What is corporate governance in Australia - a snapshot.
Governance generally refers to the processes by which organisations are directed, controlled and held to account. It is framework by which a Board or senior executives ensure accountability, fairness, transparency and legal compliance.
Corporate governance rules and protocols are generally set in place by the Board / Executives with input from other stakeholders or interested parties such as regulators, shareholders and in some cases, major clients.
Is corporate governance a good thing?
The answer is it’s a necessity because much of governance is based on law and good corporate governance can mitigate an organisation’s risk in relation to those laws. What most executives are afraid of is the unknown risk. Governance clarifies what may previously have been the unknown to the known.
Governance when enacted effectively can clarify risk and as a consequence, can control it.
Knowing and reducing risk is the goal.
Corporate governance is the tool.
Corporate governance in Australia is characterised by:
Extensive regulations and personal liability of directors such as WHS Act
Move towards principles based system of governances such as the APP – these are easier to manage than actual laws
Influential stakeholders and internal ‘infrastructure’ demands such as the requirements of tenders/contracts
It is commonly considered that current Australian corporate governance laws are ‘over regulated’ particularly laws relating to director’s liability. This makes a director personally liable if the company fails to company with a multitude of legal requirements.
What does governance look like?
Governance dictates corporate behaviour and is a mix of prescriptive and voluntary elements.
HARD LAW Acts and Regulation’s [Corporations Act 2001 [Cth]
SOFT LAW Contracts, Terms and conditions and agreements etc
NON-BINDING GUIDELINES Such ASX Principles or internal standards of various government agencies
In 2004 Australia produced a set of governance guidance tools known as AS 8000 Series – Corporate Governance. These remain informative by outlining five governing principles:
1. Powers and responsibilities of the Board /Executive
Exercise good and independence of judgement
Assign individual roles and accountabilities according to the talent pool
Code of conduct for executive and operational levels
2. Disclosure and transparency obligations
Ensure timely and accurate reporting and disclosure
Information dissemination to stakeholders
3. Rights and equitable treatment of stakeholders/shareholders
Determination of interested parties/stakeholders and the protection of their interests
4. Responsibilities of stakeholders/shareholders
Provide sufficient and timely information concerning issues pertinent to interested parties
Provide clear and simple means of two way communications
5. Role of the stakeholders/interested parties
Cooperate as required to ensure the corporate principles are supported and adhered to.
Good governance planning – a structured approach
A three tiered approach is both simple and effective.
1. Compliance management framework – keeping abreast of the law
Compliance means ensuring the requirements of laws, regulations, industry bodies and internal standards are being met.
Identify compliance requirements related to the business and what they mean – what you have to achieve to comply
Commit to the requirements by setting policies, objectives and targets for each requirement. Document these, assign roles/responsibilities and other resources to implement and measure their performance.
Systematically monitor, measure and review against policy, process, objectives and targets.
Report performance to stakeholder groups and ensure executive remain informed.
2. Business Code of Conduct – every organisation needs rules and standards to determine how you work and how you develop.
A code of conduct is a management tool that develops and continues to influence the culture of an organisation.
Sets out the behaviour expected of individuals, specific roles and groups.
Sets the standards aimed at preventing unwanted behaviours and practices such as corruption, illegal practices, bullying, theft etc.
Commits to documenting these, assigning roles/responsibilities, resources and measuring performance against the actual documented codes/polices/standards
Systematically monitors, measures and reviews and report performance to stakeholder groups.
Example codes: Conflict of interest / improper use of information / accepting gifts & $ inducements / outside employment with competitor / conditions of employment / treatment of colleagues / EEO / confidentiality / compliance with laws / nondiscriminatory practices / information security, and the list goes on…..
3. Operational practices - the way we work on a day to day basis.
Operational practices are the ‘how to’ do your job and generally Australian companies document this well through a series of work procedures, instructions and training.
These processes are based on operational efficiencies and practicalities however must take into account the laws of the land and the code of conduct as set down by the organisation.
And finally there is nothing like a…
GOOD GOVERNANCE CHECKLIST
Assigned responsibility / accountability
Everyone has a responsibility and is accountable for delivering against their responsibilities. Succession planning in place.
Transparent / informative
Documented, communicated, clear and unambiguous.
Plain English language, use of technology for simplification.
Responsive / consultative
Agreed timelines and response mechanisms.
Consultation with stakeholders and interested parties.
Consensus oriented / participatory
Opinions count. Standardised consensus methods within committees.
Effective / efficient
Measure and monitor process for productivity, reliability and outcomes driven performance.
The Law is the law
Compliance to regulations periodically reviewed and audited for current legislative compliance.
Equitable / inclusive
Codes of conduct in place and followed.