ASX provide corporate governance principles to listed companies and corporate guidance to unlisted companies. Mr Mac has been appointed as a Corporate Governance expert by ASIC (Australian Security & Investment Commission). He is being asked to provide the advice to the legal committee of CAMAC as to the role and effectiveness of ASX principles. Mr Mac has approached you as a consultant to seek your opinion. He wants you to write a briefing paper that will explain the following:
Corporate governance and its importance in corporate sector
The structure and purpose of corporate governance principles and recommendation provided by ASX
Australian Securities exchange is a leading authority, which promoted the doable guidelines for a company and tried to develop the base of the company. However, following topics are essential to understand the credibility of ASX towards the successful establishment of the company.
A company is directed and controlled by certain rules. These rules are governed by the system of corporate governance. The main objective of the corporate governance is to make a balance in between the various stakeholders and concentrates over the action plans and other internal management system (Council and Exchange 2014). In a company, the Board of Directors are the main driving source who is responsible for the activities of the company. On the other hand, directors of the company are appointed by the shareholders. All the important decisions of the company are taken by the company including the appointment of corporate officers, making of dividend policies and optimise the financial segmentation. The independent members of the company are playing an important role in case of corporate governance. It has been observed that they are diluting the power of the shareholders and helps to align other shareholders (dos Santos et al. 2016).
Considering the works done by the system, it can be stated that corporate governance has created certain impacts on the company. It helps to set out certain transparent rules for the company and controls the relation in between the shareholders and the directors. It also helps to increase environmental awareness and configure the ethical behaviour that should be maintained for the betterment of the company. Good corporate governance is necessary as the reliability and integrity of a company depends on the process of its operation and the relation between shareholders and directors. Positive corporate governance motivates the investors to allocate their money in the company.
Australian Securities Exchange has recommended certain guidelines for the betterment of company. The main purpose of the guidelines is to set out the corporate performances and take reasonable steps for securing the interest of the shareholders. However, the companies have a power to quash the recommendation proposed by ASX if they think that the recommendation is not proper. However, in those cases, the company has to explain the reason for non-accepting the recommendation. The principles and recommendations provided by ASX motivate a company to have focus on the process of corporate performance (Shimeld, Williams and Shimeld 2017).
The structure of the recommendations relating to corporate governance is based on eight principles. Australian Securities Exchange has suggested forming an entity that will be responsible for the management works of the company and the entity should perform in an effective manner. Several companies are enlisted under ASX and the entities should operate ethical behaviour. All the listed entities should have to act independently but integrity must be maintained by them. All the company related disclosures should have to make by the companies on time and the rights of the security holders must be protected. Every enlisted company should have to maintain a risk management framework to deal with the future risks (Adams and Borsellino 2015).
The main aim of the principles on corporate governance made by Australian Securities Exchange is to develop the basis of the companies so that they can implement reasonable corporate framework for the betterment of the company. However, it has been observed in certain circumstances that the all the recommendations made by the ASX are not maintained by the company. In these case, ASX council are adopting the “if not, why not” approach. According to the approach, ASX will identify the recommendations that are not maintained by the company and will attempt to know the reason for making such decision of non-maintaining the recommendation by the companies. The companies should have to show the causes and according to ASX, this approach can bring a flexible structure within a company and the possibility of genuine governance can be enhanced. This approach is applied on every company that are enlisted under the Australian Securities Exchange and this system allows amending the recommendations to certain extent. The base of the approach is quite liberal and if any company, other than the ASX listed companies, found the effectiveness of the approach can adopt the same and apply on their company related operations.
Good corporate governance can make a company reliable and assists to create a positive relationship in between the stakeholders. Australian Securities Exchange is helping the companies to develop their base and promotes certain guidelines for the betterment of the company. Certain obligations are imposed on the companies by ASX through code of conduct and in case of failure to follow the rules; ASX can take disciplinary actions against the alleged company (Nottage and Aoun 2017). ASX is monitoring the implementation of corporate governance through these obligations. It has been stated by ASX that all the operations of the company should be based on honesty and fairness. All the company related laws should have to be applied for the company affairs and the code of conducts are to be maintained by every company. Each enlisted company is required not to participate in any program that contradicts the policy of ASX. All the properties and information of third party should not be used by the companies. Every company should oversee the risks and annual report for the risk implementation process should be submitted by the companies. All these processes will help to develop a liberal company rules and the interest of the companies can be protected by following these rules.
All the corporate governance principles taken by ASX have resulted into a good communicative approach and all the principles suggested by ASX have created good impacts on the Australian society. The third edition of the principles and recommendations by ASX are considered as latest evolution (Exchange 2014). All the corporate governance plans of ASX has helped the enlisted companies to avoid the financial crisis in Australia and certain new requirements become necessary to be included under the principle and recommendation of ASX. It has been recommended in the third edition that every company should disclose their internal audit function and the social and environmental sustainability risks are to be assessed properly by the company.
The third edition 2014 has concentrated over the eight structural principles of the recommendation. All the rules are to be imposed and applied by the ASX on step-by-step process and additional layers are avoided in this case. The “if not, why not” approach was developed at this stage and it has been observed that the security holders are given power to communicate with the Board on governance matter. Certain guidelines have been prescribed for security holders regarding their vote casting and the investor can choose the company freely. The third edition has concentrated over the appointment of the directors and provision for checking the background of the directors before their appointments have been mentioned too. It also encompasses certain guidelines for the evaluating the performance of the senior executives.
Listing rules are certain standards that a listed company should have to follow for selling its shares and securities. In Australia, the Security Exchange has also provided certain guidelines for the listed companies for the financial evolution of the companies and prescribed certain provisions for exchanging the shares and securities of the company. There are twenty listing rules prescribed by the ASX. The listing rules are helping the company and its investors to maintain their marketing reputation. According to Wilkinson, the subsequent changes in listing rules have sharpen the credibility of these rules (Wilkinson 2014). The listing rules are also helped the companies to combat the international competitiveness and provide certain facilities by capital rising.
The principles of the ASX are also imposed on the listed companies and sort out certain guidelines for the management of the company. These principles are also intended to develop the base of the company so that the investors can find it reliable enough to invest their money (Barnes and Howson 2017). It brings clarity in the company policies. Therefore, it has been observed that both the principles and the listing rules are imposed on the enlisted companies of ASX. Further, both the matters are intended to develop the corporate governance of a company. Hence, both the matters are inter-related to each other.
In its principle and recommendation section, Australian Security Exchange has stated that the enlisted companies are bound to disclose certain things to the investors and to the ASX. It has been quoted by ASX that “aware of any information concerning the enlisted banks that a reasonable person would expect to have a material effect on the price or value of the entity’s securities” (Holub and Mitchell 2017). The information can be related to number of developments, whether internal or external; effect of product market concern; amendment in the asset valuation along with possible liabilities. If the company is under litigation, it should also be disclosed. It is mandatory for the enlisted companies to submit financial report to the Australian Securities and Investment Commission.
In the financial market of Australia, ASX plays an important role. The rules and process of ASX has evidenced a huge success during the financial crisis in Australia. All the guidelines stated by ASX have able to unite all companies and proper discipline has been maintained regarding this (McMullen and Chung 2017). The main object of ASX is to develop the base of the companies and it is able to achieve its goal to certain extent. Corporate social responsibility is a vital part that ensures the credibility of a company and codified guidelines are needed to handle this part properly. Therefore, this chapter should be included under the list of governance of ASX. The Board should monitor the environmental and social risks and liability of the company in these cases. The Board may promote the part through its risk management framework. A proper strategy on the corporal responsibility could lead the company to have certain impacts on the society (Ferguson and Clee 2016). Further, corporate social responsibility will provide the company recognition of well managed entity that will help to attract the investors to allot their capital in it. Therefore, the corporate social responsibility should be delegated to Australian Security Exchange.
All the principles and guidelines promoted by ASX are mandatory for the enlisted companies in Australia. However, a non-listed company can also follow the guidelines generated by ASX. However, those guidelines are not mandatory for them. During the financial crisis, it has been observed that many non-listed companies had followed the guidelines of ASX and benefitted from these (Lewis 2017). Therefore, all the principles of ASX can be followed by non-listed companies in Australia.
Conclusion:
To sum up, it can be advised that the principles and guidelines of ASX are quite liberal and it helps to develop the base of the companies. The approaches made by the authority have helped to develop integrity within the company and all the amendments made by the Australian Security Exchange regarding the principles have liberalized the framework of the companies. Additionally, it has generated certain guidance to the non-listed companies too. The nature of the guidelines is legal and the effectiveness of those principles is also worth seeing. All the amendments made by the authority are for the sake of developments. Therefore, considering all the above noted topics, it can be stated that the guidelines generated by ASX are quite liberal and the listed as well as non-listed companies are quite benefitted from those guidelines.
References:
Adams, M.A. and Borsellino, G., 2015. The unspoken reality of diversity on boards. Governance Directions, 67(2), p.78.
Barnes, L. and Howson, K., 2017. Board Governance in the Not-for-Profit Sector: The” GOLDEN” Rule Model for Recruitment and Retention of Voluntary Boards of Directors.
Council, A.C.G. and Exchange, A.S., 2014. Corporate governance principles and recommendations . ASX Corporate Governance Council.
Cunningham, M., 2015. ASX update: The emerging tech bourse. Company Director, 31(5), p.12.
dos Santos, M.A., Santos, M.S., Tura, B.R., Félix, R., Brito, A.S.X. and De Lorenzo, A., 2016. Budget impact of applying appropriateness criteria for myocardial perfusion scintigraphy: The perspective of a developing country. Journal of Nuclear Cardiology, 23(5), pp.1160-1165.
Exchange, A.S., 2014. Corporate Governance Principles and Recommendations . Sydney: ASX Corporate Governance Council, 27 March.
Ferguson, R. and Clee, K., 2016. The terms of your placement agreement are paramount. Governance Directions, 68(4), p.238.
Holub, M. and Mitchell, J., 2017. Overseas Buybacks on the ASX: Disclosure Requirements and Signalling Impact. AUSTRALIAN BUSINESS LAW REVIEW, 45(1), pp.28-60.
Lewis, K., 2017. The regulatory perspective: ASX consults on reverse takeovers rule amendments. Governance Directions, 69(4), p.201.
McMullen, A.L. and Chung, W., 2017. Not all barrels are created equal: understanding the difference between standards of regulatory disclosure can impact your investment decisions. The APPEA Journal, 57(2), pp.506-510.
Nottage, L.R. and Aoun, F., 2017. Corporate Governance, Corporate Responsibility and Law: Independent Director Requirements in Australia and the Asian Region.
Shimeld, S., Williams, B. and Shimeld, J., 2017. Diversity ASX Corporate Governance Recommendations: A step towards change?. Sustainability Accounting, Management and Policy Journal, 8(3).
Wilkinson, S., 2014. Key changes to proposed ASX listing rules. Governance Directions, 66(4), p.22
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