The Heightened Focus On Accountability And Consequence Management – Navigating The Challenge For Boards

The way in which boards address accountability for corporate crises, material risk and compliance events and poor conduct is now the subject of intense scrutiny from various stakeholders including regulators, investors and proxy advisers. 

When boards get this wrong the consequences escalate rapidly: regulatory investigations, sustained reputational damage and loss of social licence, shareholder revolts, cuts to director fees or forced resignations, and erosion of employee and customer trust. The speed, transparency and adequacy of the assessment of accountability and the consequences applied is all in focus.

This article examines the regulatory and market factors that are shaping expectations in this area and looks to provide guidance to Boards as to how to be prepared to address these situations.

Responding to the problem

From the failures laid bare by the Banking Royal Commission and ongoing compliance failures in financial services, to sexual harassment, environmental and cultural incidents, and privacy/cyber breaches, the themes of corporate accountability and executive remuneration have been the subject of extensive community and shareholder scrutiny. In recent years, fresh controversies – such as governance failures at iconic companies – have only intensified the focus on how boards respond when crises strike.

Whilst the conduct under examination will differ, the underlying question remains: How are boards expected to respond to these issues?  How does the board strike the right balance between demands for consequences from stakeholders and retaining a motivated management team to respond to the crisis.

Stakeholders – including large institutional investors with significant influence – expect that accountability will be determined swiftly, and often in a very public way. Furthermore, it is evident that the outcomes will be heavily scrutinised. In today's environment, if a major risk or conduct issue arises, boards and executive teams must be prepared to act expeditiously to determine who is accountable and decide what (if any) remuneration or other consequences should apply. Delayed or muted responses risk criticism from the media and shareholders

This can be uncomfortable territory for boards and for the executives being held to account – often for decisions made deep inside an organisation, outside of executive line of sight. The difficulties in identifying one or two individuals who can reasonably identified as being accountable for risk and compliance failings in a large corporate organisation was recently recognised by ASIC's response to questions by a Parliamentary Committee over the lack of action taken against individuals under the accountability regime legislation imposed on the financial services sector¹.

It can be challenging for boards to get accurate and objective information to inform their decision-making processes. There will be a business for management to run in addition to responding to the crisis. Stable management is important in these situations and the process of assessing accountability and imposing consequences on management can seriously strain the relationship of trust between management and the board. More often than not the underlying cause of the risk or compliance failing, in addition to occurring deep in the organisation, is historical in nature. Applying consequences for misconduct is one thing. Assessing accountability and applying consequences for risk or compliance breakdowns in a large organisation in the absence of clear individual failings is a much more complex and nuanced exercise. 

What is driving the focus on accountability and consequence management?

Regulatory change

Historically, Australia had no mandatory legal standards governing board decisions on accountability and consequence management. However, since the Banking Royal Commission, there has been a steadily growing focus on defining accountability in organisations and using remuneration as a tool for managing non-financial risk outcomes. 

As might be expected the financial services sector has been subject to the most prescriptive regulation in this area. The Banking Executive Accountability Regime (BEAR) commenced applying to ADIs in 2018. This was then further extended to all APRA regulated entities through 2024/2025 through the operation of the Financial Accountability Regime (FAR). Both regimes require organisations to identify individuals who are accountable for the key functions of the organisation. A portion of the variable remuneration of these identified accountable persons is then required to be subject to mandatory deferral for 4 years and is required to be forfeited where the accountable person contravenes their statutory accountability obligations under the regime. In addition to statutory obligations of honesty and integrity and openness/transparency with the co-regulators (APRA/ASIC) the regimes impose obligations of due skill, care and diligence and to take reasonable steps to prevent material contraventions of financial services legislation. The statutory obligations extend beyond traditional conduct obligations to address whether the accountable person has acted with diligence and taken reasonable steps to manage their areas of responsibility to avoid material risk and compliance failures arising. In addition to their remuneration being at risk, accountable persons can be banned by the Regulators for failing to comply with their accountability obligations.

The principles in BEAR/FAR have been extended through APRA's regulation of remuneration under Prudential Standard CPS 511 (Remuneration). This commenced on 1 January 2023 and has applied progressively to all APRA regulated entities since this time. CPS 511 is designed to strengthen remuneration practices across all APRA-regulated banks, insurers, and superannuation funds. It introduces heightened requirements on remuneration and accountability aimed at creating more balanced incentive structures, promoting financial resilience, and supporting better outcomes for customers. In practice, CPS 511 requires companies to maintain remuneration frameworks that align pay outcomes with risk management outcomes. This includes expectations of longer deferral periods for variable pay (for example up to 7 years for the CEO) and robust malus/clawback provisions to enable reducing or forfeiting incentives if significant risk issues or misconduct emerge. New remuneration disclosure requirements have been introduced requiring APRA regulated entities to disclose where remuneration adjustments been applied for employees. The message from the regulator is clear: variable pay must be truly at risk and subject to adjustment for poor risk or conduct outcomes. Boards of APRA-regulated entities are expected to actively consider risk incidents and accountability when finalising executive remuneration each year and are required to apply consequences for significant adverse conduct, non-financial risk events and accountability failures.

This evolving regulatory environment has driven the maturity of accountability and remuneration frameworks in the financial services sector and increased board focus on this area. Decisions are also frequently scrutinised by the regulators who will require details of who is accountable for a material risk and compliance event and will question whether consequences are proportionate. So far the regulators have taken a measured approach provided that regulated entities can demonstrate they have examined accountability and there is a rationale for the consequences that have been applied even where they have the ability to apply sanctions for individual accountability failures in the financial services sector.

The environment outside of financial services has been less prescriptive. In June 2020, ASIC released an information sheet on variable executive remuneration, following its review of remuneration practices at 21 ASX100 companies (Information Sheet 245). The information sheet emphasised the need for boards to ensure that discretion is exercised in the best interests of the company. ASIC suggested boards should: (1) adopt practices or frameworks to prompt the use of discretion in the company's variable pay schemes; and (2) apply practices or frameworks to guide the exercise of discretion before variable pay decisions are made. ASIC also encouraged companies to ensure they have "look-back" provisions so that before deferred pay vests, the board can consider making adjustments (using developed discretion principles) to avoid unintended gains and address significant risk or conduct issues that have emerged since the award.

The ASX Corporate principles (4^th edition) currently provide very limited guidance on the link between accountability and remuneration. However, they do recommend discretion be retained to prevent rewarding conduct that is contrary to the entity's values or risk appetite. The consultation draft of the proposed 5^th edition (which did not proceed) proposed enhanced requirements by recommending listed entities²: 

• have remuneration structures which can clawback or otherwise limit performance-based remuneration outcomes of its senior executives after award, payment or vesting; and
• disclose (on a de-identified basis) the use of those provisions during the reporting period.

Irrespective of the status of the 5^th edition in our experience most major listed companies already comply with the recommendations above in response to demands form institutional shareholders and regulatory requirements where applicable.

Other stakeholders 

While the regulatory framework is still evolving, both community and investor expectations have only grown clearer and more forceful. Recent media coverage of corporate failures in Australia shows the intense pressure brought to bear on companies when things go wrong. This is especially true for listed companies and others considered to have a "social licence" to operate (e.g. banks, insurers, major employers, and those in sensitive industries).

This is perhaps best evidenced through the annual protest vote on the remuneration report of ASX listed companies. Australian investors have not been shy about signalling dissatisfaction with executive pay, particularly when they feel accountability has been lacking. Perhaps the most notable examples of this in recent times include the Qantas remuneration report in 2023 with 83% of shareholder voting against the report and the first ever 'first strike' for Macquarie's 2025 remuneration report. The outcome for Macquarie has generally been attributed to shareholder dissatisfaction with regulatory contraventions disclosed in the previous 12 months and a perceived lack of accountability and remuneration consequences for executives in response to these matters.

The Qantas experience is also instructive. The vote for Qantas 2024 remuneration report which followed the announcement of the outcome of a review conducted by Qantas which resulted in the forfeiture of the former CEOs 2021-2023 LTI (approx. $8.3m) and additional reductions to the FY23 STI outcome for the former CEO and the executive team (33%) saw 85% vote in favour of the remuneration report which was a significant turn around from the prior year. The shareholder and media focus on the consequences to be applied to the former CEO (Mr Joyce) was intense and commentary continues on this topic even in response to Qantas' 2025 remuneration report.

In short, investors now expect pay and performance (including non-financial performance) to be aligned, and they are increasingly willing to use their influence and votes to enforce accountability.

Remuneration Adjustments in Practice: Emerging Market Norms

The response by ASX listed companies has developed over time but there is no reasonably well-established market practice of imposing consequences in response to material risk and compliance events or poor conduct. 

The table below illustrates how boards have applied consequence management in high-profile cases. The data reveals consequences (of varying degrees of severity) have been imposed for a range of events extending from individual misconduct, environment disasters to material contraventions of the law.

As the above examples show, there is an emerging pattern of boards taking tangible pay actions in response to misconduct or risk management failures. These actions range from reducing or cancelling bonuses, forfeiting unvested rights/shares, and agreed reductions in directors' fees in acknowledgment of governance lapses. In some cases, senior executives have resigned or been terminated with minimal or no termination benefits. It's also notable that collective accountability is sometimes enforced (for instance, an entire executive team's bonuses being cancelled to signal shared responsibility alongside individual accountability for the most culpable executives.

But what trends (if any) can be discerned from this market data:

• there is an increasing trend towards collective adjustments for all senior executives where there has been a major event affecting the reputation of the company even where few of the executives affected by the reduction in remuneration were directly responsible for the event;
• the most common adjustment is to in-year STI which is commonly reduced up to 100% on a collective basis for the management team;
• adjustment of deferred variable remuneration already earned by executives is more targeted at individual executives who are responsible or accountable for the adverse event and is more often applied to former employees (as there is no in-year STI to adjust);
• there are often more significant consequences for the CEO both in terms of remuneration adjustment and their employment ceasing and often the forfeiture of significant remuneration arises as a result of their employment ending as opposed to a malus adjustment;
• in some of the major events (for example Qantas in 2024 and Westpac in 2019) the delivery of remuneration which had already been declared for executives was paused pending the outcome of further reviews by the Board to allow appropriate outcomes to be determined;
• there is limited or no practice of pursuing clawback of vested remuneration which has already been awarded and released to an executive free of any restrictions.

The approaches adopted may also depend on the legal options open to the boards depending on the terms of the incentive arrangements. However, we have not seen any significant legal challenges to the adjustments imposed by boards. This is probably due to well drafted incentive plans but also the reputational risks for individual executives who might commence this sort of litigation particularly given the media and shareholder views that executives should be held to account for corporate failings.

Implementing consequences for accountability failures

As noted above, boards can find themselves in an unenviable position when being called upon to consider accountability and consequences for these events.

The common questions we see directors asking when confronted by these situations include:

• Individual vs. collective accountability? Should accountability and consequences be assessed on an individual basis, or should the leadership team bear collective responsibility when failures occur?
• Principles for outcomes? What principles should be applied to determine fair and effective consequence outcomes for those deemed accountable?
• Procedural fairness? Is there a need for procedural fairness (for example, giving executives a chance to respond) when determining consequences?
• Disclosure timing and approach? How and when should the board disclose the consequences to stakeholders?

The emerging better practice from a corporate governance perspective is to have a well-defined consequence management framework including remuneration adjustment guidelines to guide decision making in this area and help ensure that boards respond consistently and proportionately, rather than reacting impulsively under pressure. Such frameworks typically outline how accountability is determined and what menu of consequences may follow, based on severity and circumstances. Indeed, the expectation of APRA is that APRA regulated entities will have an established consequence management framework supported by a "severity scale – with example cases and any precedents to guide decision making" and a "comprehensive library of past risk adjustments" to support consistent decision making⁴. This type of framework is also good practice for non-APRA regulated entities. Establishing a consequence management framework before a crisis hits can help ensure that when something does go wrong, the board can respond in a way that is timely, consistent, fair, and defensible.

From a legal and practical standpoint, there are several key steps and considerations for a Board to consider when considering the implementation of consequences.

• Check the rules (malus provisions): The first step is to assess the existing incentive plan rules (the malus or clawback provisions) to confirm what adjustments are permitted. This should not be overlooked in the rush to "do something" because sometimes the board's legal rights to adjust pay are narrower than expected. They may be limited to instances of serious misconduct, material financial misstatement, or fraud/criminal conduct. These extreme triggers might not cover many accountability cases (which often involve failures of oversight or management, rather than intentional wrongdoing). Boards have increasingly been seeking to expand the scope of malus provisions in new equity plans or plan amendments, to ensure they are fit for purpose in the modern context. For example, companies are adding language to cover significant risk management failures or reputational damage as grounds for adjustment, even if no laws were broken. Additionally, having flexibility to delay vesting (e.g. pausing a payout) while an investigation is underway is useful — it gives the board time to make a fully informed decision before money walks out the door.

• What should be adjusted? The simplest form of consequence (as evidenced by the market data) is to reduce or cancel an in-year short-term incentive before it is awarded (for example, by applying board discretion at year-end, or enforcing a risk-related "gateway" that results in zero payout). This avoids many legal issues since the bonus hasn't been legally earned/paid yet. Adjustments become more challenging where an executive has no current-year bonus to adjust (e.g. if they already left or performance was poor regardless), and the board needs to rely on withholding or clawing back unvested deferred incentives. Malus (forfeiture of unvested awards) is now the usual tool in such cases, as true clawback (trying to recoup money already paid in the past) is very rare in Australia, given legal enforceability issues. Boards should ensure their incentive plans give them clear power to forfeit unvested awards for things like misconduct or material risk failures. If those powers are not in place, companies should amend their plans proactively rather than waiting until a crisis forces the issue (particularly if you are APRA regulated, as such provisions are required by CPS511).

• Fair process and documentation: Because adjusting pay outcomes involves board discretion, there is a risk of legal challenge (for example, an executive might claim the board exercised its discretion arbitrarily or in bad faith). To guard against this, boards should have a rational basis for their decisions and show they were made with adequate information and proper process. While there is no general legal requirement in Australia to provide procedural fairness to an executive in these circumstances, some companies choose to give the affected executive an opportunity to present their case or respond to the proposed outcome. Some have even implemented formal procedures (like a right to make a written submission to the board before a decision is finalised). Such steps can improve the perception of fairness and reduce the odds of disputes. However, they should be designed carefully – overly rigid procedures can slow down decision-making at the critical moment. The board must balance fairness with the need for efficient action, especially when swift public disclosure of consequences might be necessary.

• Disclosure and communication: Deciding on consequences is one part of the challenge; communicating those decisions is another. Boards should consider how and when to disclose executive consequences. Early, transparent disclosure can demonstrate to stakeholders that the board has taken decisive action – for example, announcing that a CEO's bonus has been cancelled due to the issue at hand. This can help rebuild trust. However, disclosure needs to be handled thoughtfully to avoid unnecessary legal exposure or breaching privacy/employment rights. Many companies choose to disclose such measures in general terms initially (e.g. "appropriate actions have been taken, including remuneration impacts for executives") and then provide more fulsome details in the next remuneration report or annual report. The updated regulatory context makes clear that stakeholders will be looking for these disclosures; for instance, APRA's CPS 511 will require more transparency around remuneration outcomes and adjustments. A well-prepared framework will include a communications plan for internal and external stakeholders, so that the messaging around accountability is consistent with the company's values and the expectations of its investors, employees, and the public.

The above points can be addressed through the implementation of a consequence management framework and remuneration adjustment guidelines for the board, so that it has a playbook to support decision making in this difficult area. Such a framework is an essential tool to ensure boards are well-equipped to make the tough decisions expected by stakeholders – and to do so quickly and credibly in response to a crisis. By establishing clear guidelines in advance, boards can avoid panic-driven "heads must roll" reactions and instead respond in a measured way that holds individuals accountable while maintaining stability. In an era of unprecedented scrutiny, this proactive approach to accountability is not just best practice – it has become a baseline expectation for good corporate governance.

Footnotes

1. See Parliamentary Joint Committee on Corporations and Financial Services, Oversight of ASIC, the Takeovers Panel and the Corporations Legislation, Tuesday 18 September 2025, Hansard at 28, 38 and 43.

2. Proposed recommendation 8.3

3. https://www.austrac.gov.au/news-and-media/media-release/austrac-and-cba-agree-700m-penalty

4. See [70] - [84] of CPG511

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