This year marks the centenary of Chartered Secretaries and 100 years of our dedication to promoting good corporate governance. The past year has certainly helped thrust it into the spotlight and focused everyone’s attention on what is important and what is just window dressing.

Headlines have been filled with spectacular instances of poor management and questionable corporate conduct. At the same time pressure has been applied to both corporations and regulators to improve practices to try and prevent any more corporate collapses. Furthermore, the debate over whether to turn to black-letter law or enhanced guidelines still has a long way to run.

CSA would like to gauge thoughts on how far corporate Australia has come, and the direction we need to take in the future. In particular, what impact has this had on corporate governance in practice?

1. Have the events of the past year acted as a catalyst for improved corporate governance practices in your organisation?

Yes 83%
No 17%

If yes, what changes have been made?

Re-issued our Market Disclosure Policy in Aug 2001.
Existing practices being reviewed. CEO no longer a member of Appointments & Compensation Committee. Executive option plan suspended.
The board is more focussed on the issue and directing specific inquiries rather than responding to reports from management.
There have been revisions to the Audit Committee and Compliance Committee charters, and the Corporate Governance section of the Annual Report has been doubled from two pages to four pages, to set out in more detail the Company’s corporate governance practices. The Company is also looking at an overall consolidation of practices into a single guide to business conduct manual.
More focus on corporate governance practices.
Additional disclosure in corporate governance and directors statements.
Revision of Audit Committee Charter ands review of Audit relationship.
Review of governance practices now has a more proactive rather than reactive flavour/focus.
Risk management review currently being undertaken by Audit Committee, Quality standards assessments progressed, Audit partner rotation implemented.
Review of current practices to ensure issues raised being attended to.
Prohibition on the use of auditors for other than audit and tax. Additional non-mandatory disclosure.
Many areas have been reviewed etc.
Increased focus on content of annual report with particular attention to share options and audit committee function.
Audit committee now meets again after main audit committee minus management present.
It is not so much that our practices have changed but we have increased communication of our governance practices.
Reviewed responsibilities of Audit Committee, increased disclosure re Auditors, A. Committee and options.
Partly yes — we had already embarked on an increased C Governance focus some 2 years earlier. The events just confirmed that what we were doing was worthwhile.
External audit independence guideline and otherwise.
No — Some refinements have been made but not as a result of the events.
Additional emphasis in certain areas.
Still under review.
Management representation letter not only provided to auditors but also to the board.
A much greater awareness to corporate governance and a review and closer scrutiny of all practices.
Policy for continuous disclosure formalised, audit committee charter revised, disclosures made as requested by the continuous disclosure committee.

2. Are you satisfied with the progress being made in terms of ensuring auditor independence in Australia?

Yes 86%
No 14%

Comment:

We have had a policy for the last seven years that our external auditors can not do any consulting or tax work for us. We also put the audit out to tender every three years.
We need to ensure that the “emotional” reactions currently in play do not remove the commercial reality and commonsense necessary to deliver a long term improvement for business generally.
Restrictions on consultancy work is necessary to instil the correct mindset of independence.
Top 4 disposals have been pretty thorough.
CLERP 9, accounting standards etc.
Progress is being made, but I’m not certain whether it will be quickly enough.
I suspect it is not an issue in 97% of cases, even where there is other services involved. We have restricted the use of auditors for a number of years.
I doubt it ever was a problem anyway.
The status of audit clients eg top 100 ASX companies plus the fees will always stop true independence.
From our own experience, audit independence was never an issue. It is the perception that has been generalised from some high profile cases that has many believing that this is a major problem.
Yes — although with the demise of AA’s now only 4 major firms to select from.
There is a tendency to an overreaction at present.
Not sure. But our Company is certainly taking the matter seriously and has changed our outsourced internal auditors to firm different to the external auditors. There has also been a tightening up in the rules regarding use of external auditors.
No — The items suggested to date are cosmetic. For example limiting Partners to 7 years on the job will have little impact on most audits. The firms have not restricted staff’s time spend on a client or any other meaningful way of strengthening independence.
Corporate Australia needs to recognise that performance of significant non-audit work by external auditors inevitably compromises their independence from the board and management of audit clients.

3. Do you believe investors will increasingly reward companies with sound, transparent corporate governance practices and punish those with questionable ones, by means of their share price?

Yes 89%
No 11%

Comment:

Focus will be on punishing bad ones rather than rewarding good ones.
Yes — But I mean companies which put their window dressing into practice. Handsome is as handsome does. In the long run it is company performance and shareholder wealth that should be reflected in the share price.
Possibly. Companies with good practices are seldom rewarded. It's only when a company is in difficulty that focus is given to C.G. practices.
There will remain an interest by investors in purely speculative investments where CG may not be as transparent — ultimately they will be punished when they do not perform.
No — investors will in the long term focus on performance (financial).
Definitely yes. Institutional investors would be negligent if they did not take out due diligence on the Corporate Gov practices of the entities in which they invest.
While CG is the topic of the day, the publicity will affect the share price. The ultimate test is whether the CG practices affect the integrity of the published accounts.
Shareholders want to see reliable results each and every year.
Yes — but one size does not fit all — not all listed companies have the same shareholder spread, so just because the banks and major ‘big end of town’ corporates do something a particular way does not automatically make that “best practice”!! Whatever happened to caveat emptor?
In the short term I think they will, however as time goes by attitudes will be relaxed and something else will come under the microscope — as always these things tend to go in cycles. It happened in the early 80’s, then things tightened up, followed by a gradual relaxing of corporate govenance issues, which then caused history to repeat itself in the 00’s.
Yes — but it will often be done in ignorance of what is really important in each companies case.
Yes — to a degree. CG is only one business imperative by which performance is measured.
While actual performance improvement is not demonstrable, investors will be forced by increased requirements of transparency to demonstrate how and why funds are invested.
No — I think financial performance will be the driver.
I think the market believes that this is the case but I believe the link between share price and sound corporate governance practices is a tenuous one and more perceived than real.
We continue to see an increasing desire on the part of investors to understand not just the financial results but also the social consequences of the decisions taken by Boards of Directors.
No — Retail investors really only care about the share price and dividends. They only complain if they are the ones holding the shares at the time when things slide downhill. Institutions will follow the brief/guidelines set down by the super funds etc.

4. For some time CSA has campaigned to pursue civil actions against breeches of insider trading laws in order to circumvent the unwieldy criminal courts system, lessen the burden of proof and allow a company to sue for damages.

Do you think adopting a civil action approach towards a greater number of corporate crimes would be a stronger deterrent for potential defrauders?

Yes 73%
No 27%

Comment:

No — The criminal penalties are an effective deterrent. The introduction of civil penalties will not stop those “big fish” who are motivated by greed and the prospect of losing their paper “option” fortunes.
Any action taken that will increase the focus on the consequences of insider trading is to be applauded. However, experience suggests that you will always find people who will perpetrate such actions, regardless of the legal consequences — civil or criminal.
No — I think we need both.
I don’t think it will be a deterrent per se but it worth pursuing in order to better protect the interests of the company.
The sanction of a criminal conviction is essential, plus civil actions could still be instituted too, I believe.
Don’t know.
Not convinced it would achieve the objective, but little downside in trying.
Existing threat of action is sufficient deterrent.
Yes — there is not accountability in corporate Australia.
The breaches of insider trading laws should be dealt with using the most effective means available. Civil action may not be effective in all cases, but should be available.
I think criminal penalties are still the strongest deterrent. The burden of proof is the issue, which can be addressed by use of strict liability or limited mens rea offences, much like the Trade Practices Act, although the corporate policeman does need more resources, not necessarily more powers.
Yes — Because the likelihood of a successful prosecution from a civil action is much higher increasing the deterrent effect.
No — A Company is unlikely to take this course action. And what does the Company lose to make it want to take action.
Needs to be used selectively — sometimes criminal prosecution will be more appropriate.
Criminal sanctions also remain a valuable deterrent in particularly clear cut and egregious cases of insider trading etc.

5. Do you believe the move in the United States to visibly extend corporate governance responsibility to officers of the company, such as the requirement for CFO’s and CEO’s to verify the accuracy of the accounts, will have a positive impact on improving investor confidence?

Yes 79%
No 21%

Comment:

No — This is what the Directors are there for.
Yes in the U.S.
The current directors declarations largely do this already. Investor confidence would not be greatly helped by the US approach.
Only in the short term whilst these issues are top of mind.
Yes — but with limited effect. A new CFO or CEO may have good reasons for not signing of the accounts which include comparatives to previous periods.
Should not be necessary. Existing laws and regulations together with appropriate international accounting standards and audits should be sufficient.
CEOs and CFOs can establish a cultural and procedural environment for accurate and honest reporting. However, they must rely on staff and auditors to ensure the observance of the requirements. The larger the corporation, the less practicable this responsibility will be to place on CEOs and CFOs.
It should be mandatory in all public companies, it will make them think about their actions and responsibilities.
Again, one size does not fit all — we should not blindly follow any jurisdiction. The buck stops with directors — adding in management to the responsibility loop is just trying to shift the blame!
Good move.
I think that events have shown that there will always be occasions when executives will act dishonestly.
Yes — but only at the margin.
I believe that investors generally will accept any attempt to increase the onus of responsibility on the CEO and CFO. The real change introduced by the US Regulators is the “claw back” of monies upon proof of CEO or CFO involvement. Again, in another time, perhaps this change would be seen differently and reacted to by investors as “ho-hum stuff”.
Yes — but only on a temporary basis until the next big scandal!

6. Do you believe that corporate governance practices in Australia should be regulated by:

the listing rules and enforced by the ASX

Yes 34%
No 66%

by legislation and enforced by ASIC, or

Yes 30%
No 70%

left as is with no further regulation?

Yes 61%
No 39%

Tim Sheehy
CHIEF EXECUTIVE