A recent speech by ASIC Chair Joe Longo contains helpful tips for directors seeking to ensure they are complying with directors’ duties. While not revolutionary, the questions he suggests directors repeatedly ask themselves are a useful ‘cheat sheet’ for what directors should be keeping front of mind, given the increasingly complex business and regulatory environment on both sides of the Tasman.

Four key questions

Speaking at the Australian Institute of Company Directors in March 2024 [1], the Chair of the Australian Securities and Investment Commission (ASIC) acknowledged the challenges – but not the impossibility – of compliance with directors’ duties.

Mr Longo outlined four key questions that directors should be asking themselves – not just once, but repeatedly:

1. Are you acting honestly?

2. Are you putting the company first?

• If directors are doing so, Mr Longo considered they are probably avoiding improper use of position or information, and disclosing interests that are relevant (i.e. avoiding conflicts of interest).

3. Do you have a continuous curiosity to understand all aspects of the company's core business and the risks associated with it?

• Mr Longo considered that this involved making a genuine effort to understand how the company makes money; what the key drivers of profitability are; who the company’s customers are; and where the data is behind this.

4. Are you challenging management to ensure your understanding is well-founded, and getting trusted professional advice?

• This goes to whether there is reasonable reliance by the Board on the advice of senior management, which Mr Longo acknowledged will play out differently depending on (for example) the size and resources of the company. That is, the challenge can be greater for directors of smaller companies which have fewer layers of senior management and specialist expertise to advise the Board.

Curiosity and judgement

Mr Longo emphasised the necessity of using “curiosity and judgement” in order to meet the “compliance challenge”, noting:

"History tells us that it’s the directors who don’t employ curiosity and judgement, who don’t apply themselves to asking questions about their business, who are at risk of not understanding the risks of that business. And if you don’t understand the foreseeable risks, that’s when you run into trouble.

If, on the other hand, you keep asking the right questions, do all you can to understand your business and act accordingly, you have a reasonable likelihood of compliance. You can not only comply, but thrive."

Reference

1. “Being a director isn’t meant to be easy”. Keynote speech by ASIC Chair Joe Longo at the Australian Institute of Company Directors (AICD) Australian Governance Summit, 21 March 2024.