An effective and robust board is an essential feature of
thriving and profitable companies. A board's inability to
effectively discharge its responsibilities can negatively impact
share price, brand integrity and personal reputation, as well as
provide your rivals with an avoidable competitive advantage.
Reputational damage is most severe in a crisis which involves a
failure of a core competence, such as a breach of the law. This
type of governance failure is judged harshly, given the increasing
trend towards criminalising corporate malpractice, including the
recent introduction of criminal cartel offences for both
corporations and individuals. In light of the growing scrutiny by
regulators and directors growing accountability to shareholders, it
is imperative for the board and individual directors to guard
against cases of lapsed corporate governance.
Clearly, prevention is better than cure. But are you and your
board adequately prepared? The board itself must have the right
structure, composition and purpose:
Structure: This involves the need for a
separate Chairman and CEO, the right balance of executive and
non-executive directors and the establishment and resourcing of
appropriate board committees (e.g. Audit Committee, Nomination and
Remuneration Committee, etc.) to deal with present and future
Composition: It is increasingly important for
boards to have more rigour in their selection of board members to
secure the talent, expertise and experience which best meets the
company's strategic needs
Purpose: A key ingredient in the establishment
and maintenance of a sound corporate reputation is for boards to be
proactive in promoting a culture of excellence, honest trading,
sustainability and integrity.
The board should also ensure that an appropriate organisational
strategy is developed, communicated and implemented. A key part of
that strategy is an effective risk management framework which is
aligned with the business and supported by processes and procedures
which are documented and measured. The board's input into the
design and oversight of these risk management functions are
necessary to discharge directors' common law and statutory
duties, including the duty to act in good faith in the best
interests of the company and the duty to act with care and due
In the current climate, boards should be implementing additional
controls to protect against greater regulatory scrutiny and
criminal sanctions. For example, boards should be satisfied that
their company has sufficient controls in place to combat all known
and reasonably anticipated corporate risks, including:
fraud detection and prevention
conflicts of interest
cartel detection and prevention
trade practices compliance.
In view of the recent introduction of criminal sanctions for
serious cartel conduct, boards should give early consideration to
commissioning an independent cartel audit to identify any areas of
high cartel risk in the business and satisfy themselves that there
is no evidence of cartel activity in those areas and that
sufficient controls are in place to minimise any future risks. In
the same vein, due diligence procedures should be strengthened to
ensure that your company does not inherit a cartel when acquiring
or merging with another company or business.
More generally, directors need to be able to demonstrate that
they are effectively discharging the primary duties they owe to the
company. A priority risk management issue in the discharge of these
duties is to ensure that the company has implemented and is
maintaining an effective trade practices compliance program within
all relevant levels of the corporation's hierarchy.
In an era of greater focus and scrutiny upon individual
accountability, board membersshould also make it their priority to
ensure that an effective crisis management strategy is in place and
that they personally have the benefit of appropriate and effective
corporate indemnitiesand D&O insurance cover. Failure to do so
could prove costly.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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