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Economics Legislation Committee
06/03/2018
Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017

PETSCHLER, Ms Louise, General Manager, Advocacy, Australian Institute of Company Directors

RYAN, Mr Lucas, Senior Policy Adviser, Advocacy, Australian Institute of Company Directors

[12:01]

Evidence was taken via teleconference—

CHAIR: I welcome representatives from the Australian Institute of Company Directors. Thank you very much for appearing before the committee today. I invite you to make a brief opening statement should you wish to do so.

Ms Petschler : Thank you for the opportunity to appear before the committee today and to accommodate us appearing by teleconference. The AICD supports the government's commitment to strengthening whistleblower protections, which we and many other stakeholders consider to be unacceptably narrow and weak under the current legislative provisions. We believe that strong protections for whistleblowers support good governance outcomes and are therefore in the interest of business, whistleblowers and the broader public, and particularly relevant for the AICD's membership of directors. At the heart of these reforms and the ongoing reforms to follow is the goal of creating a culture of disclosure that aims to detect, address and hopefully prevent corporate wrongdoing.

The roles of boards and of directors in promoting this kind of culture can not be understated. We consider that bad news should travel quickly within companies and, crafted appropriately, this legislation should encourage boards to orient their thinking towards achieving this outcome. We consider, though, that the legislation can achieve this without too much prescription in terms of internal policy frameworks.

Our view on the legislation before the committee is that it will significantly strengthen the corporate whistleblowing protection framework. However, as we've noted in our submission, there are some aspects of its drafting which we believe could be refined to be more effective in achieving these aims. For example, the bill extends protection to a range of new recipients, many of which we support and there's broad agreement about. However, we have raised some practical concerns about some of the categories, such as relatives, in terms of practical implementation. Similarly, the bill proposes a broad definition of eligible recipients, including a person who manages or supervises a whistleblower. We believe that this could create an unreasonable burden on companies, particularly larger companies, in terms of requiring everyone in a management or supervisor position to be appropriately trained and capable of handling a protected disclosure. We fear that it could also diminish the effectiveness of the protections through dilution.

Throughout our submissions on the reforms, including the prior submissions before the bill appeared before the committee, we have noted that there are circumstances where both business and government may fail to address corporate misconduct, and where it is in the public interest to do so. Protected disclosures to third parties such as the media may be justified. However, the risks to companies of reputation damage and industrial espionage in these circumstances are significant, and we believe care must be taken to avoid diminishing the incentive for whistleblowers to disclose internally within companies in the first instance. We think that the provisions around emergency disclosure in the bill, therefore, do require further consideration, and we'd recommend that they be taken out of the legislation and considered in the further tranche of reform.

We've also raised some questions about the prescriptiveness of the current drafting on whistleblower policies to apply within companies, and we would encourage the committee to consider reducing or confining that list to the key elements that are required within corporate policies, rather than restating the requirements of the legislation, for example, given that the framework is intended to create these strong incentives for companies to put effective and appropriate policies in place. Thank you for the opportunity to speak with you today. We welcome your questions.

CHAIR: Thank you, Ms Petschler. You've already stated that you believe that the bill represents a significant improvement for whistleblowers. I want to ask you specifically about the bounty scheme, which we've discussed a few times today. Does the AICD agree with the parliamentary joint committee's recommendation in favour of a bounty or a reward scheme?

Ms Petschler : Our position at this point is that we don't favour a bounty scheme. Our view is that the significant enhancements to the corporate whistleblower protection framework, including those in this bill and those that we envisage will come in further consultation, are going to significantly shift the dial. We believe that it would be appropriate to put these reforms in place and then consider whether the further incentive of a bounty scheme is required. So at this point, no, the AICD does not support implementation of a bounty scheme.

CHAIR: So you certainly don't believe that the implementation of this legislation should be delayed while government discusses, or considers, a bounty scheme?

Ms Petschler : Our view is that the provisions in this bill will be a significant improvement on the current legislative framework. Subject to those issues that we've highlighted in our submission and some of the drafting improvements that other submitters have provided to the committee, we would see merit in pursuing this bill at this stage.

Mr Ryan : Although we don't, in principle, support the inclusion of the bounties system, part of the reason for that is that we think that the hazards that that would introduce are quite significant; and also that there is a significant opportunity to improve the framework through what's already proposed in this bill. If we wanted to accept the risks of implementing a bounties regime, that might be something that we would consider further down the track, once we'd had the opportunity to evaluate the impact of the current round of reforms. We certainly wouldn't support delaying the introduction of this bill on the basis of a negotiation around a bounties regime. In our view that should be something that's considered several years down the track, after there has been an opportunity to evaluate the impact of the current reforms.

CHAIR: Thank you. Can I ask about emergency disclosures, which you mentioned in your opening statement? In your opinion, does the bill prohibit disclosures to the media or parliamentarians, in the absence of satisfaction of the test in this bill?

Mr Ryan : Can I clarify: do you mean, does it prohibit disclosures or make it difficult?

CHAIR: Yes. I asked whether it would prohibit disclosures.

Mr Ryan : We don't think that it would prevent somebody from being able to go to the media. I think the framing that's put forward in the bill does provide recognition of circumstances where an individual may want to go to the media or to a parliamentarian. The concern that we have is more about whether the checks and balances in place there are appropriate. One of the points that I think might merit the attention of the committee, and potentially require review in the drafting of the bill is that, on our reading of it, it appears that a whistleblower only needs to have disclosed to a regulator and for the regulator to fail to take action, before they can go to the media.

I wonder whether it might be more appropriate for the whistleblower to also have to have made a disclosure to the company, recognising that ordinarily the purpose of this framework is to encourage, in the first instance, disclosure to the company before going to a regulator if possible. Certainly it should be the case that whistleblowers are encouraged always to go to the company before they go to the media. At present, the bill doesn't seem to provide for that.

CHAIR: That's an interesting perspective. Thank you for that. So in your view does the bill strike the right balance between protecting the whistleblower from retaliation and potential reprisals and encouraging the whistleblowers to make those disclosures to companies and regulators so that the matter can be resolved appropriately?

Mr Ryan : Broadly speaking, I think our answer to that would be yes. We start from the perspective that one of the best ways that this is done is through providing whistle-blowers with the opportunity to chose, at the point of disclosure, whether they go to a regulator or to the company. The reason for that is that it incentivises companies to make the option of internal disclosure a more attractive one to whistleblowers than going to regulators in the first instance. But where the problem arises in terms of disclosures to the third party, it's that the whistleblower doesn't have to go to the company in the first instance. We think that in that instance it does not provide companies with the same incentive,

CHAIR: I just want to briefly ask about compensation provisions. Can I ask what the AICD's view is on the new compensation provisions and whether the reverse onus proof and the reduced risk of an adverse costs order will tip the balance back in favour to the whistleblower?

Ms Petschler : On balance we think yes, it is tipping the balance back towards the whistleblower. We do have some concerns around particularly the interaction between the broad scope of eligible recipients, being anyone in a supervisor or manager position, the significance of the potential individual fines and company fines, and the fact that these are very substantial with the reverse onus of proof particularly around the disclosure of identity as well as victimisation, if we consider there are those two components. We do encourage the committee to look at that. We've had the opportunity to review some of the submissions, including Herbert Smith Freehills, which we think provides a very good step through some of the challenges in those instances. Particularly if the definition of eligible recipients remains as wide as it is, we think that the balance in fact may be tipped too far in terms of the current drafting of the compensation framework, particularly around the confidentiality provisions.

CHAIR: Thank you. Can you comment on the provisions requiring companies to develop and implement whistleblower policies and how that a particular policy requirement will potentially assist whistle-blowers?

Mr Ryan : Our view is that of course it is good governance for all companies to have sound whistleblowing policies and procedures. We agree with the aspirations set out in the bill, which is that companies should have those policies. However, one of the benefits of the enhanced protections proposed by the bill is that it really helps incentivise entities to create policies that are fit for purpose in the context of their business. However, we are opposed to prescribing specific internal policies in the way that is proposed by the bill. The reason for that is that we think it would shift the focus of the regulatory framework for directors and for companies more broadly towards trying to make sure that they comply with the requirements of the law rather than finding the best way in their own unique circumstances to facilitate internal disclosures.

Ms Petschler : Just one brief comment: the coverage of the bill is quite wide, and covers companies large and small and a different complexity of sizes. Having the degree of prescription that's in the bill, including starting with the description of the protections under the act, to us seems over the top. We think that it would be better to require companies to have policies that effectively convey the protection.

Senator KETTER: On the issue of external disclosure—and we have explored this issue with Professor Brown—if you limit protection for external disclosure, then it takes away some of the incentive for companies to establish robust internal policies. Would you agree with that proposition?

Ms Petschler : Our read of the significant changes that this bill covers is that they will create very strong incentives for companies, and the fact that, importantly, a disclosure to a regulator would be protected as a choice for the whistleblower. Combined with the removal of good faith and the extension of those covered we believe this creates strong incentives for companies to act appropriately and responsibly in relation to whistleblowers. So, we are not convinced that that third-party disclosure is required for that policy aim. As we have said in previous submissions, though, we do appreciate that there might be circumstances where emergency disclosures are required for the public benefit. Our concern is that we just don't feel that the balance and the checks and balances have been thought through in enough detail in the time that's been available, and the opportunity for all stakeholders to consider that.

Mr Ryan : If I could add to that. As Louise mentioned, the balance of the framework is really intended to be focused on incentivising internal disclosures. I think for your ordinary disclosure that is absolutely true. When we talk about the sort of disclosures that might be suitable for an emergency disclosure, the bill implies that we are really talking about something that is a little bit more serious than that. In that circumstance, we are not really in the same situation as trying to incentivise internal disclosures. We are really talking about extraordinary disclosures when is a public interest element to it, which is why previously I mentioned that we think it would be important that disclosure is made in the first instance, where possible, and potentially with some qualifying requirements, to the company so that they the opportunity to take action. Emergency disclosures are not only about addressing corporate wrongdoing; they are actually about preventing serious harm from occurring. For that reason I think that the same lens does not need to be applied, in terms of whether they incentivise companies to create robust internal processes, which is already achieved effectively by the requirements around less-serious disclosures.

Senator KETTER: I want to move to the issue of comparison with the regime under the Fair Work (Registered Organisations) Act, as far as it affects whistleblowers. Under that regime you have this concept of an obligation to support and protect a whistleblower. Are you familiar with that?

Mr Ryan : From the original round of consultations, yes. It is not something that we have looked at.

Senator KETTER: In relation to that duty, which does exist in the Registered Organisations Act, do you think that such a duty should be included in this bill?

Mr Ryan : We don't see the need for a specific duty, such as that in this bill. I would make the point that in general companies will already be oriented towards providing that protection through the incentives created by the proposals in the bill.

Senator KETTER: Do you think that that duty is onerous?

Mr Ryan : I think it would depend on how it applied. I'm not sure that we've had opportunity to think that through with enough detail. Of course, in principle that's something that you would hope that companies are doing, but perhaps—particularly given the enormous range of misconduct that is captured by this bill, some interesting points have been raised by other submitters about how broad the definition of an improper state of affairs or circumstances is. It could be very difficult and very resource intensive for an organisation to satisfy a requirement to provide support for disclosures that may in the end turn out to be personal grievances or minor matters that don't qualify for that kind of support. So I think there are circumstances in which it could be onerous, but it would really depend on what is meant by that requirement.

Senator KETTER: Okay. Thank you.

CHAIR: Senator Patrick, do you have any questions?

Senator PATRICK: No, I'm fine, thank you.

CHAIR: Thank you, Ms Petschler and Mr Ryan, for appearing before the committee today. We'll let you go.