Making directors’ lives harder isn’t always bad

Directors say the time spent on compliance with regulatory requirements is increasing, with 70% of respondents highlighting the issue in our Director Sentiment Survey 2022.

The same survey found 39% agreed that increased personal liability had made them more cautious in business decision making and 30% were likely to be deterred from taking on new governance roles.

This is not necessarily a bad thing, says Dentons Kensington Swan Partner David Campbell, as governance is a serious business and ensuring compliance with law is a core part of a directors’ role.

What is bad is when regulations make directors’ lives harder in a disproportionate way, he says.

“In that regard I think there has been a steady pattern of - perhaps not always principled - expansion of the regulatory threat. We have seen a creep in strict liability offenses, we are seeing a rise in fairly substantial civil pecuniary penalties, we are seeing the emergence of more and more criminal sanctions in what were traditionally solely civil spheres, and we are seeing a shifting of risk to officers,” Campbell says.

“We’ve got plenty of regulation that, especially if it were better understood, would actually cause directors to pause more often and act in a more self-interested and risk-averse way.”

Campbell made the comments on a webcast, “Is regulation pushing New Zealand forward, or is legislation holding us back?” (listen to the full webcast below), that also featured insights from Mark Cross CMInstD and Joanna Perry CFInstD.

Campbell’s legal background – he is part of the Dentons Kensington Swan Dispute Resolution team and Vice President of the New Zealand Law Society – has given him the opportunity to see laws working well, and not so well.

Good regulation has three strands, he says – the laws and regulations themselves, the activities of regulators and decisions in the courts.

In the “good” category, he cites the Commerce Act as an example of how regulation, an effective regulator and clarification in the courts  can deliver good outcomes for businesses, directors and for society.

The even-handed application of the Act provides a level playing field on which businesses can compete ethically, he says.

“It is so much easier for you to do the right things when you have got growing confidence that your competitors are mostly well behaved and that, if they are not, there is an active regulator out there that is going to hold them to account.”

When businesses comply with the Act, there are flow-on benefits to consumers and to other “fair traders” in the marketplace, he says.

“The Commerce Commission could be better resourced but, with the resources they have got, I think that regulator is doing a great job.”

In the “mixed bag” category he cites Health and Safety at Work. This gets a bad rap, Campbell feels, but directors should try to step back from the personal risks it raises for them to look at the big picture.

Directors and their people are “probably in a better space” knowing that health and safety is an area where competition is not an option.

“You are not going to find any margin in relation to safety,” Campbell says. “In a big picture sense, I think that is appropriate. What feels individually burdensome and what might feel disproportionate at a personal level is, on a societal level, probably pretty sound.”

In the “bad’ category, Campbell noted proposed changes to the Companies Act that would tweak the wording around director’s duties.

The Companies (Directors Duties) Amendment Bill would, in its current form, changes the Act to note directors “may consider matters other than the maximisation of profit”.

“My problem with it isn’t about substance. It’s not about whether directors should owe duties to shareholders and sometimes creditors or sometimes a wider class. That is a bigger debate and one that can be validly had,” Campbell says.

“My issue is ‘why are we fussing with a piecemeal amendment that probably won’t be able to be readily understood and applied?’ These are the sorts of words that lawyers shove in when they just don’t really have a clear idea. And if we [lawyers] don’t know, I don’t know how directors are supposed to know. If that Bill is passed, that will be further regulation with no core utility.”

Campbell’s presentation was followed by a panel discussion of the impact of law and regulation.

You can hear the full webcast below. Please note this webcast contains audio only: