Continuous disclosure challenges post-pandemic
As the Australian marketplace turns its attention to life after coronavirus, legal departments will have to be especially diligent in protecting businesses from class action risk.
Even at the best of times, continuous disclosure obligations in complex organisations are challenging, FTI Consulting senior managing director Dawna Wright mused, but when there is “an increased level of volatility” – such as a global pandemic and now national recession – such obligations become even harder.
Speaking last week on a Lawyers Weekly-hosted webcast – “Class Actions in a Post-Pandemic Australia” – Ms Wright said, as last year’s Myer judgment confirmed, companies and the legal departments that guide them must be on top of their continuous disclosure obligations, despite any relaxation of the rules governing them, and ensure “that they have reasonable grounds for the forecast or guidance or disclosures they’re making”.
“[They must] make sure they have that sort of audit trail to support their decisions and that they have the links in the chain from an event happening to disclosure that they can support what was known, when, and by whom,” she espoused.
The in-house legal team – in conjunction with external advisers – have a role to play in that decision-making process, she continued, particularly when decisions have to be made at pace in volatile times such as a pandemic.
“Lawyers can really help by making sure that they balance that need for quick [decision-making] with also the need to make sure the support for those decisions [is] there, that there’s a robust audit trail of evidence to support those disclosures,” she said.
This said, corporate counsel should be cognisant that often, in “complex organisations”, it can take a while between events transpiring and the board becoming aware of it, Ms Wright noted.
“So, again, the in-house lawyers have a particular role to play in facilitating that process and doing a check of what is that disclosure process within their organisations. So, we would suggest doing a bit of a forensic audit, if you like, of the disclosure chain, just like [Justice Jonathan Beach] did in the Myer judgment,” she said. The legal team can assist to make sure the audit trail stands up to the independent scrutiny of a third party.
The legal department must also ensure they have a handle on information governance and strategic communications when it comes to continuous disclosure considerations, Ms Wright continued.
“[They should make sure they’re retaining what’s necessary, but only what’s necessary. Make sure they know where their data is, what they hold. That can reduce the risk of a class action in the first place. But also, if it does occur, to really reduce the costs of the way you deal with it,” she outlined.
“[And], if there is bad news, certainly you need to consult your legal advisers as to what needs to be disclosed. But it’s not just the legal side that’s important: it’s also the reputational risk. It might be better reputationally to tell your own bad news and tell it first, rather than letting someone else tell it for you. So, you really need to consider what’s occurring as it’s occurring, what needs to be disclosed, and the way you disclose it.”
Ms Wright’s commentary follows that of Allens partner Jaime McKenzie and Clyde & Co senior associate Reece Corbett-Wilkins, who identified consumer-facing businesses and businesses whose privacy and cyber security measures are not up to scratch as being most at risk of class actions post-pandemic. For all businesses, Ms McKenzie outlines steps to take to prepare for and respond to class action risk.