Take me to the limit one more time: how far do disclosure obligations go?

The recent leak of New Zealand cabinet papers to Telecom NZ and the now infamous CD-ROM found in a Qantas lounge raise interesting questions about the limits of the obligation to disclose under ASX Listing Rule 3.1.

Are companies bound to disclose all materially price sensitive information irrespective of how it’s obtained? On its face the only relevant test is whether a reasonable person would expect to have a material effect on the company’s share price.

We normally expect that information that is disclosed to the market is produced according to the highest standards to ensure we have a fair and well-informed market. But are there circumstances where information that is defamatory, illegal or obtained in breach of confidence must be disclosed to the market?

To avoid the disclosure requirement, the information must meet three criteria. Firstly, a reasonable person would not expect the information to be disclosed. Secondly, the information is confidential. Thirdly, one of the following criteria apply: it would be a breach of a law to disclose the information or the information concerns an incomplete proposal or negotiation, the information is insufficiently definite, generated for internal management or the information is a trade secret.
But what if the information fits the first and third criteria, but is not considered confidential under the Listing Rule?

In the ASX’s view ‘confidential’ is a matter of fact. For example, confidentiality is retained when information is given to third parties in the ordinary course of business, but is lost once, whether inadvertently or deliberately, the information becomes known by others, in circumstances where the company loses control of the information (the recipient is not under an obligation to keep the information confidential). An example is a rumour circulating or media comment about the information where that rumour or comment is “reasonably specific.”

In a submission to ASX in 2002, The Australian Institute of Company Directors’ questioned the suitability of ASX to determine confidentiality as a fact, and stated that this should be a matter for the company to determine, after taking advice where necessary.

Of course this is not how the law would generally look at the question of confidential information. A lawyer will tell you that confidentiality is largely a question of the nature of the information and how it is obtained, largely regardless of whether it is known to others.

So, on the one hand ASX Listing Rule 3.1 states that information known by others over which the company has no control is not confidential. On the other hand, under the general law where confidential information has been knowingly obtained in breach of confidence the information remains confidential, even if it has been disclosed by the recipient. So clearly ASX Listing Rule 3.1 and the general law doctrine of confidential information cannot be easily reconciled.

The problem of ASX’s interpretation of confidential information being different to that under the general law is that there are serious consequences under the Corporations Act for failure to comply with the ASX disclosure obligations.
A listed company receiving significant material even illegally or improperly is faced with a dilemma, as no doubt the cabinet paper proved to be to the board of Telecom NZ. Either breach the disclosure rules or be sued or possible prosecuted; a rock and a very hard place!

It would seem the existing listing rules left as is create a strange situation where information illegally or improperly obtained, which by its nature cannot be verified to ensure its accuracy, must be disclosed to ensure a ‘fair and well-informed market’.

Thanks to Belinda Coombs for her assistance with this piece.

Remuneration committees - “in the line of fire”

The courtroom battles between shareholders and directors are seldom the stuff of “Vanity Fair” magazine. However, if the subject matter is the Disney company, the directors include Sydney Poitier and the matter revolves around the tale of two Hollywood titans, then expect the unusual.
Shareholders of Disney are claiming against the Disney directors and the compensation committee in particular for their role in the employment and severance agreements of former president Michael Ovitz. The compensation committee approved the dismissal of the president and the payment of a US$140 million severance package after Mr Ovitz was less than 15 months in the job.
The recently concluded trial, and the SEC orders (settling inadequate "related party transaction" disclosure issues), are part of a continuum for the Walt Disney Company that included a very difficult shareholder meeting in 2004 that resulted in the board separating the positions of chairman and chief executive. Last year, nearly 45% of shareholders voted against CEO Michael Eisner's re-election to the board. In response, the board stripped Eisner of his role as chair and elevated former U.S. Senator George Mitchell to that post. Eisner later announced that he would retire by September 2006.
This case is interesting because it examines a claim around excessive compensation for people other than interested directors in question and because the case explores the duty of directors and directors on the remuneration committee in particular, to act in good faith.
The US and Australian formulations of the business judgment rule provide that directors have the right and duty to decide where the company's interests lie. Directors are entitled to have regard to a wide range of practical considerations and their judgment is not open to review in the courts.
It is a prerequisite of the business judgment rule that directors have acted in good faith and for a proper purpose. The elements of the rule are good faith, disinterest, exercise of judgment, proper information and reasonable belief. Thus, although the board of directors is entitled to a presumption that it exercised proper business judgment, the board will need to be able to demonstrate:
 the decision was made in good faith and for a proper purpose (ie in the best interests of the corporation as a whole);
 they had no material personal interest in the matter;
 they informed themselves of available material information by, for example:
 considering an appropriately selected expert’s opinion;
 providing all board members with adequate and timely notice of the matter , of its purpose and all relevant information for the purpose of considering the transaction; and
 inquiring adequately into the reasons for, or terms of, the transaction.
The duty of good faith requires that directors must: exercise their powers in the interests of the company, not misuse or abuse their power, avoid conflict between their personal interests and those of the company, not take advantage of their position to make secret profits, account to the company for business opportunities which come to them by reason of or in the course of holding office as a director and exercise an independent judgment in relation to proposals put before the board.
Executive compensation (as opposed to that of directors) is a matter of business judgment. Good corporate governance requires that boards take responsibility for the remuneration of the business’ key executives. In the US it has been suggested that if directors say that they base compensation decisions on some performance measure and then don't do so, or if they are disingenuous or dishonest about it, this could amount a breach of the directors duty of good faith.
The question is what type of conduct must a director engage in to be found to have not acted in good faith and thereby allow a court to review the board (or the committee’s) business judgment? Courts have traditionally had some difficulty in divining the subjective motivation (good faith or bad faith) of officers from objective facts; generally conduct must be fairly egregious in order to rise to the level of "bad faith".
The standard of behaviour required is not complied with by subjective good faith or by a mere belief by a director that his or her purpose was proper, rather it involves a determination of whether a reasonable director could have reached that conclusion.
In the first Disney case the Court refused to dismiss a complaint seeking to hold the directors of The Walt Disney Company personally liable for damages arising out of the hiring and termination of Michael Ovitz as Disney's President. The complaint suggested complete abdication of authority by the directors. It was alleged that, when Ovitz was hired, the compensation committee and the directors paid little attention to the terms of his employment, leaving the arrangements to be negotiated by Mr. Ovitz and his "close friend," Michael Eisner, Disney's Chief Executive Officer.
The board's alleged neglect will be key to the Court's decision. While the business judgment rule might have applied if "the board had taken the time or effort to review [its] options, perhaps with the assistance of expert legal advisors," the allegations, if found made out, "imply that the defendant directors knew that they were making material decisions without adequate information and without adequate deliberation, and that they simply did not care if the decisions caused the corporation and its stockholders to suffer injury or loss."
The duty of good faith requires that a director act in the best interests of the corporation. While the Court's review requires it to examine the board's subjective motivation, the Court will utilise objective facts to infer such motivation. The analysis will focus on the process by which the board reached the decision under review. That said however, Australian courts are likely to remain extremely reluctant to impose liability on disinterested directors who make genuine efforts to fulfil their duty to make informed decisions regarding matters of importance like executive compensation.
The good faith obligation includes an obligation to penetrate beyond the superficial whilst this is a more onerous obligation than that held by a director generally because a specific responsibility has been assigned to the committee it is consistent with the obligation to exercise a level of care and diligence having regard to the circumstances of the director the office held.
In the Australian context the good faith test will probably cross similar ground to the statutory requirement of the business judgment rule that the committee members have informed “themselves about the subject matter of the judgment to the extent they reasonably believe appropriate”, that is, the committee came to an informed decision.
In this context committee members need to be able to establish they conducted themselves in a manner that enabled them to reach an informed business judgement about the remuneration/compensation issue. The committee needs initiative, diligence and independent thought. Unfortunately this might mean a proliferation of external advice designed to protect the members of the committee from liability.
For Disney it will be interesting to see whether without the harsh glare of shareholder criticism the company will maintain its interest in shareholder rights and whether the Delaware court is willing to open the board room door and analysis the appropriateness of the Ovitz termination and employment arrangements.
Remuneration/ compensation committee
Remuneration/compensation committees used to be considered relatively innocuous, but the rules of the game are about to change, if they haven’t already, the Corporations Act now includes specific references to the work of the remuneration committee, if not committee itself. The ASX corporate governance principles recommend the establishment of a remuneration committee the majority of whom should be independent and who should be lead by an independent chair.

The committee will usually be responsible for remuneration policies and practices, it will to take control of the disclosure obligations relating to executive remuneration and the adoption of the remuneration report.
Takeaway – satisfying the business judgment ‘defence
To rely on the business judgment rule members of the remuneration committee need to be able to demonstrate five things:
1. That a decision was taken.
2. No personal interest in the matter that could be seen to have a capacity to influence the individual’s vote.
3. The decision was made for a proper purpose (in the best interests of the company) without misuse or abuse of power and exercising independent judgment.
4. That members reasonably informed themself of all material information concerning the matter by, for example:
 considering an expert’s opinion;
 adequate and timely notice of the to allow proper consideration of the matter; and
 demonstrate inquiry.
5. That members rationally believe the decision is in the best interests of the company.
In general a systematic approach to the transaction will help committee members substantiate that they took reasonable steps to inform themselves and that their belief that the transaction was in the best interests of the company was reasonable.

Corporate Social Responsibility: the case for a self regulatory model

The limited liability corporation is one of the greatest inventions of all time. The corporation is an integral part of our society yet it would seem that society is raising some pretty challenging questions about the role of the corporation in our society. Is there is a need to find a way to enable corporate managers to abandon rules designed in the 1800’s in favour of a more modern concept that recognises the wider role of corporations in our community?

Recently, the Parliamentary Secretary to the Commonwealth Treasurer, the Hon Chris Pearce MP, referred the question of corporate social responsibility to the Corporations and Markets Advisory Committee for consideration and advice. Reflecting these concerns, the Australian Financial Review has editorialised that: “Modern capitalism has many strengths but one big weakness. Some executives are so driven to achieve legitimate corporate goals bigger profits, more shareholder value, a critical restructuring that they are able to justify any technically legal means of pursuing them. The risk is that management and board lose sight of a fundamental question: is this just? In the vast majority of cases their duty to the company and the law is not in conflict with any wider duty, and society as a whole benefits from the wealth created. In rare cases, what is legal and what is just are at such odds that strict legal justifications crumble before community outrage and the threat of legislative action.

In part this is a response the report the Special Commission of Inquiry into the circumstance surrounding James Hardie’s corporate reconstruction. Interestingly, in March 2005, James Hardie’s chair, Meredith Hellicar, called for: “a safe harbour for directors to be able to integrate corporate social responsibility into their decision making without fear that they are going to be sued both personally, and as a company, by their shareholders. “.

To what extent is this concern real? Does Australian corporate regulation need to reflect ‘modern business needs and wider expectations of responsible business behaviour’, that ‘the basic goal for directors should be the success of the company for the benefit of its members as a whole’ and that to reach this goal, directors should be able to ‘take a properly balanced view of the implications of decisions over time and foster effective relationships with employees, customers and suppliers, and in the community more widely’?

There is advantage in providing a reasonable level of protection for those that want to take the ‘long view’. However, many commentators believe that the existing duties of managers, especially the overriding duty to act in the best interests of the company, already accommodate consideration of wider interests by directors and officers if the decision is justifiable as being in the company’s best interests.

Yet, it seems that managers have concerns about how to take a properly balanced view of the implications of their decisions as well as foster effective relationships with employees, customers and suppliers, and the community more widely, whilst at the same time not leave themselves open to complaint from shareholders.

The increased community calls for some form of corporate social responsibility cannot simply be ignored; these are the ‘cultural norms’ that shape the way corporations are allowed to operate. In Canada a significant number of Canadians, and a significant percentage of Canadian shareholders, have been found to want business executives of corporations "to take into account the impact their decisions have on employees, local communities and the country as well as making profit," but can they do so if it at the expense of making profit?

To simply introduce provisions such as those suggested in the UK could lead to greater uncertainty and more capacity for people with only a tangential interest in the company to sue mangers for failing to sufficiently consider their interest or more likely the interests they purport to represent.

The question of whether such a provision is strictly necessary can be avoided by simply including a replaceable rule that will give managers some comfort if they prefer the long view over the short.

The use of a default provision of the constitution giving the managers the freedom to include matters such as employees, customers and suppliers, and the community as being in the interest of the company should provide managers with some comfort.
TIME FOR THE CORPORATIONS ACT TO INCLUDE A NEW REPLACEABLE RULE?
Self regulation is appropriate for complex and difficult issues like corporate social responsibility that do not necessarily require an industry wide solution. A self regulatory model allows a solution tailored to each entity’s circumstances. If there was genuine community agreement about the value of corporate ethics then such provisions affirming their place in the life of the company would quickly gain acceptance as best practice.

Is it necessary for corporate social responsibility to be enforceable? Probably not, as calls for corporate social responsibility have largely been along the lines of the need for a permissive model so, to this extent then there would seem to be no basis for criticising a self-regulation model on the basis of enforcement difficulties.

A self regulatory model will also ensure that only those companies with a genuine interest/need take the issue forward and this is less likely to result in an approach to corporate social responsibility that is a process focussed “tick the box” approach.

A replaceable rule also provides flexibility providing scope for efficiency improvements and innovation. Additionally, such a rule would recognise that many small and micro businesses use the corporate form and do not have the resources to comply with a prescriptive set of rules.

The corporation is create of statute designed for investors to collect together for a common business pursuit through a legal entity that provided the benefits of limited liability, continuity of existence and simplicity in contractual dealings. As part of the bargain, investors should be able to regulate the general nature of their bargain with the other investors and management through the constitution.

The Corporations Act provisions dealing with the constitution could have a default setting that provided that in the absence of an alternative provision in the constitution of a company the board as the agent of the investors were entitled have regard to their a social responsibility the board would be entitled to do more than adhere to the rules and doing “whatever you can get away with”.

The provision would thus form part of the contract between the members and management and it would be theirs to consider, modify if necessary and reject if they wished. It would not be open to regulators, “stakeholders” or anyone who was not a member or officer to enforce against mangers.

A replaceable rule would also lessen the risk of litigation against the corporation by tangential ‘stakeholders’. A statutory proscription to consider social issues, could mean that section 1324 of the Corporations Act could be used to enable the “stakeholders” to seek remedies against managers for not having, say, proper regard to “the community and the environment”. Whilst little use has been made of this provision in developing the view that officers might owe duties to others in addition to their company that is not to say it could not be. The future battle ground for lawyers looking for ways of representing people like the landholders surrounding the BHP mine in Papua New Guinea, Ok Tedi, might be based around the injunction and corporate social responsibility provisions.

In practice, a constitutional provision of this type would not fundamentally alter the circumstances where a board had somehow failed to properly consider, corporate social responsibility type matters in circumstances where it would have been in the best interests of the company to do so. Those directors would still be liable for failing to satisfy their duty of care and diligence. However, if the directors had taken a decision favouring the long term sustainability of the company which resulted in financial detriment to the current shareholders the directors could argue the existence of the replaceable rule was a relevant factor in determining the ‘corporation’s circumstance’ or the office held and the ‘responsibilities within the in the corporation’.

A replaceable rule would also be consistent with the Principle 10 of the ASX recommendations. Compliance with this recommendation was originally contemplated by a code of conduct but a replaceable rule would be entirely consistent with the recommendation. A replaceable rule would also give managers more certainty than a code of conduct, in terms of their duties to the company and the availability of business judgement defences.

An interesting related development might include combining accreditation and self-regulation. A voluntary accreditation scheme might also be adopted to try to ensure consistencies in corporate social responsibility standards across different sectors. Self-regulation of the type discussed could mean that companies are defining their own corporate social responsibility standards and therefore some entities will be taking on far greater corporate social responsibility obligations than other entities.

As with other corporate governance reforms, a self regulatory approach to corporate social responsibility is the surest way to get meaningful approach to this issue. There is a case for reforming directors and officers’ duties; the changes needed should not be revolutionary. A self regulatory model together with a scheme for accreditation provides a better model for influencing behaviour by institutionalising a change that is permissive and reflective of each company’s own circumstances.

If the social norm has shifted, and there is ample evidence it has, then that pressure can be accommodated in the proposed model. The self regulatory model suggested will allow company’s to create wealth on a sustainable basis, but subject to the requirements of responsible business conduct.

Sources: Letter of referral by The Hon Chris Pearce MP to CAMAC, available at http://www.camac.gov.au/CAMAC/camac.nsf/byHeadline/Whats+NewDirectors%27+duties+and+corporate+social+responsibility?openDocument; Parliamentary inquiry into Corporate Responsibility, see online at http://www.aph.gov.au/Senate/committee/corporations_ctte/corporate_responsibility/index.htm; AFR article 22 September 2004, pg 62; UK White Paper on Modernising Company Law available on the UK Department of Trade and Industry's website at http://www.dti.gov.uk/cld/WhitePaper.htm; James McConvill “Directors’ duties to stakeholders: A reform proposal based on three false assumptions” (2005) 18 Australian Journal of Corporate Law 88, see also - Ian Ramsay, ‘Pushing the Limit for Directors’, The Australian Financial Review, 5 April 2005, 63; R. Baxt, “Directors’ Duty of Care and the New Business Judgment Rule in the 21st Century Environment”, Seminar Paper, Seminar on Key Developments in Corporate Law & Equity, Melbourne, March 2001 cited in Saul Fridman “Corporations Law in the courts and the academy: a dangerous malaise?” Butterworths Corporation Law Bulletin No 23 December 1996; ASX Principles of Good Corporate Governance and Best Practice Recommendations.

What’s a banning order worth?

Rodney Adler, Ray Williams and now Steve Vizard have joined the some 90 company directors and officers banned last year from managing corporations for a variety of periods. But what does it mean to say someone is disqualified from managing a company and how is it policed?
Given the complexities of the commercial environment and the necessary difficulties and delays involved in criminal prosecutions, there is a good case for ASIC having a wide range of prosecution options available to it to resolve matters. Indeed, it is the need for a wider range of enforcement options that has led to the Trade Practices Act being amended so that the ACCC can apply to the court for similar disqualifying orders.
In practice, the banning order is a relatively soft option; the banned person can still provide consulting services to companies, trade as an individual or a partnership, be excused from their banning order and hide relatively easily from a regulator that must find it difficult to monitor every banned individual. However, for former directors of public companies and high profile individuals like Mr Vizard, the reality is that the effect of the order is such that they are unlikely to ever again hold a directorship of a public company or hold any public office. It is really more akin the old public stocks than a protective order. In Mr Vizard's case, it is inconceivable that any company or government would ever again consider his appointment, he has had his public humiliation, is that enough?
WHAT IS MANAGING A CORPORATION?
The banning provisions are intended to cover a wide range of activities relating to the management of a company, each requiring an involvement of some kind in the decision-making processes.
A person who is disqualified from managing corporations commits an offence if they:
 make, or participate in making, decisions that affect the business of the corporation;
 exercise the capacity to significantly affect the corporation's financial standing; or
 communicate instructions or wishes to the directors of the corporation:
– knowing that the directors are accustomed to act in accordance with the person's instructions or wishes; or
– intending that the directors will act in accordance with those instructions or wishes.
Managing therefore requires activities involving some responsibility, but not necessarily control. Advice given to management, participation in its decision-making processes, or execution of its decisions going beyond the mere carrying out of directions will trigger non-compliance as will conveying of instructions for a particular company to sell or acquire an asset, call up a loan or commence proceedings.
In Nilant v Shenton [2001] WASCA 421 referring to Commissioner for Corporate Affairs v Bracht (1989) 7 ACLC 40, Ormiston J was dealing with a matter which fell within s 227(1) of the Companies (Victoria) Code. His Honour said at 49:
In the present section I would see the prohibition as covering a wide range of activities relating to the management of a corporation, each requiring an involvement of some kind in the decision-making processes of that corporation. That involvement must be more than passing, and certainly not of a kind where merely clerical or administrative acts are performed. It requires activities involving some responsibility, but not necessarily of an ultimate kind whereby control is exercised.
Advice given to management, participation in its decision-making processes, and execution of its decisions going beyond the mere carrying out of directions as an employee, would suffice. If the respondent had been left to negotiate terms with bankers or providers of credit, although those terms had to be confirmed, there would have been sufficient participation, but not if those acts involved only communication or were merely casual. The negotiation of matters of financial importance, such as the rent of its principal premises, may well lead to an inference that a person is concerned in the management of a company, but not if that involved merely communication of instructions on a single occasion…
The existence of a board or similar will not of itself be enough to hide the banned individual unless there is some evidence that the directors gave instructions to individual or questioned the decisions or authority to make them.
Acting as a “professional corporate advisor” while the corporation remains reliant on advice and assistance from the banned individual has in the past been found to be “no more than an artifice to avoid the consequences of his disqualification”.
Similarly, acting as a “consultant” where in fact the person had carriage of a matter and is able to deal with suppliers and act with authority to bind the company and make finance arrangements on behalf of the company would breach the prohibition.
Clearly, management of a company can take place at various levels. It is not confined to matters performed by the directors nor limited to formulation of policy and direction of the company. The key is that there must be the exercise of some decision-making power. At the end of the day, the court will generally make a determination based on the overall impression rather than engaging in a minute assessment of each activity.
WHAT ARE THE LIMITS?
A banning order for a breach of directors’ duties is limited. It doesn't apply to trusts nor partnerships, just corporations operating in Australia. It doesn't shut an offender down in a business sense. A disqualified director could feasibly take over the company’s business and operate it as a sole trader.
A person who is disqualified from managing corporations may apply to the court for permission to manage a corporation. The past conduct of the director is relevant to the exercise of the discretions which the law confers on ASIC and the court; they in turn must consider whether there has been a breach of the standards of commercial morality, whether there has been recklessness, whether there has been gross incompetence and whether the public interest requires that the person concerned should not take part in the management of a company.
PROTECTIVE V PUNITIVE
The purpose of banning orders is said to be protective and not punitive, although the courts do recognise that the provisions have some deterrent function. Indeed, the court has observed that the policy is “to protect the public and to prevent the corporate structure from being used to the financial detriment of investors, shareholders, creditors and persons dealing with the company. In its operation it is calculated to act as a safeguard against the corporate structure being used by individuals in a manner which is contrary to proper commercial standards”.
In the Rodney Adler case, Mr Adler’s counsel argued that the protective purpose could be achieved if he was still allowed to be involved in the management of private, family corporations. The Court rejected this submission:
Here, concededly, Mr Adler will be impeded in his field of activity, which includes financial consultancy and investment, including joint ventures, but that is the very area where he has committed the relevant contraventions. That puts in stark relief the need to make the public protective purpose paramount over Mr Adler’s private interests …. To the extent that Adler Corporation and its wholly-owned subsidiaries are already engaged in ongoing financial or business activity, should a disqualification order be made against Mr Adler he will simply have to find others to carry on that activity or manage it, independently of him, on the basis that he must, in the public interest, be excluded wholly from that activity. That is, at least until such time as a court is persuaded to grant leave pursuant to s 206G, if it be so persuaded in light of the then known fact.
A good example of the mixed approach of courts to the protective v punitive issue is the approach of Bryson J in approving the orders agreed with Brad Keeling.
Among the matters the judge thought relevant were Brad Keeling’s age and stage of career at which disqualification would fall, the office held, the extent of his responsibilities in terms of the value of assets, the complexity of the activities and the number of people within the range of adverse effects of his breaches of duty. Clearly, these are issues that go more to punishment than protecting the public and to preventing “the corporate structure from being used to the financial detriment of investors, shareholders…”
In Rich & another v Australian Securities and Investments Commission (2004) 50 ACSR 242 McHugh J at 259 commented on this issue as follows:
It is difficult to read these passages without concluding that there is little difference in the approach of his Honour and the approach of judges making orders or imposing sentences in the criminal jurisdiction. It is hard to escape the conclusion that, in determining the period of disqualification, the courts consider that the larger the loss the longer the period of disqualification that is justified. If that is so, and I think that it is, it indicates that retribution is as much a factor as protection of the public. There is no a priori reason why the protection of the public requires a person who is responsible for the loss of $100m to be disqualified for a longer period than a person who is responsible for the loss of $100,000. The person responsible for the smaller loss may be a far greater danger to the public than the person responsible for the larger loss. Yet, given the approach of the courts, if other things are equal, the person responsible for the major loss will almost certainly receive a far longer period of disqualification.
EFFECT ON REPUTATION
Whilst Rodney Adler received a 20-year ban and Ray Williams a 10-year ban for civil breaches of their duties as directors of the failed insurer HIH, in one sense, the length of these bans is irrelevant. In Mr Vizard’s case:
The reality is that whether it was five, ten or 20 years, Vizard is unlikely to ever again hold a directorship of a public company, or hold any public office. He has demonstrated that he is untrustworthy and unfit to hold such office.
It's inconceivable that any board, or government would consider his appointment, even after he had served out his 10-year ban.
Similarly:
A ten-year ban does not stop [Vizard] from being a consultant to The Communicate Trust and its sprawling empire of media, marketing, advertising, television and PR firms which have paid Vizard plenty over the past couple of years. However, the big question is whether major corporate clients … will continue to deal with The Communicate Trust…
ENFORCEMENT
ASIC keeps a register of persons who have been disqualified from managing corporations or prohibited from managing a corporation.
Over the years ASIC has obtained orders against people like Maxwell John Reid, who was disqualified from managing corporations, stopping them from acting in any way that breaches their orders. ASIC also obtained orders restraining other parties from engaging in any conduct that amounts to aiding, abetting, counselling, or procuring Mr Reid from managing corporations while disqualified.
ASIC has had a pretty rigorous policy of enforcing these types of orders:
 In May 2004, Ms Suzanne Frugtniet was convicted and fined $5000 and ordered to complete a 200-hour community service order after managing Travel Action Pty Ltd, whilst disqualified.
 In November 2003, two company directors Mr David Christopher Novak and Ms Patricia Ellen Kenna were given a three-year good behaviour bond and penalties after pleading guilty to managing a corporation whilst disqualified.
 In April this year, Mr Stephen John Riddell was convicted of a similar offence.
In addition to referring cases in relation to bankrupts managing corporations there is no evidence that ASIC has a program to ensure that banned directors do not manage corporations. Without an active follow up program, what’s a banning order worth? Not much if you don’t fear time in the pillory.
CONCLUSION
The concept of "managing the company" involves terms quite well known … a person is managing a company if they are in any way concerned in its management, or takes part in its management, and this is so, whether the person acts directly or indirectly.
The wide arrange of offences, individuals and circumstances mean that regulators need a large number of enforcement options. Given the complexities of the market, the complexities of corporate behaviour and ongoing financial innovation, regulators need sophisticated and flexible powers like the banning power, but they need to be in a position to exercise them appropriately and to follow them up to make them stick, particularly where the profile of the matter or individual does not cause the banned individuals to stand out from the crowd. Whilst useful as a device for public humiliation and punishment, they have necessary limitations.
The banning order is however a relatively soft option. Banned individuals can continue to be involved in business outside managing a company. ASIC needs to be sure that it doesn’t pursue the soft option when the case is better dealt with through criminal conviction.

Red tape reduction a long, bloody and fruitless quest or a noble adventure?

Introduction
While it takes 201 less days to start a business in Australia, than it does in Haiti, there is a perception that our governments are too quick to go for blunt regulatory fixes, when sometimes there are better alternatives: education or in some cases nothing at all.
Like Arthur’s knights the Commonwealth Government has sent a taskforce off after the Holy Grail of “alleviating the compliance burden on business from Commonwealth Government regulation” [http://www.regulationtaskforce.gov.au/media/index.html]. The Taskforce has now finalised its report and provided it to the Prime Minister and Treasurer.
Regulation reform is also being considered on a number of other fronts including COAG’s review of National Competition Policy, the Board of Taxation’s review of aspects of taxation legislation, and the Financial Services Reform Refinements project.
To many people our laws at state, commonwealth and local government levels are too draconian, too prescriptive and too rules-bound. That said ministers and their departments are anxious to preserve the regulatory outcomes on which they have been elected. Most regulations are designed to achieve goals such as better safety or a cleaner environment but that leaves a lot of regulation that is just reporting and red tape.
Better regulation can do away with a lot of the load on business freeing capital for more productive investments. Regulation reform promises many benefits. Not only would it save companies money and increase their competitiveness, but more competitive and prosperous companies add more to government revenues.
The current regulatory environment
The Business Council of Australia (BCA) has identified characteristics of the current regulatory environment that underlie these costs:
 Conflicting, overlapping and inconsistent regulation.
 Constantly changing laws.
 Multiple and uncoordinated licensing and approval processes.
 Lack of clarity regarding the roles, powers and objectives of regulators.
 A “zero-tolerance” attitude displayed by regulators.
 The excessive focus on the personal liability of directors and officers.
There are a number of straightforward steps that could be taken by governments to reform the basic structures of regulation making and compliance.
There is scope for a proper assessment and consultation processes that allows business and others to identify overlapping regulation and unintended consequences before new regulation and legislation comes into effect.
A number of bodies and procedures have been in place in an attempt to manage the introduction and operation of regulation. Australia has built in regulatory reform by including “sunset” provisions in new regulations, with the regulation automatically expiring after a certain period unless renewed by Parliament. Additionally, the Office of Regulation Review vets each proposed regulation using a “minimum necessary regulation” principle.
In 1996, the Office of Regulation Review was charged with cutting the regulatory burden on small businesses in half, with annual reviews of progress achieved. One issue that the Regulation Taskforce will need to address is why the Office of Regulation Review has not been able to make any real headway to wards this goal.
Recommendations for Further Change
A number of organisations are calling for a far more significant and widespread overhaul of the current Australian business regulatory environment.
In response to the major causes of excessive compliance costs identified above, the BCA has made the following recommendations:
 To prevent the adoption of conflicting, inconsistent or overlapping regulations, a stricter regulatory assessment process should be introduced which would include standardised methodology for measuring the likely costs to business. Standardised definitions and commonly used clauses should also be developed.
 To minimise the burden of frequent changes in the law, there should be one date per year when all new legislation comes into force. Transition periods for new regulations should be extended.
 One-stop shops for project facilitation and approval should be created to avoid dealing with multiple and uncoordinated processes.
 The role and aims of regulators need to be clarified. Interaction between regulators should be increased.
 The zero-tolerance approach to regulation and compliance needs to be modified.
 To avoid a heavy focus on personal liability and the associated high costs of compliance, individual liability should only be introduced in exceptional circumstances.
Other suggestions include structural impediments to the slow the proliferation of regulation throughout government like a mandatory review of the utility and effect of regulation at a fixed time after coming into force, and a practice of releasing draft regulatory impact statements for public perusal and comment. A two-tiered impact assessment process has been advocated whereby all proposals would be assessed and those likely to have a significant effect upon business would then be subject to further in depth assessment. Whilst it seems simplistic, maybe government could agree to remove an existing rule for each new one that it introduces. Mayber ministers ought to pledge to measure the administrative cost of existing regulation and set reduction targets?
A final important suggested change is a move towards a single, consistent national regime in areas of regulation where there is shared responsibility across multiple jurisdictions.
Another good idea is from the National Institute of Accountants (NIA) who has called for the establishment of a one-stop shop to gather information from businesses that can be accessed by state and federal government agencies.
The idea is that such a move would eliminate the duplication of government requests with which businesses are expected to comply. What the NIA are suggesting is a “lodgement portal” where information could be housed, with state and federal agencies being given access, as well as being a place for lodgement of regulatory payments and information.
This idea if acted upon could avoid business having to provide the same information in different forms to different government authorities.
Indeed, many of the government’s regulatory requirements could be channelled through such a one-stop shop to reduce duplications while passing on cost savings to business.
What should the government be doing?
Good regulation does not mean zero regulation. The government needs to be involved in various aspects of control of business. The World Bank has recognised that government regulation should be able to impose essential controls on business without imposing an unnecessary burden.
The optimal level of regulation is not none, but may be less than what is currently found. We know that changes like Basle, the Financial Services Reform Act, anti money-laundering legislation and many others are a huge cost for everyone to bear when a very small minority are fraudsters and we know that more rules are not going to stop lying and cheating and stealing money.
In Australia, where private markets are functioning, competition is a suitable substitute for much of the need for regulation. By combining simple regulation with good governance and the protection of property rights, it should be possible to have government regulators serve as “public servants, not public masters”.
The Government can and should make a contribution to better regulation. For example agencies and arms of government should employ standard definitions across all regulation and legislation, look for self-regulatory models where appropriate, use uniform national legislation where possible, and develop a drafting style emphasising the spirit rather than the letter of the law.
As James Surowiecki wrote recently in The New Yorker [http://www.newyorker.com/talk/content/articles/051212ta_talk_surowiecki] poor regulations can and do have significant effects inflicting what economists call “social costs” on the economy as a whole. Look at the distortions caused in the builders’ insurance market by HIH’s unsustainable market practices. We accept that regulation has a role not just to punish fraud but to prevent it from happening in the first place and that in a lot of cases the law's costs are a lot more visible than its benefits. It’s all a question of balance.

References/links
 See “A vow to cut red tape? It's just a pink elephant” Katey Lahey The Age 13/12/05 http://www.theage.com.au/news/business/a-vow-to-cut-red-tape-its-just-a-pink-elephant/2005/12/12/1134236003905.html
 “The Regulatory Balancing Act” Senator The Hon. Helen Address to the Financial Services Accountants ssociation Annual Conference 17 May 2004 http://assistant.treasurer.gov.au/atr/content/speeches/2004/008.asp
 Sarboxed In? http://www.newyorker.com/talk/content/articles/051212ta_talk_surowiecki
 The World Bank Doing Business 2004 and 2005 reports on "Understanding Regulation" http://rru.worldbank.org/Documents/DoingBusiness/2004/DB2004-full-report.pdf
 Office of Regulation Review http://www.pc.gov.au/orr/
 Taskforce on Reducing the Regulatory Burden on Business http://www.regulationtaskforce.gov.au/
 The Boardroom Report Volume 3, Issue 24, December 16th, 2005. http://www.companydirectors.com.au/StaticContent/boardroomreport/051216/item01.html
 One-stop-shop will cut red-tape burden says NIA 20/12/2005 http://www.nia.com.au
 AICD submission http://www.companydirectors.com.au/Policy/Submissions/2005/
 BCA submission http://www.bca.com.au/content.asp?newsID=99412