
(c)
Provide guidance in what to do when they arise?
Responsible Individuals

In the Exposure
Commission Bill
subject, once it
Governance (ch
regulations.

The Government announced in the 2011-12 Budget a number of
further reviews of aspects of the regulation of the NFP sector,
including a review of the governance obligations appropriate for
NFP entities.
Draft: Australian Charities and Not-for-Profits
2012 (version 1), to which all of you will be
is enacted as law, there is a chapter on
4). It will now probably form part of the
10

The proposed governance principle are grouped into the
following areas:
(a) duties and minimum standards of responsible
individuals, including rules for proper organisational
management and running of the entity;
(b)
disclosure requirements and managing conflicts of
interest;
(c)
risk management procedures, including external reviews
and auditing requirements; and
(d)
the coverage of the minimum requirements of governing
rules.

This new proposed law introduces a new concept – that of the
‘responsible individual’.

Responsible individuals must exercise the same degree of
care, diligence and skill (wording from the Corporations Act !!!)
that a prudent individual (wording from the Trustee Act !!!)
would exercise in managing the affairs of others.
11

A responsible individual is:
o
A director or officer of the registered entity;
o
A trustee of the registered NFP entity, or a director or officer
of a trustee of a registered entity;
o
An individual:
•
who makes, or participates in making, decisions that
affect the whole or a substantial part, of the registered
entity’s activities; or
•
who has the capacity to significantly affect the
registered entity’s financial standing;
•
who in accordance with whose instructions or wishes
the responsible individuals of the registered entity are
accustomed to act (excluding advice given by the
individual in the proper performance of functions
attaching to the individual’s professional capacity or
their business relationship with the registered entity on
its responsible individuals); and
12
o

a receiver and manager, administrator, liquidator or trustee
in bankruptcy of an incapacitated NFP entity.
This definition is broad enough to cover both express and implied
individuals with responsibility. Implied responsibility positions may
be described as either:
o
shadow - in the sense that the person exercises control over
the decision-making from outside; or
o
de facto - in the sense that the individual takes on the job
without being lawfully appointed.
How do we keep up to date with all of this? How do we minimise noncompliance?

How do you, as CEOs, keep on top of all of this?

How do you help your board effectively fulfil its obligations?

How do you keep your board members out of jail?

How do you make sure that you haven’t overlooked something?
13
Solutions

Checklists (see examples)

Policies

Manuals

Membership of governance bodies, e.g. AICD or CSA

Emails from governance/legal/financial experts

Having certain staff members responsible for certain issues/risks

Attending conferences, such as this one.
14
B.
Changes in the Legal Landscape of the NFP Sector
Australian Charities and Not-for-profits Commission (ACNC)

ACNC will commence operation on 1 October 2012.

“The extension in the commencement of the Australian
Charities and Not-for-profits Commission will not affect the:
o
announced introduction of a general reporting
framework; and
o
establishment of a public information portal;
by 1 July 2013,
o
as well as the introduction of a statutory definition of
'charity' by 1 July 2013”.
15

Statutory Definition of a Charity (proposed for 2013)
o
Will this affect your current endorsements as charitable
institutions?
•
In the short term, no.
•
In the long term, hard to tell.
•
However, please note that after 1 July 2013, the
ACNC will review all current endorsements, so
please ensure that your houses are in order.
•
What does this involve? If nothing else, reviewing
your charter/constitution and your activities.
16
Tax concessions/endorsements

On 12 February 2012, the Minister for Social Inclusion and the
Assistant Treasurer announced the membership and terms of
reference of a new working group, the Not-for profit Sector Tax
Concession Working Group.

The working group will consider ideas for better delivering the
support currently provided through tax concessions to the notfor-profit (NFP) sector.

These include concessions for income tax, fringe benefits tax
(FBT) and goods and services tax (GST), and deductible gift
recipient (DGR) status.
17

Some extracts from joint media release No. 007 are included
below:
"The NFP Sector Tax Concession Working Group will examine the
current range of tax concessions and whether there are fairer, simpler
and more effective ways of delivering the current envelope of support."
"The Working Group will be chaired by Linda Lavarch, the chair of the
NFP Sector Reform Council, and will include a diverse range of
representatives from the NFP sector and also technical experts."

The working group is expected to complete its work by
December 2012.
18
C.
Board Meetings in the Digital Age & the Impact of
Social Media
IPads/Tablets and Board meetings

The Australian Institute of Company Directors commissioned
some advice in September last year regarding the use of iPads
in board meetings and we extract some of the findings below.

Recent media coverage has given rise to questions regarding
the use of technology (and particularly Apple’s revolutionary
iPad) by directors in board meetings.

This has led to renewed discussion on whether:
o
notes and annotations made on board papers by directors
constitute “records” of the organisation, and
o
the organisation can claim ownership of such notes and
annotations.
19
Law

There is no law on this. No statutes and little, if any, common
law.

Many of these issues are dealt with by the organisation itself in
the constitution/charter or a policy.

However, the key matters to keep in mind are:
(a)
minutes should provide an accurate record of board
meetings;
(b)
directors’ annotations and notes are of potential evidentiary
value in future legal proceedings,
meaning that it could be in the organisation’s interests to try to
preserve these annotations and notes in a central location;
20
(c)
directors’ annotations and notes may assist a director in
proving that s/he has fulfilled the relevant directorial
obligations (in particular, that the director considered and
turned his/her mind to a particular issue discussed at a
board meeting);
(d)
as the use of technology (in particular, wireless-compatible
devices) could leave commercially sensitive information
susceptible to unauthorised access,
clear technology usage policies and security measures
should be implemented and monitored by the organisation.
21
Pros and cons of tablets
Pros
Cons
Easy to use. Most people are now
comfortable using this technology.
Cannot edit or produce documents
on Ipads.
Small and light.
Method of delivery – email or webbased portal?
Eliminates printing and couriers
(saves time and money).
Issues with wireless
connections/internet accessibility.
Provides you with more time to
prepare board papers.
Attachments to emails disappearing.
Easier to circulate late papers.
Problems tend to be last minute and
outside business hours (due to
board members looking at papers at
last minute).
22
Pros
Easier to compile documents.
Cons
Preferences for printed material or
hard to look at large documents on
Ipads.
Security (both hacking and lost
Ipads).
Perception by management that last
minute changes/papers are okay.
Early research is indicating that
reading method on Ipads is different
– more scanning, less close
reading.
Templates need to be Ipad-friendly.
Issue of making annotations – can
be used against a board member in
legal proceedings.
23
Pros
Cons
A distraction at meetings?
Need to train staff to use it.
Board members losing passwords.
Lack of direction

While there are strict rules governing the records to be kept by
organisations, there is no specified rule guiding directors on this
issue of what additional records they must personally keep.

Therefore, directors should exercise their own discretion and
judgment in deciding whether to take notes or annotate board
papers, and how much detail to take down.

Otherwise, the board can make a collective decision on this issue.
24
Recommendations


The main considerations are these:
o
Have a clear policy on the use of technology by board
members and implement security measures wherever
possible.
o
Have a clear policy on the issue of annotations made by
directors – are they to be kept and by whom? (e.g. for future
evidentiary purposes).
Ensure prompt circulation of board minutes for the board
members’ approval (by no later than one month after a board
meeting, and preferably earlier), and remind directors that they
should raise any additional matters to be included in the minutes
and not yet incorporated.
25
D.
Questions
26
Melbourne
Sydney
Brisbane
Level 6,
530 Collins Street, Melbourne
3000
P.O. Box 453, Collins Street West
Melbourne VIC 8007
Ph: (03) 9670 9111
Fax: (03) 9605 0933
DX 558 Melbourne
Level 12
400 George Street, Sydney 2000
P.O. Box H316, Australia Square,
NSW 1235
Ph: (02) 8289 5800
Fax: (02) 9247 1315
DX 13025 Sydney Market Street
NSW
Level 2
217 George Street, Brisbane
4000
P.O. Box 12608 George Street
Brisbane QLD 4003
Ph: (07) 3228 0400
Fax: (07) 3012 8777
DX 40160 Brisbane Uptown QLD
www.millsoakley.com.au