The corporate watchdog has warned directors they bear ultimate responsibility over a company's affairs and will therefore be held to account if anything goes wrong.
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It follows a push by directors to have financial laws watered down to protect them against personal liability.
The group representing Australia's most powerful boardrooms on Thursday released a proposal to shield directors against parts of the Corporations Act and Australian Securities and Investments Commission Act.
The Australian Institute of Company Directors has been lobbying Finance Minister Mathias Cormann, benched Assistant Treasurer Arthur Sinodinos and Attorney-General George Brandis for a new ''honest and reasonable director defence'' to be inserted into existing laws designed to protect shareholders and consumers from boardroom negligence.
But ASIC commissioner Greg Tanzer said directors needed to improve their knowledge of the companies they operate in order to fulfil their duty to investors.
"There's room for improvement [from directors] in terms of skepticism and accounting knowledge, and particularly around accountability," he said. "They [directors] are responsible for the overall conduct of the company."
Mr Tanzer said while the majority of companies complied with director duties, there had been examples in recent years of directors acting against the best interests of investors.
He added that there was no mileage in the suggestion there were parts of a business that directors had no control over.
"The Centro case was pretty clear about the expectation that directors should be able to look at a balance sheet and understand it," he said.
"It's their responsibility to look closely at it and make judgments."
Shareholder groups, including the Australian Shareholders' Association, Institutional Shareholder Services and Ownership Matters, bluntly rejected the AICD proposal.
ISS executive director Ulysses Chioatto called the move "backward" and not reflective of any trend in director liability cases.
ASA coordinator Stephen Mayne said there was no evidence to support the need for the rule.
"We just haven't seen the evidence of directors being unfairly charged or personally sued," he said.
"No one from Babcock & Brown has suffered anything, yet investors lost $10 billion dollars ... The chairman of ABC Learning is still on the Lend Lease board."
Minter Ellison senior legal consultant Robert Austin said while he supported improvements to the existing business judgment rule, the AICD's proposal would have a minimal impact.
"It's debatable whether it makes any difference in a duty of care case," he said.
