A monthly review of the Australian Institute of Company Directors’ policy and advocacy team’s key projects and issues.
State Owned Corporations
The NSW government is conducting a review into the framework which regulates the governance and accountability of State Owned Corporations (SOCs). As part of the review’s consultation process, we attended a stakeholder roundtable discussion and lodged a submission in late February.
Our involvement in this consultation is an example of the policy work that we undertake at a state level which has wider application. Although this particular review applies only to SOCs in NSW, many of the messages we have conveyed equally apply to other jurisdictions.
The review will examine the State Owned Corporations Act 1989 (NSW) and eight enabling Acts that establish SOCs.
The review aims to recommend to the NSW government legislative changes to improve the commercial performance of SOCs and streamline and strengthen their accountability and governance frameworks.
During the consultation, we recommended that where there is no SOC-specific factor mandating against it, SOCs should generally operate under the same type of governance framework as private sector corporations. We are of the view that this would help SOCs achieve the same commercial benefits for the state as are obtained by a private sector corporation.
We also expressed our view that it is generally beneficial to have a level playing field between SOCs and private sector companies, to help ensure that SOCs are run as commercial enterprises and that businesses which compete with SOCs can compete fairly.
In addition, we recommended that the duties, defences and penalties for directors under the Corporations Act 2001 apply to SOC directors.
This change would ensure that SOCs benefited from the fundamental principles which govern directors’ conduct in the private sector, as well as any changes that may be made to those duties and defences going forward.
Many of our members serve on private sector boards as well as SOCs, and therefore are familiar with, trained in, and have developed an understanding of the Corporations Act directors’ duties. For this reason, there is benefit from simplicity and consistency in applying the Corporations Act duties in a SOC context.
Consistent with our views on good regulation-making practices, we also suggested that a sunset clause be imbedded into the legislation to enhance the likelihood of a formal review.
Given the vital contribution that SOCs make to the national and state economies, we hope that our comments will assist the review Steering Committee and in turn, the NSW Government to implement a framework that allows SOCs to harness private sector efficiencies while at the same time ensuring accountability and good governance practices.
Corporate Governance Principles and Recommendations
Following an extensive public consultation that commenced in August 2013, the ASX Corporate Governance Council released the revised 3rd edition of its Corporate Governance Principles and Recommendations (Principles) late last month.
A snapshot of some of the new recommendations that listed entities will need to report against is provided on the next page.
The revised Principles continue to apply to all ASX listed entities on the “if not, why not” approach they were founded on and which has become internationally recognised as being synonymous with good governance regulation.
Under this approach, if a listed entity considers that a recommendation made in the Principles is not appropriate for its particular circumstances, it is entitled not to adopt it and to instead adopt an alternative governance practice that is more suited to its circumstances.
However, if it does this, it must explain why it was appropriate for it to do so.
Unlike previous editions of the Principles, entities are now provided with greater flexibility to disclose their corporate governance arrangements (including their “if not, why not” explanations) on their websites rather than in their annual reports.
This change should have the effect of reducing the overall length of the entity’s annual report.
We have engaged with the Council throughout the consultation, including being part of the Council’s Drafting Committee and by making a formal submission to the Council on the consultation draft of the Principles.
We are pleased that, as a result of this engagement, a number of changes have been made to the final version of the revised Principles that are in line with our recommendations.
For example, the reference in the consultation draft to nine years tenure being an indicator of director independence has been removed from the final Principles.
We opposed any prescriptive list of indicators of a director’s independence (including tenure) and it is pleasing to note these have been removed from the recommendations which must be reported against (although some aspects are now included in the commentary).
Also, the need for listed entities to have a policy in place with respect to their remuneration “clawback” arrangements has been removed from the recommendations under the final version of the Principles and is now only dealt with in the commentary.
The Principles come into effect for a listed entity’s first full financial year commencing on or after 1 July 2014.
This means that entities with a 30 June balance date will be expected to report against the revised Principles commencing with the financial year ended 30 June 2015, while entities with a 31 December balance date will report against them commencing with the financial year ended 31 December 2015.
ASIC ROUNDTABLE ON CORPORATE GOVERNANCE
We attended an ASIC roundtable in March with key market participants to discuss current market practices regarding director share trading in Australia, related aspects of market integrity and ASIC’s findings about the handling of confidential information by listed companies.
ASIC is to report to the Assistant Treasurer on the matters discussed at the roundtable by the end of April 2014.
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