What ASIC expects of directors

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What ASIC expects of directors

A recent speech by Greg Medcraft, chairman, Australian Securities and Investments Commission, to the Australian Institute of Company Directors lunch, deserves close attention.

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A recent speech by Greg Medcraft, chairman, Australian Securities and Investments Commission, to the Australian Institute of Company Directors lunch, deserves close attention.

The speech delivered on 24 June 2014 canvassed a range of issues that directors have to address in order to properly perform their role.

Part of the speech focused on the role of directors as gatekeepers.

Directors as gatekeepers

Directors should ensure their company has strong internal audit and compliance functions. A compliance function is meaningless if it is not backed up by supervision and review, and reflected in the company’s culture.

Medcraft noted this last point, culture, as the most important. Directors should ensure their stewardship drives the right compliance culture in their organisation.

Workplace culture – part of the mix

Medcraft pointed to an important principle impacting on directors — culture. A director’s stewardship should drive a culture of compliance within the company.

Although not explicitly addressed in the speech the message would extend to workplace relations and health and safety responsibilities.

Medcraft commented it was not only ASIC that looked to directors to act as gatekeepers. Shareholders and institutional investors had expectations about the role of directors, including their role in shaping and policing corporate governance practices.

In 2011, ASIC won a big case in the Federal Court against former directors of the property company Centro. The case provided valuable principles:  
  • Scepticism: directors must question the information provided to them. There is no defence for wilful blindness; and 
  • Accounting knowledge: directors are expected to have financial literacy and basic accounting knowledge (ie. be able to read a balance sheet and profit and loss statement).
 
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