Corporate culture and governance responsibility of Board Chair

By Gavin Robertson, Principal, Corporate Governance

I recently wrote in an article for PLN that a strong corporate culture underpinning effective governance practices is more important than ever in this pandemic and post-pandemic era, not just for listed entities but for all large entities with operations across the Pacific.

A recent decision by the Federal Court of Australia has laid responsibility for these matters on the shoulders of the Chair of the Board of Directors. This judgement could prove persuasive for courts in the Pacific.

In Australian Securities and Investments Commission -v- Mitchell (No. 2) [2020] FCA1098 (31 July 2020,) Beach J analysed the role and responsibility of the Chair. Amongst other things he stated the Chair may have greater responsibility than other Directors for defining and ensuring that the Board sets out and implements the corporate culture of the organisation. In describing “corporate culture” he referred to the Australian Commonwealth Criminal Code where it is defined as “an attitude, policy, rule, course of conduct or practice existing within the body corporate generally”.

He went on to say that the Chair may have a greater responsibility than other Directors for defining and ensuring that the Board sets and implements appropriate corporate governance structures within the organisation. In describing corporate governance structures, he referred to the Commissioner’s description in the HIH Royal Commission of “the framework of rules, relationships, systems and mechanisms under which authority is exercised and controlled within the corporation and under which it is accountable.”

The Judge was not as definite about these responsibilities as he was about other responsibilities of the Chair. However, the fact that they were included amongst the mandatory responsibilities makes clear that the Chair is responsible for ensuring that appropriate policies and procedures are put in place either by taking responsibility for doing so himself or herself, or at the very least ensuring that responsibility is appropriately delegated within the organisation, and for supervising activities in these areas.

For large companies operating across the Pacific often in remote locations, these responsibilities are onerous. Recent press reports in Australia concerning cultural issues within one of its largest corporations, AMP, highlights the importance of prioritising these matters and ensuring that they are effectively dealt with in the organisation.

It should now be clear to all that corporate culture and governance can no longer be regarded as a box-ticking exercise to satisfy the regulator and institutional shareholders. Failure can have significant reputational and financial consequences for the corporation. The spotlight is now clearly on the Board Chair.