LAWS 3089 Corporate Law

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LAWS 3089Corporate Law Regulation
Corporate Governance the Big Business End of
Town Eileen Chung 16 September 2003
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Agenda

• What theyre doing in the US
• The Australian Experience
• CLERP CLERP 9
• ASX 10 Principles
• Standards Australia

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US Response to corporate collapses

• Sarbanes-Oxley Act of 2002
• black letter law
• Boards
• - prescriptive (at least 5 members 2 must be
  financially literate, Chairperson to be CPA)
• Audit Committees
• - compulsory
• - appoints and manages external auditors
• Internal controls
• - management to report in annual reports
• - auditors to attest same

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US response contd

• Ethics and fraud management
• - codified standards of behaviour (establishment
  of mandatory codes of conduct)
• - management of fraud and complaints
• Analysts
• - addresses conflicts of interest
• What does this mean for Australian legislation?
• - Belief that legislators will study
  Sarbanes-Oxley closely in considering reform in
  Australia.
• - Industry prefers principles based approach.

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Australian Experience

• Background
• 1979 Fraser Govt (Howard)
• - Campell Committee
• 1983 Hawke Govt (Keating)
• - Martin Report
• 1996 Howard Govt (Costello)
• - Wallis Report
• - Corporate Law Economic Reform Program (CLERP)

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Australian Experience (contd)

• CLERP 9 (Corp Law Econ Reform Prog Issues Paper
  9)
• Issued 18 Sept 2002 issues paper
• Awaiting draft legislation to be released before
  December
• Influenced by the HIH Royal Commission findings
  and recommendations (although many in line with
  ED)
• Aims to increase shareholder confidence and win
  back public trust by strengthening and clarifying
  the roles and obligations of key corporate
  governance players the board, audit committees,
  management, shareholders, external auditors and
  regulators.

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CLERP 9 significant features

• Mandatory audit committees for top 500 listed
  corporates
• Enhanced focus of audit committees on internal
  controls
• Auditor independence (5 year audit partner
  rotation, annual declaration of independence)
• Stronger continuous disclosure policies
  (increased for breaches)
• Greater shareholder participation and access
  (establishment of a Shareholders Council to
  assist Government corporate governance policy
  development)
• Whistle blowing protection
• Development of best practice corporate governance
  standards by the ASX Corporate Governance Council

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ASX Corporate Governance Council

• (10) Principles of Good Corporate Governance and
  Best Practice Recommendations
• Released on 31 March 2003
• Listed entities will be required to report
  compliance to the ASX under Listing Rule 4.1
• Different approach to Sarbanes-Oxley - if not,
  why not?
• Looking for best practice, principles approach
  rather than black letter law

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The Corporate Governance Principles and Best
Practice Recommendations

• Lay solid foundation for management oversight
• Structure the board to add value
• Promote ethical and responsible decision making
• Safeguard integrity in financial reporting
• Make timely and balanced disclosure
• Respect the rights of shareholders
• Recognise and manage risk
• Encourage enhanced performance
• Remunerate fairly and responsibly
• Recognise the legitimate interests of stakeholders

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What does this mean for Australian Business?

• The ASX principles are not easily applied across
  all industries
• Not all entities are listed - but the principles
  are a guide to best practice only
• Businesses need to examine their set up and where
  they cant directly implement a principle ask if
  not why not? Do they have an alternate
  arrangement?

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Standards Australia

• Independent company
• Recognised by Govt as nations peak voluntary
  Standards development organisation
• Standards developed through industry consultation
• New standards on corporate governance issued
  23 June 2003
• AS 8000 good governance principles
• AS 8001 fraud corruption control
• AS 8002 organisational codes of conduct
• AS 8003 corporate social responsibility
• AS 8004 whistleblower protection programs