As Australian directors and senior business leaders vent their frustrations with excessive regulation and red tape, the UK is consulting on proposals to radically streamline its corporate reporting framework. Against the backdrop of the shrinking ASX, Australia has an opportunity to follow the UK’s lead and demonstrate it is focused on policy settings that support productivity, international competitiveness, and reducing the compliance burden.
Australia’s reporting framework is becoming increasingly crowded, with financial reports, auditor’s reports on financial reports, directors’ reports, remuneration reports, corporate governance statements and, now, sustainability reports and auditor’s reports on sustainability reports. The annual report has never been so long.
Pushes for ‘integrated reporting’ – a concise high-quality report about how an organisation’s strategy, governance, performance and prospects lead to value creation – have largely fallen flat, given the regulatory requirements in Australia. Instead, our framework involves duplication across reports on remuneration, governance, risk and other topics. With some annual reports reaching 400+ pages, is it time for a rethink?
The UK is currently consulting on a “once-in-a-generation” opportunity to modernise corporate reporting to better meet the needs of companies, investors and the wider economy. The consultation includes proposals to permit medium-sized companies to qualify for the same disclosure exemptions as small companies, more companies to qualify for audit exemptions, and reductions in the amount of information or number of companies required to report on topics like governance and remuneration. It asks whether it may be better for static information to be relocated to the company website or an online portal, rather than cluttering the annual report. It also raises significant proposals in related governance areas, like scrapping the annual ‘advisory’ shareholder vote on the directors’ remuneration report, moving to a solvency-based model for assessing the lawfulness of dividends, and permitting, as a matter of law, AGMs to be held fully virtually (albeit still subject to some form of shareholder approval).
Many of these proposals will fall on welcome ears in Australia where companies and advisers have been arguing for many years that the remuneration report advisory resolution, and associated ‘two strikes’ rule, is not achieving its intended purpose.
One of the core principles the UK Government has had regard to in developing its proposals is trust: companies should be trusted to tailor their disclosures to the needs of their particular investors and creditors. The Australian requirements curtail that flexibility and have led to duplication and increasing length, rather than a focus on decision-useful information for users. In a changing world, we need a framework fit to adapt and take advantage of new opportunities like digital reporting, another principle underpinning the UK consultation.
Australia has often looked to developments in the UK as a precursor to change. With the Productivity Commission currently inquiring into opportunities to improve the efficiency and value of non-financial reporting in Australia, there is real potential for change. There are already proposals underway to (a) double the ‘small’ company threshold, (b) adjust assurance settings and otherwise improve the efficiency of mandatory sustainability reporting, (c) simplify the ASX corporate governance principles and recommendations, and (d) clarify, modernise and simplify governance requirements for APRA-regulated entities. What Australia needs is a holistic view across corporate reporting and governance to ensure our framework remains efficient, effective and useful for investors, companies and the Australian economy. While it awaits to be seen what will come of the UK consultation, it is an important reminder that we shouldn’t become complacent. Productivity, simplification and future preparedness are important topics on the Australian agenda, and the time is ripe for Australia to follow in the UK’s shoes and consider how we can make corporate reporting more efficient, effective and useful for investors, companies and the Australian economy.
