smell of good business

Are Directors distracted by compliance?

I recently attended a workshop held by the Australian Institute of Company Directors that was discussing the challenges of compliance, particularly related to the continuous disclosure legal requirements of Australian companies. The intent of the requirement is to ensure continuous disclosure to ensure an equally and adequately informed stock market.

A case study was presented of various situations in which a company might have disclosure issues and when to disclose. For example, a heads of agreement is at a draft stage – but commercially sensitive. Any information made public about the deal may actually kill the deal – but legally the company is required to release a disclosure statement to the share market. How do you do that appropriately?

In speaking to various directors after the event, I posed the question that the very high bar set in meeting compliance requirements might be distracting directors from the core job of creating value for shareholders and continuing to innovate. One of Perth’s leading directors agreed, and also expressed concern that high caliber people will be less likely to pursue directorships. Another indicated that it was his view that most boards worked out how to deal with compliance quickly, and were then able to get on with the job.

Unfortunately the minority of companies that perform poorly and unethically tend to create problems for everyone else. I sense that compliance is imposing too much – however, perhaps it is a necessary evil to protect the interests of shareholders and business partners.

2 thoughts on “Are Directors distracted by compliance?

  1. I think it needs to be taken in context that Australia has a very light compliance regime compared to other countries.

    If you look at the alternatives to listing on the ASX to raise capital for smaller companies internationally you are probably looking at AIM or the NASDAQ. As the General Counsel of an Eastern European TV network said to me this week “If you’re looking for good speculative capital NASDAQ is the place. AIM doesn’t have any credibility.” So in my mind it’s interesting that the NASDAQ is branded as a spec market, yet it’s compliance requirements are far more onerous than the ASX. Does this mean that the ASX is a spec market?

    I’ve sat on the ASX Corporate Governance Council for three years now and we’ve debated the pros and cons of prescriptive vs non-prescriptive. The fact that we’ve recently re-released the guidelines and they’re received nearly universal support is a pretty good sign that shareholders interests are being protected while not imposing unnecessary burden on companies.

    I think we need to be careful in giving management and Directors and excuse to avoid compliance requirements, but I would say that as the head of Internal Audit for a top 50 company.

    Justin’s brother

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