Corporate Governance In Australia

Introduction: A discussion on corporate regulation and governance is of great importance in today’s economic world. A number of high profile collapses such as HIH, One Tel, Harris Scarfe, Ansett, focuses ones attention on governance issues.

Nevertheless, corporate governance is not a static thing and even if basic structures remain the same, policies and procedures surrounding those structures should constantly be reviewed to ensure that the structure is working properly.

Globalisation yields challenges not only for industry, but for the corporate regulators as well. Today, we are faced with the issue of large Australian companies wishing to expand their international presence, without giving up their Australian domicile. The global presence by these companies is important to Australia’s economy, but the modifications and exemptions granted to facilitate dual listed companies has to be carefully ensured and reconciled with the continuing obligations applicable mainstream corporate Australia.

There are a range of regulatory authorities and business groups which play key roles in promoting good corporate governance in Australia-ASIC, APRA, and FRC. The corporate sector in Australia is regulated mainly by agencies like вЂ" the Australian Competition and Consumer Commission (ACCC), the Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation authority (APRA). Others are the Australian security Exchange (ASX), The Australian Accounting Standard Board (AASB), etc. The role of these regulators has been increasing mainly because of the growth and dynamism of financial institutions, the high proportion of Australian citizens active in these markets, governments promotion of the superannuation industry, and the risks for investors, depositors and creditors.

A Mix of mandatory and voluntary requirements governs corporate governance in Australia. The ASX’s Corporate Governance Code, are voluntary guidelines emphasized by an �if not, why not’ disclosure requirement. The member either adopts the principles recommended or explains of non compliance of any of the code.

What is corporate governance?

Corporate governance is a dynamic force which continues to evolve. In March 2003, the ASX Corporate Governance Council released its first Principles of Good Corporate Governance and Best Practice Recommendations (ASX Principles). These original ASX Principles provide a framework for good corporate governance and included 10 core principles and 32 specific recommendations.

BL915-Assignment 1 Corporate Governance

The corporate governance model of Australia follows the Anglo-American model which emphasis on the outsider system of independent directors, widely disposed ownership, major institutional holders, separation or independence between the board and management and a short-term business horizon.

Corporate Collapse and Corporate Governance:

Governance has come into focus since the collapse of Enron and WorldCom in the US and HIH, Ansett, OneTel and Harris Scarfe in Australia and Swissair and the German media empire, Kirch in Europe. In Australia, Andersen’s alleged involvement in verifying false accounts is a subject of the HIH case. These cases, have seriously damaged investor confidence and have raised the questions of competence of the companies and regulators.

ASX-Principles of Good Corporate Governance and Best Practice Recommendations вЂ"

The Australian Securities Exchange (ASX) is the primary stock exchange in Australia. It is a public company, and its own shares are traded on the ASX. While it regulates other listed companies listed on the ASX, it is regulated by the Australian Securities and Investments Commission (ASIC).

The Australian response towards corporate collapse include the Ramsay Report on the Independence of Australian company directors, the ASX Listing Rule Amendments on Enhanced Disclosure and Corporate Governance; and the establishment of the ASX’s Corporate Governance Council and the release by the Council of its Principles of Good

Corporate Governance and Best Practices Recommendations in March 2003. That council produced corporate governance guidelines with 10 core principles:

1. Formalise and disclose the roles and responsibility of board and management.

2. Structure the board to add value, with a majority of independent directors.

3. Promote ethical and responsible decision-making, including codes of conduct for directors and key executives.

4. Integrity in financial reporting, with an audit committee of non-executive directors, and requiring the CEO and CFO to certify the accounts in writing to the board.

5. Timely and balanced disclosures.

6. Respect the rights of shareholders.

7. Recognise and manage risk

8. Evaluate the performance of the board, its committees and individual directors.

9. Disclose company remuneration policies for directors and key executives, and the link with corporate performance.

BL915-Assignment 1 Corporate Governance

10. Recognise legimate interests of stakeholders, including employees and customers.

On 2 August 2007 the ASX Corporate Governance Council announced changes to its Principles of Good Governance and Best Practice Recommendations. These will now be known as the Corporate Governance Principles and Recommendations.

The best practice recommendations are not mandatory to be followed by all companies but are guidelines designed to produce an efficient outcome. If a company considers that a recommendation is inappropriate to this particular circumstance, it has the flexibility not to adopt it but it has to explain the reason behind it. Under ASX listing Rule 4.10 , companies are required to provide a statement in their annual report disclosing the extent to which they have followed these best practice recommendations in the reporting period. Where companies have not followed all the recommendations, they must identify the recommendations that have not been followed and give reasons for that.

The ASX listing rules do, however, have mandatory rules that are related to corporate governance. For instance, rules which

...