In what has been a relatively quiet period for Australian public markets, it was heartening when the Australian Securities and Investments Commission ("ASIC") released its discussion paper on Australia's evolving capital markets ("Discussion Paper") earlier this year. ASIC raised many good points on Australia's public and private capital markets and proactively sought actionable ideas to help re-enliven public markets. We put together a lengthy submission of potential actionable ideas in response, including ones which if implemented would make life as a public company director more attractive.
Discussion Paper
On 26 February 2025, ASIC released its Discussion Paper and as part of it, invited submissions for actionable ideas to help re-enliven public markets.
In our lengthy submission to ASIC, we proposed a range of reforms for consideration, including those set out below which will be of interest to directors.
Toning down remuneration reporting and removing the two-strikes rule
Australia is very unlike the United States – a country that generally rewards and admires success and achievement. There is no "tall poppies" equivalent in the U.S.
One indisputable reason for the drift from public to private markets in Australia is that talented and successful executives have the potential to share in enterprise success in a greater way in private companies than they do in public ones. While that is true in many sophisticated jurisdictions, it is particularly true in Australia because of the very bright spotlight that shines on remuneration issues for public company executives.
Australia's elaborate remuneration reporting requirements and the two-strikes rule make it extremely difficult for listed companies to reward executives across the board at anywhere near the levels that private companies can. Because of the headlines that can accompany a strike, listed company boards become gun shy in the way they approach executive reward and therefore the best candidates can be lost to private companies.
In addition, the two-strikes rule, which was introduced in the context of the global financial crisis and aimed to address the concern that executive pay had "got out of hand"1, is not being used for its intended purpose. Its intended purpose was to "empower shareholders to hold directors accountable for their decisions on executive remuneration".2 Rather, we are too often seeing votes being misused for reasons unrelated to remuneration (e.g. ESG initiatives, share price volatility, company performance, leadership changes, reputation damage and governance issues).3 In most cases, the two-strikes spill motions are unsuccessful, or where they are successful, spilled directors are often re-elected – making the rule in practice a waste of time and money with very little benefit for shareholders.
For these reasons, we have proposed in our submission to ASIC that remuneration reporting be toned down to reduce complexity and the associated cost, and that the two-strikes rule be abolished. Rather than the two-strikes rule, we propose that there should be a reinstatement of a non-binding, advisory vote similar to the predecessor to the two-strikes rule. This would put us in line with similar jurisdictions such as the United States and would still allow shareholders to express their view on executive remuneration but in a cost-effective, proportionate and targeted way.
Reconsidering the approach on stepping stones liability and fixing the overlap in obligations related to listed company reporting
At the moment, listed company directors are subject to overlapping liability regimes with inconsistent penalties and defences. This has flow on effects for the affordability of D&O insurance, and the available talent pool, for listed companies. We have proposed changes to the approach taken on stepping stones liability and to fix the overlap in obligations related to listed company reporting. If implemented, we believe that they would provide clarity for directors on the steps they can take to avoid personal liability, reducing the impact on D&O insurance and the available talent pool, while preserving existing shareholder protections.
Simplifying the liability regime for misleading and deceptive conduct in capital raising disclosure
We have also proposed changes to simplify the liability regime for misleading and deceptive conduct in capital raising disclosure so that there is only one content and liability standard that should apply to a prospectus or a product disclosure statement ("PDS") for a functionally equivalent product. The purpose of these proposed changes is to ensure greater consistency across the Corporations Act 2001 (Cth) provisions and to provide clarity for directors and other persons with articulated liability involving in prospectus / PDS capital raisings on the content and liability standards that apply and the availability of relevant defences to minimise the risk of personal liability.
Streamlining the path to listing
We have also put forward actionable ideas to help streamline the path for companies considering an initial public offering and listing on the Australian Securities Exchange. This includes by removing some of the regulatory burden around sell-side research, advertising and publicity prohibitions and the use of aftermarket stabilisation in Australian IPOs. Based on ASIC's communications to market participants in recent months, we understand that they are considering initiatives such as these and others – including the treatment of IPO forecasts.
Next steps
To the extent that some or all of our actionable ideas are implemented, it will be a step in the right direction for removing or tempering regulatory settings which have unintentionally created an imbalance between public and private markets. This may in turn help re-enliven Australia's public markets. It may also help make life as a public company director more attractive and therefore help directors get better sleep!
ASIC will be publishing a response to the Discussion Paper submissions in November 2025, in which we hope some or all of these ideas will get traction – watch this space!
Footnotes
1 Productivity Commission Inquiry Report, 'Executive Remuneration in Australia' (19 December 2019) at xv.
2 Explanatory Memorandum to the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011.
3 www.kwm.com/au/en/insights/latest-thinking/publication/deep-dive-into-asx200-agms-in-2023.html
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