AICD Practice Statement: Directors’ Oversight of Company Compliance Obligations

October 15, 2024
3:54 pm
Business

This article applies to all public and private sector organisations with Directors.

(AICD) Practice Statement: Directors’ Oversight of Company Compliance Obligations

Overview

The Australian Institute of Company Directors (AICD) Practice Statement: Directors’ Oversight of Company Compliance Obligations, released in October 2024, offers critical insights for directors overseeing corporate compliance in a dynamic regulatory environment. The statement outlines the crucial role of boards in ensuring companies meet their legal obligations and maintain effective governance structures.

A key emphasis is placed on the duty of directors to take reasonable steps to position themselves to effectively guide and monitor the company’s compliance obligations. Directors must remain vigilant to potential “red flags” that indicate non-compliance risks and challenge management when necessary to ensure the company’s strategy aligns with regulatory requirements.

A director must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise in that position and in the company’s circumstances. To discharge that duty, a director must understand not only the commercial fundamentals of the company’s business but also have awareness of the key areas of applicable regulation.

Key Findings and Recommendations

Proactive Risk Management: Directors must ensure their organisations adopt forward-thinking approaches to compliance risk management. This involves staying ahead of regulatory changes and revising compliance frameworks as needed.
Alertness to Red Flags: Directors are advised to stay alert to warning signs of compliance failures and take immediate action when such risks arise. Regular audits and enhanced reporting mechanisms are recommended to track compliance performance.
Challenging Management: Directors should not hesitate to challenge management’s decisions when there are concerns regarding compliance. The statement reinforces the importance of appropriate board-level scrutiny and oversight of compliance strategies.
Embedding a Compliance Culture: A core recommendation is that boards work to instil a culture of compliance throughout the organisation. This ensures that employees, at all levels, understand and uphold the company’s legal obligations.
Use of Technology and AI: The report encourages leveraging technology, including AI, to streamline compliance efforts, monitor risks, and improve the accuracy of reporting.
Ongoing Director Training: Directors should engage in continuous education on evolving regulatory frameworks and risks, enabling them to remain effective in their oversight roles.

The AICD Practice Statement reinforces the expectation that directors remain actively engaged, alert, and responsive to compliance risks. It provides a framework for directors to enhance their oversight, ensuring organisations remain resilient in meeting their legal and ethical obligations.

Please click here to access the full Practice Statement.