Groundswell of support for wholesale review of the Corporations Act
Enacted over 20 years ago, the Act governing Australia’s companies and financial markets came into effect before we had hybrid cars, caller ID, lithium batteries, jpgs or mobile broadband and is now in urgent need of a major overhaul if it is going to support and not hinder a dynamic, entrepreneurial and innovative economy.
In our election 2016 policy position paper, Governance Institute of Australia called on the next Federal Government to commit to a wide-ranging review to make it fit for purpose for the 21st century.
Nor are we the only professional body doing so. In a recent contributor article in The Australian’s Legal Review, the president of the Law Council of Australia, Stuart Clark, made the point, quite rightly, that in recent years Australia has been left behind by international initiatives in the regulation of companies and financial markets. Other major contributors to thinking on company regulation, such as Professor Pamela Hanrahan at UNSW and Associate Professor Jason Harris at UTS (and chair of Governance Institute’s Education Committee) believe a review of the Corporations Act — which came into effect in 2001 — is well overdue.
Professor Hanrahan comments that ‘A significant part of the problem results from decades of piecemeal, reactive reform. Our corporate law statute has become too long and convoluted. We need to look at the whole thing with fresh eyes to see where rules and practices can be honed to take account of contemporary realities in business and capital markets.’
Associate Professor Jason Harris supports this, noting that, ’Australian businesses are in a global race for capital and our system of corporate law and regulation needs to provide sufficient clarity and flexibility to attract and maintain investment from businesses that can invest and operate anywhere in the world. We are competing against Singapore, Hong Kong and Shanghai and we will lose in a big way unless we update our corporate laws to reflect global best practice’.
The world around us is changing; and at a fast pace — there are technological advances and innovations being implemented every day and for a progressing economy it is crucial that the corporations law of the country can underpin innovation and economic growth. Having been developed in the pre-digital age, the Corporations Act has many provisions that are mired in an assumption that the world operates in hard copy. As Associate Professor Jason Harris comments, ‘Australia’s corporate law framework is showing its age and needs to keep up with modern technology and modern ways of doing business. Many of our corporate law rules date back to the 19th century or earlier and do not meet global best practice’.
While a few provisions have been updated over the years, other provisions still do not contemplate the use of technology. Australia’s corporate markets need to be supported by a regulatory framework that is seen as part of the infrastructure of the economy, which means that the legislation governing corporations and the management of corporations needs to embrace technology. We go even further in our policy position paper and say that the legislation should be technology-neutral, to allow for innovation as technology evolves, rather than waiting for the law to play ‘catch up’.
We believe the policies outlined below are critical to foster greater confidence in Australian capital markets, enhance the performance of Australian organisations and reduce substantially the burden of continually increasing legislative and regulatory compliance. Above all, we believe that the policies outlined below have the capacity to improve Australia's productivity.
Broad-ranging in its scope, Governance Institute’s position paper is urging the next Federal Government to:
- make the Corporations Act technology-neutral, amend contending liabilities and defences and reduce the legacy issues inherent in corporate structures developed in a pre-technological time
- reduce compliance costs and facilitate shareholder engagement by undertaking a wholesale review of corporate reporting, including remuneration reporting
- facilitate shareholder engagement and reduce red tape through AGM reform
- enhance productivity for both the private and not-for-profit sectors by providing leadership on a permanent referral of powers from the states on corporations law and to provide for all incorporated associations to be regulated nationally to remove duplication of compliance obligations
- facilitate these reforms by establishing a Corporations Law and Governance Taskforce
- ensure that all new legislation is effective and achieves the desired policy objectives.
We believe these improvements to the corporations law can help ensure that Australia is 21st century-ready by providing regulation that supports a thriving and dynamic economy.