Companies are facing an increasingly difficult battle to satisfy complex governance requirements without stifling growth and innovation.
McCullough Robertson Lawyers Partner Naomi Omundson said there was a growing expectation from shareholders and stakeholders for companies to go beyond the minimum standards of legal governance compliance.
“This rise in expectations is creating real tension for boards,” Ms Omundson said.
“There is, however, a fine balance between becoming too prescriptive about governance frameworks and allowing boards flexibility to exercise sounds judgement without feeling they are undertaking a box ticking exercise,” she said.
“Boards need to retain the ability to be strategic and agile in their thinking without getting stalled in compliance processes.
“That’s increasingly difficult when so much time is spent navigating layer upon layer of regulatory compliance obligations.”
This situation was compounded with the pressure to introduce stronger governance regimes without unduly increasing the already high regulatory and compliance costs that companies were facing.
Ms Omundson said a rising governance expectation was one of the main issues “keeping directors up at night”.
Directors increasingly rely on ongoing education and professional advice to ensure they were discharging their duties effectively and appropriately managing corporate risk.
“At the top of any board agenda at the moment are issues like cybersecurity and data privacy,” Ms Omundson said.
“The approach boards are now taking is ‘let’s prepare for when this happens rather than if it does’.”
Ms Omundson said boards were learning from examples seen “time and time again” where companies tended to respond reactively when things went wrong rather than anticipating issues and being prepared for them.
She said this was particularly true during the current Annual General Meeting season when engagement with shareholders and proactive communication were critical.
The old adage that good governance was mostly common sense was still “fundamentally true” but compliance is becoming far more nuanced and complex.
More companies were appointing dedicated governance specialists and focusing on lifting the governance skills of leaders and directors.
“Rising shareholder activism is tending to keep companies accountable on a broad range of compliance and governance issues,” Ms Omundson said.
“This includes remuneration, board composition and skills, risk management and ESG. In this environment companies need to be proactive, prepared and ready to engage with stakeholders on these issues.”
