Directors are refusing appointments and considering resigning from their roles because of ever increasing red tape and personal liability, according to research published today by King & Wood Mallesons.
Of the 180 directors surveyed by the law firm, 17% said they had resigned or refused a board position because of the legal risks, regulatory burden and time demands.
More than 23% identified the increasing compliance burden, including the risk of personal liability, as their number one concern as a director.
Nicola Charlston, partner at King and Wood Mallesons and co-author of the report, told SmartCompany changes to occupational health and safety laws and changes to director’s duties are key concerns for directors.
“When people are approached to be a director there will increasingly be a more detailed assessment of the internal processes that company has in place to assist them,” she says.
Charlston says the corollary of this increasing compliance burden is that directors have less time to devote to providing strategic guidance to businesses.
She says the concerns apply equally to SMEs as well as ASX 100 companies and, in fact, any issues are magnified for smaller enterprises as they often don’t have the compliance systems in place which larger businesses do.
Richard Moore, the Queensland state manager at the Australian Institute of Company Directors, says the research findings accord with the institute’s own Directors Sentiment Index which “alarmingly” found 70% of directors believe the level of red tape has increased in the last 12 months.
“A lot of boards are becoming risk adverse and their willingness to accept new board appointments is impacted by the director liability provisions in legislation,” he says.
“The challenge for SMEs will be to identify good experienced directors who can support the growth of an SME business and be willing to step up and serve on an SME board.”
Moore says many potential directors are reluctant to take on the responsibility because of the liability and risk involved.
“We see that as a concern for the growth in the SME sector across the country because, as we know, the advice and strategy that comes from good directors will help SMEs grow”.
Meredith Paynter, partner at King and Wood Mallesons, recommends that directors protect themselves by ensuring they are fully across each business they are a director of.
“They have to make sure they are across the business, they understand it, they know where the risks are, at its most simple they must read board papers and attend meetings,” she says.
“Previously if an individual was acting diligently there was a sense things would be OK, but recently it has shown even the best directors can get caught up in issues that affect their reputation.”
Paynter says there is some recognition from government that there needs to be a good rationale and purpose for regulation.
“There is no quick fix here but any move to lighten the load has to be good news for directors,” she says.