Please enable JavaScript.
Coggle requires JavaScript to display documents.
Governance concepts by Duyen-Tho Nguyen (Part A. Corporation (2.…
Governance concepts
by Duyen-Tho Nguyen
Part A. Corporation
1. Key features
Separate legal entity distinct from its owner:
to hold and own property; sue and be sued; enter into contracts
Limited liability
Perpetual succession:
no finite life
2. Directors and other officers
Corporate Act set duty and criteria
Avoid conflict of interest
must not involve in decisions where any actual or potential conflicts of interest
Act in good faith for best interest of corporation:
directors use good business judgment and behave honestly
Exercise Powers for Proper Purpose:
act within their designated powers and not abuse power;
NOMINEE DIRECTOR
Retain Discretionary Powers:
remains responsible for the exercise of the power by the delegate
Act with care and due diligence:
business judgement rules
make the judgment in good faith for a proper purpose
do not have a material personal interest in the subject matter
inform themselves about the subject matter
rationally believe that the judgment is in the best interests
Remain informed about company operations
get information to make informed decision.
Continuous Disclosure Regimes
significant financial and operating performance
info that affects the market for the company share
Prevent Insolvent Trading:
director main duty to to ensure that a company can pay its debts.
The directors must not allow it to incur further debts
Company secretaries and their duties
ensuring a company maintains all its compliance obligations with the corporate regulator;
required documents are filed on time, fees for registration paid and changes to a
company register are made as requried by Cor Act
3. Nature of corporations and division of
corporate powers
Shareholder power
appointment of director
remuneration: generally approve the overall upper limit. (2 strikes)
Board power
oversees the activities of an organisation; elected by shareholder
CEO power
responsible for the ongoing operations; keep the board informed on key issues through periodic reports
4. Theories of corporate governance
Stewardship
ppl in power will act for the benefit of the principal.
Agency
ppl are self interested
Agency issues and cost
Monitoring cost
paid by principal; annual reporting and external audit
Bonding cost:
by agents, to show goal congruent
Residual loss:
by principal
Excessive non-financial benefits
Empire building
risk avoidance
different timezone
Part B. Corporate Governance
= Conformance + performance
5. Importance of governance
to ensure best interest of stakeholder;
clear roles -> achieve greater performance
accountants focus too much on conformance and forget performance
6. Corporate governance framework
firgure 3.2
Shareholder
Individual
Institutional
The board:
most significant in CG
The chair:
independent or can be CEO; determine board's agenda; obtain contribution from other directors; monitor and assess them
Committees
Nomination Committee
recommend the succession procedures; assess overal performance of the board
Remuneration Committee
remuneration for senior executives
Audit Committee
all listed company must have; non-executive and majority independent
Risk Management Committee
risk is assessed, understood and appropriately managed
Regulator:
principles-based
rules-based
Auditor:
internal auditor
external auditor
Stakeholder
Part C. International Perspectives on Corporate Governance
7. Global push for improved governance
by large global corporation; more competition; capital market
Specific Australian Changes since 2001
Ramsay report
2001 auditor independence and enhancement
ASX Corporate Governance Principles and Recommendations
to play a greater role in CG through establishing CG Council which develop principles-based CG framework
Corporate Law Economic Reform Program
Audit reform: strengthen audit oversight
Financial reporting: CEO & CFO to declare on financial statements.
8. Alternative international approaches
Market-based
most established and have greates influence; widespread equity onwership; protect minor shareholder; focus on disclosure of information; many financial institution
Relationship-based - EU
emphasise cooperative relationships and consensus; highly dependent upon banks with high debt;
Relationship-based - Asian:
No widely dispersed ownership; Board are dominated by major shareholders; Difficult to protect right of minority shareholders -> require independence in boardroom.
Part D. Codes and Guidance
9. OECD Principles
1. Ensuring basic for an effective CG framework
promote transparent and efficient markets, consistent with rules and laws
2. The rights of shareholders and key ownership functions:
protect and facilitate shareholders' rights.
3. Equitable treatment of shareholder:
ensure equitable treatment to minority and foreign shareholders
4. Roles of stakeholders in CG:
recognize rights of other stakeholders established by law, mutual agreement, encourage active co-operations
5. Disclosure and transparency:
timely and accurate disclosure of all material matters (financial information, performance, ownership, ...)
6. Responsibilities of the board:
effective monitoring of the board and their accountability to companies and shareholders
10. UK Financial Reporting Council CG Code
Workforce and stakeholders
describe how directors considered interests of stakeholders
Culture
board to build culture for long term
Succession and diversity
mix of skill and experience; refresh the board and have succession plan
Remuneration
take into account workforce remuneration and related policies when setting remuneration
11. ASX Corporate Governance Principles and Recommendation
1 Jan 2020
gender balance
membership for remuneration committee
Lay solid foundations for management and oversight
Structure the board to be effective and add value
Instil a culture of acting lawfully, ethically and responsibly
Safeguard the integrity of corporate reports
Make timely and balanced disclosure
Respect the rights of security holders
Recognise and manage risk
Remunerate fairly and responsibly
Part E. Non-corporates and Governance
12. Family-owned, SME:
no separation of owner and manager
culture based on unique value of the founder
conflict btw family member
succession plan
13. Not-for-profit organisation
good CG is essential for not-for-profit entities to achieve effectiveness.