The Government’s recent release of CLERP 9 – ‘Corporate Disclosure: strengthening the financial reporting framework’ marks an important opportunity for CSA to put forward its views on a number of pressing corporate governance issues. CLERP 9 makes 41 proposals relating to auditor independence, continuous disclosure, a revised penalty regime and shareholder participation in meetings.

CSA is preparing a detailed submission on a number of these issues relevant to the role of the Company Secretary and seeks your views to assist in formulating our response.

1a. Do you believe that CLERP 9 goes far enough to significantly improve corporate governance in Australia?

Yes       55%
No        15%
Unsure   30%

If yes, what recommended changes have been made that reinforce your views?

The audit provisions are a significant improvement
Yes — sensible well thought changes in our environment
Yes — more focus on measures designed to ensure independence of auditors
It generally acts to reinforced existing good practice, rather than imposing a strait-jacket on corporate behaviour.

1b. If no, which areas do you believe need further reform (tick as many as applicable)?

_ Audit quality 2
_ Continuous disclosure
_ Enforcement 2
_ Shareholder participation and information 2
_ Other

Rotation of audit firms and not just audit partners would significantly enhance auditor independence
Need to leave regulation of listed entity continuous disclosure to ASX, penalties are coungterproductive

2a. Does your company have an audit committee?

Yes 90%
No 10%

2b. If yes, is it made up entirely of non-executive directors?

Yes 67%
No 33%

2c. If NO, which Executives are members?

CEO    3
CFO    3
Company Secretary
Other   1

3. Do you believe audit committees should be mandated?

Yes 74%
No 26%

Comments:

A ‘charter’ would be appropriate.
The only exceptions may be where there is a small board which effectively carries our the same duties as an audit committee.
I think outcomes achieved by audit committees should be mandated but if companies, particularly smaller ones can achieve this without an audit committee they should be free to do so.
No — small companies may take relevant matters directly to the Board.
This still does not go far enough. The members of the committee are still relying on information coming from management or the external auditors.
No — if a company only has 4 or 5 directors on the Board as a whole should be able to fill the role of an audit committee. Companies instead should be required to fulfil the functions usually assigned to an audit committee.
Yes — but for larger companies — say top-200

4a. Does a representative of your auditor attend the AGM?

Yes 95%
No 5%

4b. Does the representative make a statement about the audit and/or answer questions relating to the audit?

Yes 67%
No 33%

4c. Do you support the proposal to mandate a) and b)?

Yes 72%
No 28%

Comments:

Yes — by having the auditor present and making a statement they are publicly saying what their opinion is of the state of the accounts.
The auditor is appointed by shareholders to represent their interests in a particular area — it is only right that their discharge of their responsibilities to shareholders are reported to shareholders at the AGM.

5. Would you support a proposal allowing shareholders to submit questions to the auditor by email to the company AND that the questions be posted on the company’s website?

Yes 37%
No 63%

Comments:

No — could be used mischievously.
Yes — but only if the questions relate to the audit of the company.
Many questions may be outside the responsibilities of the auditor. Shareholders with issues should contact the CEO or the Company Secretary.
Not convinced this would add value.
No — this could become a forum for defamatory gripes rather than a productive tool of corporate governance.
No — could be a significant cost with little benefit.
Yes — it is the shareholders who are the owners of the company and allowing them to question auditors they make them better informed and indirectly make the Directors aware of what shareholders are thinking prior to the shareholders meeting.
No — questions concerning the accounts should be sent to the company prior to the AGM and responses provided to the AGM.
No — impractical, if really important shareholder or proxy should attend meeting to ask.
I support questions being submitted to the auditor by email. The auditor should not be compelled to answer them at the meeting and I do not support them being posted on the website.
No — absolutely not because such a process could allow abuse and market misinformation.

6. Should ASIC be given the power to impose financial penalties and issue infringement notices in relation to contraventions of the continuous disclosure regime?

Yes 39%
No 61%

Comments:

ASX has been a good communicator but has no teeth other than suspension for listed companies.
It is inappropriate that the body be empowered with a judicial power.
No — other than in the case of the most egregarious failures which should be dealt with through the usual court processes, the judgements involved in making difficult continuous disclosure decisions do not lend themselves to an ‘on the spot fine’ mechanism.
No — ASIC should not act as prosecutor, judge and jury.
This will depend on what has not been reported. In come cases these could be minor or there could be disagreement between the company and ASIC on the need to disclose certain market sensitive information.
No — should remain with the ASX.
No — as ASX is closer to the market and to better enforce listing rules.
Financial penalties are unlikely to achieve ASIC’s goal. Focus should instead be on refining CD operating guidelines and educating companies on how to comply.
No — as it is not something which can be easily proved. It is complex and therefore does not lend itself to such a method of dealing with perceived infringements.
Yes — without enthusiasm, but the continuous disclosure regime requires teeth other than suspension which is draconian and only hurts shareholders, not the offenders.

7. Would you support an increase in the maximum civil penalty from $200,000 to $1million for:

(a) contravention of the continuous disclosure regime?

Yes 30%
No 70%

(b) market manipulation and insider trading?

Yes 83%
No 17%

Comments:

Whilst there is no evidence that these are effective deterrents, public pressure would support such moves.
More so than continuous disclosure breaches.

8. Would you support amendments to the civil penalty provisions relating to contravention of the continuous disclosure provisions to allow individuals to seek compensation from corporations or persons involved?

Yes 33%
No 67%

Comments:

No — a potential minefield, better left in the hands of regulators.
No — this has the potential to be abused. Current legal rights should be sufficient.
Where an individual has suffered loss by reason of a proven breach of the law they should be able to recover the loss from those responsible.
Yes — CEO or CFO, otherwise it becomes a witch-hunt.

9. Should market operators (ASX) be able to require listed entities to respond to externally generated speculation in circumstances where the operator determines that this is having a significant impact on the market for their securities?

Yes 61%
No 39%

Comments:

Whilst this opens an area of potential manipulation, particularly in the takeover area, the market should still be as informed as it can be.
This should be subject to the controls discussed in recent submissions on amendments to the listing rules.
Yes — this will allow the market to be more open but it will create more work for the company secretary responding to speculation comments by say the press.
Yes —only after holding confidential discussions with the listed entity to determine that a response is necessary and appropriate.
Yes — as long as it is clear that the speculation is having a clear and significant impact on the share price.

10. Do you support changing the law to permit:

Shareholder participation by electronic means.

Yes 89%
No 11%

Electronic proxy voting.

Yes 95%
No 5%

Internet broadcasting.

Yes 95 %
No 5%

Electronic distribution of annual reports and notices of meeting.

Yes 95%
No 5%

Comments:

Yes — but only if voluntary.
Yes — but only if optional.
Yes — but not if mandatory.
Yes — but what about email addresses bouncing back?

11. To encourage shorter, more comprehensible notices of meeting it has been proposed that:

(a) the law be amended to introduce a 'comfort provision' to protect disclosures made in good faith in short form notices of meeting; and

(b) best practice guidelines be developed on notices of meeting by the ASX Corporate Governance Council in consultation with ASIC.

Do you think there is a need to:

– introduce shorter more comprehensible notices of meeting

Yes 63%
No 37%

– introduce a 'comfort provision' as set out in (a) above

Yes 67%
No 33%

– develop guidelines on notices of meeting

Yes 63%
No 37%

12. It is proposed that listed company director's reports be required to disclose for each director details of all other directorship positions held currently and over the last 2 reporting periods to enable shareholders to better assess directors performance and consider potential conflicts of interest and relationships with other directors.

Do you support this initiative?

Yes 63%
No 37%

Comments:

Yes — but with sensible limitations in terms of materiality.
No — little real benefit to shareholders.
No — what a Director did or did not do in another company should have little bearing on their performance in the present company.

Tim Sheehy
CHIEF EXECUTIVE