The Federal Government has been warned that its Bank Executive Accountability Regime (BEAR) represents a significant change to Australia’s corporate environment and an erosion of rights of corporate boards.
The Australian Institute of Company Directors (AICD) has used its submission to the Senate Economics Legislation Committee dealing with the BEAR legislation to signal that it continued to have reservations about the design and scope of the BEAR.
“For example, legislating remuneration structures for senior executives in private companies is a significant change to Australia’s corporate environment,” the submission said. “The AICD would prefer that boards and ADIs [authorised deposit-taking institutions] [banks] make decisions on remuneration structures appropriate to their organisation’s needs and strategies, working within clear prudential standards on risk and accountability.”
The AICD submission has recommended the need for the BEAR legislation to clearly define that it is intended to “capture serious matters that are systemic and prudential in nature”, arguing that its intent as set out in the Explanatory Memorandum used the much broader language of ‘prudential standing’ and ‘prudential reputation’, which was ambiguous and likely to lead to protracted court disputes.
“We recommend that concepts such as ‘open’, ‘integrity’, ‘cooperative’ and ‘constructive’ be removed from the bill, or better defined,” the AICD said. “Some of the obligations on ADIs and accountable persons, such as the duty to deal with APRA ‘openly’, ‘cooperatively’, and with ‘integrity’, are highly subjective and open to interpretation.”
“In the AICD’s view, it would be difficult for a person or a court to determine whether a person has acted openly without forming a subjective view of the person’s intentions, which will ultimately frustrate BEAR’s aim.”
“We recommend that the BEAR only target misconduct that cannot be appropriately dealt with under existing laws and regulatory powers, or at the very least, include equivalent defence and relief mechanisms which are available under equivalent laws,” the submission said.
“In relation to the obligations imposed on directors and officers (as accountable persons), the AICD is concerned that the BEAR imposes obligations on accountable persons that overlap with duties that already apply to directors and officers through the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth), particularly the duty to act ‘honestly’, and with ‘care and diligence’. However, no equivalent defence and relief mechanisms have been included.”
“We recommend that indemnity and insurance law principles be applied in the same way to the BEAR as they do for other executive and company conduct. The current drafting is a departure from accepted principles and could lead to inconsistent outcomes in respect of the same conduct.”