Fact Sheet 1 – Corporate Governance Principles
Good corporate governance is a key element in improving economic efficiency and growth, as well as enhancing investor confidence. It involves the relationships between a company’s management, its board, its shareholders and other stakeholders. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring. The presence of an effective corporate governance system, both within an individual company and across an economy as a whole, helps to provide a degree of confidence that is necessary for the proper functioning of a market economy.
The Australian Securities Exchange (ASX) Corporate Governance Council has developed Corporate Governance Principles for Australian listed entities.1 Companies listed on the ASX must comply with these Corporate Governance Principles on an ‘if not, why not’ basis. Although non‑ASX listed companies are not required to comply with the ASX’s Corporate Governance Principles, they provide a useful framework for identifying those behaviours that are considered to be good corporate governance practices.
By Australian standards, a good corporate governance system would generally be expected to encompass the following characteristics:
- A formalisation of the functions reserved to the board and those delegated to management.
- A majority of the board would be independent directors. The chairperson would also be an independent director.
- The Chairperson and the Chief Executive Officer would not be the same person.
- An established code of conduct for company officers.
- An established trading policy for company officers.
- An established audit committee.
- Established policies for the oversight and management of material business risks.
- An established remuneration policy for executives and non‑executive directors.
Further details regarding corporate governance principles may be obtained from ASX’s website.
From an international perspective, the Organisation for Economic Co-operation and Development (OECD) Principles of Corporate Governance are often used as a benchmark for standard setting and identifying corporate governance best practices. Although primarily focussed on assisting governments in their efforts to evaluate and improve their legal, institutional and regulatory frameworks for corporate governance, the OECD Principles are also intended to provide guidance and suggestions for other parties that have a role in the process of developing good corporate governance (including stock exchanges, corporations and investors). The OECD has also developed Guidelines on Corporate Governance of State‑Owned Enterprises to provide concrete advice to countries on how to manage more effectively their responsibilities as company owners, thus helping to make state‑owned enterprises more competitive, efficient and transparent.2