Corporate Governance In Australia: Principles, Challenges And Best Practices

Principles and Recommendations

Discuss about the Corporate Social Responsibility and Governance System.

The rules, practices and processes by which a company is monitored and directed is defined as the concept of corporate governance. The interests of stakeholders includes in the process of corporate governance. It is known as the driver of the performance for the company. It has plenty of ingredients and aspects of corporate governance (Larcker and Tayan 2015). The common goals of such organizations are to have a framework of effective governance where the circumstances and needs of the individuals are met. An effective evaluation of Board helps in reviewing the basic incorporate reflection on the governance of the organization from various perspectives. However, corporate governance in Australia has developed over the recent years. The aim of this corporate governance was to protect the companies and individuals associated with them (Beekes, Brown and Zhang 2015). Although, the companies of Australia have faced certain difficulties during the development of corporate governance.

The basic purpose and objective of corporate governance is to focus on the practices for the entities that are related to the ASX so that the Council can view and are likely to accomplish outcomes of governance and accomplish the rational potential of the major investors. Therefore, the Council will be able to identify the various entities that should adopt the government practices (Tricker and Tricker 2015). It will not request to lay down the practice of corporate governance where a proper listed entity should adopt. Hence, demonstrably good corporate governance practices are required in Australia and are significant in establishing the cost of capital in a global market (Lama and Anderson 2015).

The concept of corporate governance discusses as to how corporate governance will have an effect on the Council of Australian Securities Exchange. They have a few principles and recommendations that are used in the process of corporate governance in a company (Adrian, Wright and Kilgore 2017). The Board is considered to be one of the listed entity in which a Council recommendation is inappropriate as per the arrangements of the governance.

The principles and recommendations are applied in all the listed entities of Australian Securities Exchange despite of the legal structure of whether they are determined in Australia or any other country. Ethical aspects should also be applied while dealing with the companies and the members related. These principles of corporate governance are carried out specifically for the application in the entities of ASX. They are structured in such a way that it benefits the company in some way or the other (Davies 2016). A listed entity should disclose and determine the responsibilities and role of the management and the board. The purpose of this is to identify and monitor the evaluation of the performance of the company. The size and composition of the Board should be appropriate enough to discharge its duties. Companies that are listed under ASX must be ethical as well. The companies that are listed should revere the rights of the security holders by producing them with sufficient information. When corporate governance is applied in a company of Australia, it should determine a framework of sound risk management and review its effectiveness.

Challenges in Corporate Governance

As expected, the Council expects the listed companies to take benefit of the opportunity to focus on the annual report for publishing their corporate governance. When a listed company wishes to involve their statement of corporate governance in their annual report then the Council should be informed about the statements and corporate disclosures (Bottomley 2016). The statement of corporate governance  must provide the material that is easily available and where the statement shows whether the parties interested can obtain that copy of material.

The Council must be informed about the listed entities to not take the legalistic approach in their corporate disclosures. The listed companies must follow the recommendation as compared to the policies and practices that are applied. The listed companies should follow the recommendation and must explain the practices and policies (Larcker and Tayan 2015). The Council should be made aware of the audit committee along with the members including their qualifications and experience. The companies should be able to have a look at the statement of their governance and not as a compliance document.

The significant sources are the Corporation and Australian Securities and Investment Commission, which involves the listing rules of the ASX and the common and constitutional law. The members of the Council must know these sources. The companies have to follow and administer the listing rules of ASX. The rules and recommendations are normally applicable to the ASX Corporate Governance Council’s. The approach includes consumer as well as environmental protection of the entities (Adrian, Wright and Kilgore 2017). Therefore, the members of the Council should be assisted while handling the aspects of corporate governance.

The Australian Securities Exchange have gone through a few challenges while dealing with corporate governance of the companies. There are continuous disclosure requirements where the directors of the companies have faced important challenges in carrying out their legal duties related to the material disclosure (Beekes, Brown and Zhang 2015). It also involves global financial risk in the concept of corporate governance. The regulators of Australia have improved their focus on the culture of the corporate and how it is linked to the conduct of the employees and the management. The members of the Council should regulate the financial services as it is a part and parcel of the corporate governance (Appuhami and Bhuyan 2015).

Among the listed entities of the ASX, the shareholders have the power in appointing and approving the members of the Board. Thereafter, the constitution of the companies are delegates their operations and management of the business of the company. The approvals require maximum number of votes and key approvals are needed from the shareholders as per the Corporations Act (Lama and Anderson 2015). The name and constitution of the company should be registered. Secondly, reductions of the capital by special resolution vary on the circumstances. However, majority votes are required for the special resolution of the company. Maximum approval is required for the companies to provide advantage to the parties related. Security issues are regarding the parties who must be approved by the majority of shareholders. In Australia, the funds regarding pension ad superannuation and other investors acquire important positions in plenty of companies (Appuhami and Bhuyan 2015).

Transparency and Disclosure

The employees who are not considered to be the officers of the company do not form the responsibilities of corporate governance (Kara, Erdur and Karabiyik 2015). The duties owed by the employees need the compliance with the policies and systems of the company’s corporate governance. The common law does not require the employees for disclosing the misconduct of other (Swan 2014). The members of the Council along with other individuals associated with the corporation should carry out the activities in an ethical manner. The members of the Council should keep a track on the activities of the employees in a company. Employees are required to fulfill with the requirements to their own roles. The protections are designed in such a way so that it encourages the people within the companies to alert ASIC and other existing authorities to illegal behavior (Larcker and Tayan 2015).

For the process of transparency and disclosure, the Board of the company is held responsible (Larcker and Tayan 2015). The legal responsibility of the Board is to act with care and meticulousness. It also includes particular statutory duties for approving certain reports and its obligation for managing the accountability and transparency systems within the company (Chan, Watson and Woodliff 2014). Ethical transparency is significant among the members. An entity or a company should always inform the ASX the information of material price-sensitive. The Principles of Governance help the companies to put in the place formal mechanisms for making sure that the sufficient information is brought to the attention of the senior management.

Preparing the financial and director’s reports is a must and should be disclosed and sent to the members of ASX. These reports should consider and prepare a review of the activities of the year. These activities include development and details of shares and dividends. There must be a remuneration report prepared which will include the remuneration of the director’s as well (Williams, Bingham and Shimeld 2015). The Board will establish the remuneration of the managers and the directors and their relationship between the performance of the company and their policies. The auditor should provide the information about the non-audit services. The annual report of the company focuses on the financial statements for the year and the declaration of the directors regarding the notes and the statement. It complies with the standards of the Australia, which gives a fair and true view of the position of the company. The listed companies prepare the financial report and the reports of the director that are required to forward to the ASX (Beekes, Brown and Zhang 2015).

The Role of the Board

The overall organ of the management is the Board who makes all the required decisions. It has basic responsibility for all the systems and practices of the company’s corporate governance. The Board is generally held responsible for removing, appointing the chief executive, endorsing the appointment of senior executives and monitoring the senior executive’s performance (Young and Thyil 2014). It directs, considers and approves strategies that are proposed by the management for looking after the strategy of implementation. Another responsible of it is to approve massive capital expenditure, capital management and over-seeing the budgets. The Board monitors and reviews the framework of risk management and compliance system of the company (Mitchell et al. 2016). Lastly, it manages and oversees the financial system of the company. Functions are not delegated by the directors that are imposed particularly on them under the statute while making the declaration of the direction in the annual financial report (Chan, Watson and Woodliff 2014).

This is considered to be as one of the basic principle of the corporate governance framework for the entities that are listed. This is applicable in situation when the security holders should be able to control the Board. With the help of the board, the management monitors the routine of the entity (Qu et al. 2016). The companies should associate themselves with the security holders and help them with suitable and relevant information and facilities for allowing them to carry out their rights as the security holders should be beneficial to the individual circumstances of the entity (Beekes, Brown and Zhang 2015). For smaller entities, it may occupy little more than actively engaging with security holders at the AGM, meeting with them upon request and responding to any enquiries they may make from time to time (Kara, Erdur and Karabiyik 2015). For larger entities, it is likely to involve a detailed program of scheduled and ad hoc interactions with institutional investors, private investors, sell-side and buy-side analysts and the financial media. The basic objective of an investor relations program helps in allowing the investors and other participants to obtain a better understanding of the performance of the company (Chan, Watson and Woodliff 2014).

Conclusion

The Chair of the Australian Securities Exchange, Corporate Governance Council must inform the members of the Council about the activities of the companies or entities. It should be noted that the Corporations Act prevents the key management personnel of an ASX listed company established in Australia (Miglani, Ahmed and Henry 2015). This is because to refrain them from entering into an arrangement that would have the effect of limiting their exposure to risk relating to an element of their remuneration that either has not vested or has vested but remains subject to a holding lock. A listed entity that has an equity-based remuneration scheme must determine a policy as to how the participants can enter into these kinds of transactions and unveil that policy to investors. This applies whether the participants in the scheme are directors, senior executives or other employees.

References:

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