Chapter 1 Corporate Governance www.learnnowbiz.com Corporate Governance

Sources of Corporate Governance Requirements The rules of corporate governance act as the charter of the company. They are made up of a complex interaction of regulations from many sources. Corporate governance arises at three levels: Enforceable obligations – These arise under statute or common law. They derive from the numerous sources of company law including the Corporations Act, The Trade Practises Act and legal precedent. Self regulation – These include the company’s own corporate governance statement and voluntary industry codes of conduct. Ethical standards – Can be either specifically adopted by the company or accepted and promoted within the community. www.learnnowbiz.com Corporate Governance

The Need for Good Corporate Governance In recent history there have been circumstances which have raised the profile for corporate governance and increased the need for it including: High profile corporate collapses where poor corporate governance standards were employed, including: Lehmann Brothers Enron ABC Learning Storm Financial Increasing globalisation which has lead to company’s being judged on international corporate governance standards. The Global Financial Crisis and European debt crisis has increased the need for more stringent corporate governance policies. www.learnnowbiz.com Corporate Governance

Response to Corporate Collapses The ASX and the federal government introduced changes from 2001 to ensure improved corporate governance following a number of corporate collapses. The ASX formed the Corporate Governance Council and issued best practise guidelines. The federal government introduced reforms to the Corporations Act under the Corporate Law Economic Reform program Act 2004 known as CLERP 9. These included: Enhancing the independence of auditors. Strengthening continuous disclosure requirements. Clarifying disclosure requirements in relation to executive remuneration. Giving shareholders non binding vote on the remuneration report. www.learnnowbiz.com Corporate Governance

Corporate Governance Structures in Australia Three basic participants within a company are responsible for corporate governance: Directors Shareholders Auditors The shareholders, as owners, delegate powers to mange the company to its directors. In turn, the directors delegate the power to mange the company to the managers. Corporate governance defines the responsibilities and accountability of the participants to each other, external stakeholders and the company. Auditors verify the existence of this corporate governance structure. www.learnnowbiz.com Corporate Governance

Corporate Governance Structures in Australia www.learnnowbiz.com Corporate Governance

Participants in Corporate Governance Regulation - Australia ASX – Listing rule 4.10.3 requires listed companies to apply the Corporate Governance Council’s principles and recommendations. Federal Government – Regulates company behaviour through the Corporations Act. ACCC – Scrutinises the behaviour and practises of directors and managers, carries out investigations and issues proceedings. Shareholders – Regulate of directors by participating in voting. ASIC – Provides regulatory supervision. Department of Fair Trading – Administers the state Fair Trading Acts. Lobbyists – Try to influence policy makers. Professional Bodies - including the accounting bodies of CPA Australia and three Institute of Charters Accountants. www.learnnowbiz.com Corporate Governance

Participants in Corporate Governance Regulation - International The Organisation for Economic Co-operation and Development (OEDC) -Principles of Corporate Governance developed in 1999. Asia Pacific Economic Cooperation (APEC) - Agreed to basic principles of corporate governance in 1998. International Accounting Standards Board – Promote international unity is accounting standards and corporate reporting. www.learnnowbiz.com Corporate Governance

Standards for Good Corporate Governance As an example the OECD Principles of Corporate Governance cover the following five key areas: Rights of Shareholders. Equitable treatment of shareholders. Role of Shareholders. Disclosure and Transparency. Responsibilities of the board of directors. www.learnnowbiz.com Corporate Governance