Regulating non-executive directors in Australia : a socio-legal approach

In the 1990s, a string of major corporate collapses in Australia prompted a wave of civil litigations and criminal prosecutions of company directors. The role of non-executive directors has received greater attention. Given the fact that business has become increasingly complex and competitive, their prime responsibility has evolved into being principal gatekeepers. Despite greater judicial scrutiny and objective standards of care being applied, as well as more legislative instruments and listing rules, these legal obligations appeared to only increase the legal risk and exposure to potential liabilities rather than fundamentally alter how directors behave. Therefore a more responsive, effective and efficient regulatory mechanism is needed. Professionalising nonexecutive directors could be an alternative to enacting more laws, but the process of professionalisation requires steadfast support from the vocation, as well as institutional framework. This article will analyse recent legal and commercial developments in the role of nonexecutive directors so as to explore the possibility of raising the standards and introducing a more responsive regulatory framework through professionalisation.