It is therefore critical, it surmised, for companies in these sectors to “look closely at the ethical frameworks underpinning their future governance models”.

“An ethical framework should sit at the heart of a company’s governance to enable delegation of authority to responsible decision-makers while maintaining organisational integrity,” Governance Institute said in a statement.

“The framework should serve as a common and authoritative point of reference and give shape to culture. Once established and adopted by the board, all aspects of the company (current and prospective) should be assessed and, if required, aligned with the framework, purpose or values.”

Companies and their officers must, must at a minimum, comply with the law — “it is not optional”, it continued.

Legal compliance must be taken as a given rather than a choice made on the basis of ‘cultural’, business or financial factors, thereby delegating greater responsibility on the shoulders of the legal department to ensure said compliance.

“An ethical framework should sit at the heart of a company’s governance structure to serve as a common and authoritative point of reference for all decision-makers and give shape to culture,” Governance Institute acting CEO Meegan George said.

“Conduct is the manifestation of culture. Boards must consider how to avoid setting policies, building systems or establishing practices that might drive conduct that is at odds with the declared ethical framework, particularly in the area of remuneration and incentives.”

VIEW ALL

Governance Institute further advocated for better enforcement of the existing laws and that no new legislation is proposed before the impact of some of the reforms currently in progress is assessed.

Any new individual element of the regulatory landscape needs to be evaluated for its impact on the regulatory ‘whole’ or ‘sum of the parts’, it noted, as the greatly increased amount of corporate law and governance legislation introduced in recent years has “led to significant complexity as well as unintended consequences”.

“As referenced in our submission, in a complex multilevel cultural system, middle managers play an essential role in generating unethical and ethical behaviour. If middle managers’ remuneration is tied to the performance of their subordinates, they are being incentivised to ‘do what it takes’ to get employees to perform,” Ms George said.

“Governance Institute members advocate for better enforcement of the existing laws and that no new regulation is proposed before the impact of the reforms currently in progress is assessed.”

ASIC can also play a key role in restoring and maintaining trust and confidence in the market, which funds the broader Australian economy, Governance Institute added.

“If ASIC is to better enforce the existing laws, it must be well-funded and appropriately resourced. There must also be proper accountability and transparency in relation to any funding it receives and in relation to any enforcement action it takes,” it said.

“ASIC can play a key role in restoring and maintaining trust and confidence in the market, which funds the broader Australian economy. If ASIC is to better enforce the existing laws, it is vital that it is well-funded and appropriately resourced,” she concluded.