As AMP shareholders demand answers as to why they were not told about a potential conflict involving one of their directors, a leading authority on corporate governance has called on APRA to review the way it assesses appointments to bank boards.
Banking Day last week revealed the AMP board's failure to disclose details of a potential conflict affecting one of its directors, John Fraser, who sits on the boards of AMP Bank and Judo Bank.
Shareholders were not informed of the conflict ahead of the company's annual meeting in May even though the two banks are set to compete against each other in the domestic deposits market.
Shareholder activist and one time candidate for the AMP board, Stephen Mayne, argues that Fraser's position on both boards is untenable.
"It is clearly untenable for John Fraser to serve on the board of two companies which own Australian banking licences and he should resign one of these positions forthwith," he said.
"It is also very disappointing from a disclosure point of view that AMP chairman David Murray didn't promptly disclose this potential conflict when shareholders were voting to appoint Mr Fraser to the AMP board last year.
"If this issue is not resolved before the 2020 AMP AGM, I will be asking questions about it from the floor of the meeting."
Mayne's rebuke of the AMP board's disclosure came as University of NSW Business School Associate Professor Anil Hargovan said APRA might need to review the way it regulates director conflicts given modern corporate governance standards and the call from the Hayne Royal Commission for greater transparency and trust in the financial services industry.
The legal authority that allows such appointments to be made is an 1891 judgment in a case known as London and Mashonaland Exploration Co Ltd v New Mashonaland.
According to the precedent established in this case, a director can sit on the boards of companies in competition so long as they make full disclosure regarding their "material personal interests" and do not reveal confidential information of each of the companies.
"Law permitting dual board membership in competing companies appears to be out of step with modern commercial realities and heightened performance expectations of company directors in respect of their duty of care and diligence," Hargovan said.
Hargovan suggested there was a case for APRA to review how it regulates conflicted directors.
"A cogent case can be made for APRA to take steps to unshackle itself from an outdated law permitting dual board membership in competing companies and fall in step with international developments which regulates such activity," he said.
Hargovan, the co-author of a widely cited text book on corporate governance, believes laws that permit individuals to sit concurrently on the boards of competing companies can impose a strain on a director's duty of loyalty.
"Directors occupying dual board memberships in competing companies often have to walk a legal tightrope which may often call for finely balanced judgements with little or no margin for error," he said.
"The law puts the director in a precarious position with the no-conflict rule and disclosure law having to do all the heavy lifting.
"Managing conflicts in such situations is easier said than done."
Hargovan said case law that permitted people to join boards of competing companies was controversial and had rightfully been subject to judicial criticism.
AMP is a signatory to the ASX corporate governance principles that require it to disclose potential conflicts involving directors.
AMP can elect not to disclose such information but it is required to give an explanation for not doing so.
Hargovan indicated that the company appears not to have complied with the ASX governance principles.
"The ASX Corporate Governance Principles and Recommendations has the status of soft law - it does not attract legal sanctions for non-compliance - and relies on a 'comply or explain' method of enforcement," he said.
"So, even if the company fails to comply, it is of no legal consequence."