ASX Corporate Governance Council

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ASX Corporate Governance Council

• Summary of Principles of Good Corporate
  Governance and Best Practice Recommendations
• March 2003

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What is corporate governance?

• Corporate governance is the system by which
  companies are directed and managed. It influences
  the objectives of the company how risk is
  monitored and assessed, and how performance is
  optimised.
• Good corporate governance structures encourage
  companies to create value and provide
  accountability and control systems commensurate
  with the risks involved.

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Why is good corporate governance important to
Australia?

• It can lower the cost of capital.
• It promotes investor confidence.
• It is important for Australia to respond to
  global best practice.

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How is good corporate governance achieved?

• There is no single model of good corporate
  governance. The ASX Corporate Governance Council
  has recommended 10 core principles that underlie
  good corporate governance. These principles are
  of equal importance.
• Their adoption is not mandatory.

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Principal 1 Lay solid foundations for
management and oversight

• Formalise and disclose the functions reserved to
  the board and those delegated to
  management.Adopt a formal board charter that
  details the functions and responsibilities of the
  board or a formal statement of delegated
  authority to management.

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Principle 2 Structure the board to add value

• A majority of the board should be independent
  directors. An independent director is independent
  of management and free of any business or other
  relationship that could materially interfere with
  or could reasonably be perceived to materially
  interfere with the exercise of their unfettered
  and independent judgement.

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Principle 2

• The chairperson should be an independent
  director.
• The roles of chairperson and chief executive
  officer should not be exercised by the same
  individual.
• The board should establish a nomination committee.

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Principle 3 Promote ethical and responsible
decision-making

• Clarify the standards of ethical behaviour
  required of company directors and key executives
• establish a code of conduct
• Integrity is noted as fundamental, though not
  able to be achieved by regultion.

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Principle 4 Safeguard integrity in financial
reporting

• Require the CEO and the CFO to state in writing
  to the board that the companys financial reports
  present a true and fair view of its financial
  condition in accordance with relevant accounting
  standards.
• Establish an audit committee of at least 3, not
  chaired by chair of board and comprised of
  non-executive directors, mostly independent.

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Principle 5 Make timely and balanced disclosure

• Develop continuous disclosure policies and
  procedures.

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Principle 6 Respect the rights of shareholders

• Design and disclose a communications strategy to
  promote effective communication with shareholders
  and encourage effective participation at general
  meetings.

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Principle 7 Recognise and manage risk

• Establish a system to
• identify, assess, monitor and manage risk
• inform investors of material changes to the
  companys risk profile.
• The CEO and CFO should certify to the board that
  the companys risk management and compliance
  systems are operating effectively.

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Principle 8 Encourage enhanced performance

• Disclosure of performance evaluation of the
  board.
• Induction program for new directors.
• All board members to have direct access to
  company secretary.
• Board members to have access to independent
  advice at company expense.

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Principle 9 Remunerate fairly and responsibly

• Disclose companys remuneration policies
• including cash, fees and other benefits.
• The board should establish a remuneration
  committee

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Principle 10 Recognise the legitimate interests
of stakeholders

• Public or social accountability is generally
  based on notions of legitimacy, fairness and
  ethics. The board has a responsibility to set the
  tone and standards of the company and to oversee
  adherence to these.
• Establish a code of conduct to guide compliance
  with legal and other obligations disclose to
  legitimate stakeholders.