Treasury Releases Corporate Governance Working Paper
Corporate governance has recently attracted much attention both in the domestic and international corporate arena and is set once again to receive further scrutiny after the Commonwealth Department of the Treasury released its Working Paper in March 2009. The Working Paper examines the relationship between a company's adoption of the ASX Corporate Governance Council's Principles of Good Corporate Governance and Best Practice Recommendations, and its financial performance in the areas of shareholder performance, operating performance and one year sales growth for the top 300 Australian listed companies.
The research undertaken by the authors of the Working Paper, the Treasury's Rebecca Brown and Tue GØrgens from the Australian National University, indicates that companies with good corporate governance not only generally outperform poorly and partially governed companies, particularly in relation to statistics such as earnings per share and asset returns, but they are also considered to be more attractive to investors.
Corporate Governance Principles and Recommendations
The ASX Corporate Governance Council was formed in August 2002 and was responsible for the Corporate Governance Principles and Recommendations set out below which were issued in March 2003 and revised for the first time in 2007.
The ASX Corporate Governance Council defines corporate governance as "the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations". Corporate governance is a continually evolving concept that draws upon the balance of skills, experience and independence that each board member brings to the table in order to maintain balance and integrity in regulatory and reporting affairs. It is not mandatory for all companies to follow the Corporate Governance Principles – they are designed to be a reference point for companies in establishing and maintaining its corporate governance structure. However, with this said, effective corporate governance practices encourage companies to create value, innovation and entrepreneurialism as well as to provide accountability and control risks inherent in every business through effective oversight and internal control.
With the global financial crisis set to worsen, there has never been a better time for companies to reassess their corporate governance structures and identify any areas that may require attention. Adhering to each of the eight principles can be achieved through the establishment of various committees, and the development and implementation of protocols, codes of conduct and policies. Your legal advisors can assist you in developing good corporate governance practices that are tailor made to suit the needs of your company. Having regard to the recent research, improved corporate governance may assist in improving overall company performance.
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