TABLE OF CONTENTS

Introduction to Corporate Governance

Sources of corporate governance in Australia
The current topical issues, developments, trends and challenges in corporate
governance
Rights and powers of Shareholders
Responsibilities of Shareholders
Management Body
Transparency and Reporting
Role of employees

CORPORATE GOVERNANCE INTRODUCTION

Directors and company officers play an essential role in establishing and maintaining the
standard of a company's corporate governance.
Corporate governance is a driver of the performance of a company. The term 'corporate
governance' is broad and has many components.
A decade ago, the term corporate governance was barely heard. Today, like climate
change and private equity, corporate governance is a staple of everyday business
language and capital markets are better for it.
The ASX Corporate Governance Council was formed in August 2002 and has been
chaired by the ASX Group (ASX) since its inception. The Council is a remarkably
diverse body, bringing together 21 business, investment and shareholder groups. Its
ongoing mission is to ensure that the principles-based framework it developed for
corporate governance continues to be a practical guide for listed companies, their
investors and the wider Australian community.

SOURCES OF CORPORATE GOVERNACE IN AUSTRALIA

The most relevant sources are the Corporations Act 2001, publications by the Australian
Securities and Investment Commission (ASIC), the listing rules of the ASX, and a
companys constitution and common law.1
The principal legislative source of corporate governance requirements in Australia is the
Corporations Act. The Corporations Regulations 2001 (Cth) supplement the Corporations
Act.
ASIC administers the Corporations Act. ASIC publishes Regulatory Guides, some of
which deal with corporate governance matters. Regulatory Guides are advisory, setting
out ASICs understanding and interpretation of relevant legislation.
Companies are bound by the official listing rules of the ASX, commonly referred to as
the Listing Rules. The ASX Corporate Governance Councils Corporate Governance
Principles and Recommendations are a set of guidance principles which apply to all
companies on a comply or explain basis companies must either comply with these
standards or explain in their annual report why they have not done so. They are referred
to as the Governance Principles.
Each company is bound by its constitution, which operates as a contract between the
company and its shareholders and with its directors and secretary, respectively.
The common law (created by judicial precedent) also contains rules relating to corporate
governance.
In addition to the above sources, various pieces of legislation include liability provisions
affecting companies or their directors in specific areas that therefore influence
governance systems, particularly where a failure to implement sufficient systems to
prevent harm is grounds for culpability. This approach is taken in the regulation of, for
1 Retrieved on 1st October 2016 from http://www.iclg.co.uk/practice-areas/corporategovernance/corporate-governance-2016/australia

example, competition and consumer protection, environmental protection, and

occupational health and safety. There are also some specific legislative and regulatory
standards that apply to particular industry sectors for example, financial institutions
(banks and insurers) must comply with the Prudential Standards of the Australian
Prudential Regulation Authority (APRA), and specific legislation and prudential guidance
applies to superannuation providers.

THE CURRENT TOPICAL ISSUES, DEVELOPMENTS, TRENDS AND

CHALLENGES IN CORPORATE GOVERNANCE
There have been several important corporate governance developments in Australian
legislation, case law and practice over recent years. The most significant of these relate
to:
1.
Continuous disclosure: two prominent cases brought by ASIC the James
Hardie and Fortescue cases emphasise directors responsibility to take steps to ensure
that a company complies with its continuous disclosure obligations, and that
announcements made by the company are accurate and not misleading. This aligns with
an increasing trend for inadequate disclosure practices to form the basis of shareholder
class actions against public companies. In 2013, ASX issued a revised Guidance Note 8
on a listed companys continuous disclosure obligations. The Guidance Note clarifies the
meaning of immediately for the purposes of Listing Rule 3.1 (disclosure of marketsensitive information) and narrows the parameters for applying the reasonable person
test under Listing Rule 3.1A (disclosure carve-out).
2.
Executive remuneration: a series of reforms regarding the level of executive
remuneration and how this is disclosed to, and influenced by, shareholders, has been
introduced. The most significant of these is the two strikes rule. The introduction of the
reforms has increased the engagement of companies with shareholders in respect of
executive remuneration.
3.
Measures to increase shareholder influence: several changes introduced to the
Corporations Act are aimed at increasing the ability of shareholders to influence the
behaviour of companies and their boards, including the requirement that directed proxies
be voted , and the increased ability for external candidates to nominate for board
positions under the no vacancy rule.
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Corporate governance in Australia faces several challenges in 2016:

1.
Continuous disclosure requirements: directors face significant challenges in
reconciling their legal duties in relation to the disclosure of material information with the
complexities of (a) their personal appraisals of information, (b) the drafting of proposed
disclosure announcements, and (c) ascertaining an appropriate time for disclosure;
2.
Additional disclosure: the third edition of the Governance Principles, which all
companies will be required to report against in the coming year, require additional
disclosure by listed entities on the skills matrix of their directors, their directors tenure
and independence policy and risk management in diverse fields of internal audit,
economic, environmental and social sustainability risks;
3.
Shareholder activism: in addition to the class actions, domestic institutional
investors continue to increase their focus and engagement on governance and corporate
activity. Although Australia does not yet have a developed activist hedge fund industry
like the US, there are a number of active players, with more expected. Such activists,
along with institutional investors, have become more vocal in their public engagement of
boards, often using the financial press to publicize their agendas and calls for change; and
4.
Conduct risk: since the global financial crisis, Australian regulators have
increased their focus on corporate culture and its links with management and employee
conduct. In Australia, the Financial System Inquiry and the Commonwealth
Governments 2015 response identified a number of specific measures to be addressed in
2016 and 2017, including introducing minimum professional, ethical and education
standards, and consultation on measures to improve consumer protections and issuer
accountability in relation to financial products. APRA-regulated financial services
entities are subject to specific conduct risk management requirements under the relevant
prudential standards.

RIGHTS AND POWERS OF SHAREHOLDERS

Shareholders vote to appoint and approve appointments to the board; most company
constitutions then delegate operation and management of a companys business to the
board and its delegates, and only limited matters specified by the companys constitution,
the Corporations Act or the Listing Rules require shareholder approval. Some approvals
require a simple majority, others a special resolution (approval by 75% of shareholders
entitled to vote on the matter). Key approvals required from shareholders under the
Corporations Act and the Listing Rules are:
1. Name and constitution: any change to the companys name or constitution must
be approved by a special resolution;
2. Capital management: certain reductions of capital and share buy-backs require
approval, either by simple majority or special resolution, depending on the
circumstances. Simple majority approval is required for companies to issue
shares in excess of 15% of existing equity capital in any 12-month period. A
company financially assisting another to acquire shares in itself also requires a
special resolution, unless the assistance does not prejudice the interests of the
company, its shareholders, or its ability to pay its creditors;

3. Related party transactions: simple majority approval is required for companies

to give any financial benefit to related parties (including directors), with limited
exceptions including benefits given on arms-length terms, and reasonable
remuneration. Any issue of securities to related parties (even if reasonable
remuneration) must be approved by a simple majority of shareholders (either
specifically or by an approved share plan);
4. Significant transactions: simple majority approval is required if a company
proposes to make a significant change to the nature or scale of its activities, or to
dispose of its main undertaking. A special resolution is required to allow a person
to acquire a relevant interest (in simple terms, control) in over 20% of the voting
power of the company ; and
5. Alteration of rights: alterations to the rights attaching to classes of shares must
generally be approved by special resolution, normally by all shareholders and by
each relevant class, unless otherwise specified in a companys constitution.
Shareholders also have a powerful advisory vote in relation to remuneration in the two
strikes rule. This rule reflects trends to increase the influence of shareholders in specific
areas; in this case, remuneration of executives. Each year, companies must report on
their remuneration practices in the annual report, and this remuneration report is subject
to an advisory vote by shareholders. If the remuneration report receives an against vote
greater than 25% of votes cast (known as a strike), the board must report against concerns
raised in the subsequent remuneration report. If a subsequent strike is received the
following year, a spill resolution must be put to the meeting and if this is approved by
more than 50% of shareholders, the board must call and hold a meeting within 90 days to
consider the re-election of all of the current directors, other than the managing director.
In addition to the two strikes rule, directors of companies are required to submit
themselves for re-election at least every three years, which provides shareholders with an
ongoing ability to alter the composition of poorly performing boards.
In Australia, pension and superannuation funds and other institutional investors hold
significant positions in many companies, particularly in those appearing in investment
indexes. Australian proxy advisers have a significant role encouraging and advising on
activism amongst institutional shareholders, and shareholders generally.
Limited liability of shareholders

Australian law separates corporate liability from that of shareholders. The liability of
shareholders is limited to their equity investment in a company. Although there are
circumstances where the corporate veil may be pierced to impose liability on
shareholders, these are exceptional and very unlikely to arise for shareholders that do not
control a company.

RESPONSIBILITIES OF SHAREHOLDERS
There are no positive obligations or responsibilities placed on shareholders in relation to
corporate governance. Shareholders are empowered to participate and engage in
corporate governance within a delegated authority model. Under this model, directors are
responsible for managing companies and they are held accountable for their decisions by
shareholders, who are entitled to appoint and remove the directors. Therefore, the
contribution of shareholders to good corporate governance is the exercising of the power
of accountability of directors through the exercise of voting entitlements. A pertinent
example of shareholder oversight is the annual appraisal of executive remuneration under
the two strikes rule.
Shareholder meetings and rights of shareholders
Companies must hold an Annual General Meeting (AGM) at least once each year, and
within five months of the end of its financial year. The statutory annual financial report,
auditors report and directors report must be presented to the AGM. The AGM must
consider the advisory resolution on the remuneration report, and will commonly consider
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the re-election of directors. The company auditor must attend the AGM. Shareholders
have a right to submit questions to the auditor in advance, and must be given an
opportunity to ask questions of the auditor at the meeting. An opportunity must also be
allowed for shareholders to ask questions about, or make comments on, the management
of the company and the remuneration report.
A company may also call shareholder meetings to consider specific business from time to
time, for any such matters as necessary. A shareholder meeting must be held if it is
requisitioned by shareholders holding 5% of the votes in the company.
For all shareholder meetings, members have the right: to receive 28 days notice of the
meeting, which must include specified information; to attend and vote at the meeting in
person or by proxy (subject to any voting restrictions that apply to specific matters); and
to be heard at the meeting. If a meeting will consider the election of directors,
shareholders must be given the opportunity to nominate candidates. Auditors are entitled
to attend and be heard at all shareholder meetings. There are rules mandating that
directed proxy votes be cast as directed, and requiring proxy votes to be disclosed to
ASX.

Circumstances where shareholders can be disenfranchised

In certain circumstances, the rights of shareholders can be amended, or shareholders can
be forced to dispose of their shares, without their individual consent. The main instances
are:
1. Takeovers: if a bidder has acquired more than 90% of a company through a
takeover, the bidder can compulsorily acquire the remaining shares;
2. Schemes of arrangement: with approval of 75% of each class of shareholder,
and majority approval by a number of shareholders in each class, companies can
implement a scheme of arrangement which, following court approval, becomes
binding on all shareholders. Schemes of arrangement can be used to effect a
change of control of a company or to change shareholder rights;
3. Approved capital reductions: reductions of capital or share buy-backs that have
requisite shareholder approval may be used to reduce or cancel a shareholders
interest in a company; and
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4. Changes to shareholder rights: rights of classes of shares may be varied or

cancelled by special resolution of both shareholders in that class, and shareholders
as a whole, unless the constitution specifies otherwise. Changes may also be
made to the constitution by special resolution; however, changes that increase any
requirement to contribute capital to the company will not bind existing
shareholders.
In addition to voting thresholds and other procedural matters, there are statutory and
common law grounds for a court to intervene to protect minority shareholders from
oppressive conduct.
Enforcement action against members of the management body by shareholders
Directors owe duties to the companies, and the company is generally the proper body to
bring a claim against the directors if those duties are breached. Shareholders are
generally denied the right to bring a personal action where the shareholders loss is
reflected in a loss by the company for which the company could sue. However,
shareholders have statutory rights to bring derivative actions on behalf of a company
(including against directors), with leave of the court.
There are two avenues for shareholders to obtain orders against directors by taking
personal action under the Corporations Act:
1. if a shareholders interests are affected by a contravention of the Corporations
Act, it will have statutory rights to seek an injunction or compensation orders; and
2. if a shareholder is aggrieved by the failure of a companys directors to comply
with the Listing Rules, it may seek a court order to seek enforcement of the rule.
Shareholder class actions have become prevalent in the Australian corporate landscape.
Although the number of class actions has been relatively few, they are increasing, and the
nature of such actions has had a noticeable impact on corporate governance discourse and
practice. In a recent development in this area, the NSW Supreme Court in the HIH
Insurance case ruled that shareholders can prove causation in a class action by
establishing that the price of the shares they bought was inflated by a companys
misleading statements. Many class actions are brought against companies rather than
their directors; however, directors have often been targeted in resulting cross-claims.

Limited interest
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There are two main rules:

1. a prohibition on acquiring voting power which exceeds 20%, subject to limited
exceptions; and
2. a requirement to disclose substantial shareholdings.
These rules apply to listed companies, unlisted companies with more than 50 members
and listed managed investment schemes.
A person is not permitted to acquire a relevant interest in shares if, as a result, their (or
someone elses) voting power in a company would exceed 20%. Relevant interest is a
broad concept that includes holding shares, having the power to vote or control voting on
shares, and having the power to dispose of or control disposal of shares. Voting power
is calculated as a proportion of the total voting capital of a company, and a persons
voting power includes all voting shares that they, and their associates, have relevant
interests in. The application of this rule is very broad. The restriction is a prohibition,
and acquisitions in excess of the threshold are a breach of law and may be subject to
divestiture orders unless an exception applies. Permitted exceptions include acquisitions
made during a takeover, acquisitions that have been approved by shareholders, courtapproved schemes of arrangement, and limited creep acquisitions of no more than 3% in
six months.
A person has a substantial holding in a company if the total votes attached to shares held
by themselves or their associates is 5% or more of the total number of votes attached to
shares in the company. A person must inform a company and ASX if the person begins to
have, or ceases to have, a substantial holding in a company, or has a substantial holding
that increases or decreases by at least 1%.

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MANAGEMENT BODY
Management of the corporate entity/entities
A company is managed by a board of directors. The board of a public company must
have at least three directors, though some company constitutions will specify a higher
minimum. At least two directors must ordinarily reside in Australia. Boards may include
both executive directors, who are also employees of the company, and non-executive
directors. The Governance Principles recommend that a majority of the board should be
independent (non-executive directors that are free from relationships that may impede
independent judgment), and that the chair be an independent director.
It is common, and recommended by the Governance Principles, that boards delegate
oversight of certain matters to formal committees. Companies that are included in the S
& P All Ordinaries Index must have an audit committee. If the company is included in
the S & P/ASX 300 Index, its audit committee must only include non-executive directors,
a majority being independent, and it must also have a remuneration committee
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comprising only non-executive directors. Risk management and nomination committees

are recommended by the Governance Principles. Other common committees deal with
health and safety, the environment, and ethics and compliance.
Company constitutions commonly provide for the board to delegate the operation and
management of the company to management, often through a managing director or chief
executive officer.

Appointment and Removal of Members of the body

Shareholders appoint directors, and must ratify their appointment if they are initially
appointed by the board. Such approval normally occurs at the companys AGM, and
must be approved by ordinary resolution. Many company constitutions allow the board
to appoint a director to fill a vacancy, which must then be approved by the shareholders at
the following AGM. Even where a constitution does not expressly empower shareholders
to appoint directors, shareholders have an inherent power to do so.
Under a statutory no vacancy rule, boards are restricted from limiting the number of
positions available on the board, if the limit is not in the constitution. Shareholder
approval is required for such a declaration that there are no vacant board positions, and
this approval must be refreshed annually.
Directors may only be removed by a shareholders resolution they cannot be removed
by the board. This rule applies irrespective of whether the constitution, an agreement
between the director and the company, or an agreement between any or all the
shareholders and the director, provide differently.

Remuneration of members of the management body

The remuneration of directors and senior executives of companies is highly regulated in
Australia. The financial benefits to directors require shareholder approval if they are not
reasonable remuneration, and all equity awards to directors must be approved by
shareholders.
Termination payments for directors, and senior executives holding managerial or
executive office, are capped at one years base salary, with higher payments requiring
shareholder approval. The Corporations Act also regulates how companies receive
advice on remuneration matters remuneration consultants must be engaged by the board
or a remuneration committee and may only give advice to non-executive directors, and
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details of the advice and the fees paid to the remuneration consultants must be disclosed
in the remuneration report.
The Listing Rules restrict the total amount, which companies may pay in directors fees to
the amount that has been approved by shareholders. This cap does not include salaries
for executive directors. It is prohibited to pay executive directors any percentage of
operating revenue, and non-executive directors may only be paid a fixed sum.
The Governance Principles recommend that directors be formally appointed and that
certain terms be specified in their appointment. The structure of remuneration for nonexecutive and executive directors should be clearly distinguished. Non-executives should
receive fees they should not participate in executive incentive plans, nor receive
options, bonus payments, or termination benefits other than superannuation. Executive
remuneration packages (including for executive directors) should comprise a mixture of
fixed and performance-based remuneration. Equity-based remuneration may be
appropriate for executives, within guidelines suggested to reduce short-termism.
Termination payments (if any) should be confined to defined circumstances agreed up
front, within statutory limits.

Limited interests
Directors are neither required to own, nor prohibited from owning, shares in the
companies that they serve under the Corporations Act. Some constitutions do provide
that a director hold a minimum number of shares or it may be a term of a board charter,
though both situations are quite rare.
Under the Listing Rules, directors must disclose any holding they have in a company, as
well as any purchase or disposal of shares that they hold (either directly or through
associates).
The Listing Rules also require companies to have a trading policy governing share
trading which must be publicly available. At a minimum, this policy must include:

the companys blackout periods (during which key management personnel are
likely to be in possession of non-public material information);

the trading restrictions that apply to key management personnel;

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any trading which is not subject to the entitys trading policy; and

any exceptional circumstances under which key management personnel may be

permitted to trade during a blackout period, and procedures for obtaining written
clearance to do so.
Directors are also bound by general rules against insider trading, which prohibit a person
in possession of inside information from dealing in or tipping another person to deal in
securities to which that information relates.

Process for meetings of members

The procedures for meetings of directors are generally set out in the companys
constitution, and in the board or committee charters that the company has adopted. There
is no set minimum frequency or length required for meetings the time devoted and
procedures adopted will vary from company to company, but should be sufficient to
allow the directors to discharge their duties to the company. Boards generally meet at
regular intervals, often monthly, with additional meetings called if required. Papers are
usually distributed in advance of meetings, and minutes of directors meetings must be
kept.
Directors are required to disclose any material personal interests which they hold in
matters under consideration by the board, and must absent themselves from the
discussion and voting on such matters, unless specifically approved by non-interested
directors or ASIC.

Legal duties and liabilities of members of the management body

Directors of companies incorporated in Australia are bound by common law fiduciary
obligations to the company as a whole, as well as statutory duties under the Corporations
Act. These obligations are imposed on both executive and non-executive directors, as
well as people who act in the position of a director, whether or not they were formally
and properly appointed, and people whose instructions the directors of a company are
accustomed to following.
Directors primary duties, existing under both common law and statute, are as follows:

to take reasonable care in the performance of their office;

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to discharge their duties in good faith and exercise their powers bona fide in the

interests of the company;

to use their powers and position for a proper purpose, and to refrain from using

information obtained in their position for an improper purpose; and

to avoid conflicts of interest and to disclose material personal interests in matters

relating to the affairs of the company.

The Corporations Act confers additional specific duties on directors, including:

to prevent a company from incurring a debt when the company is insolvent;

to call a meeting when requisitioned;

to pay dividends only in accordance with specified rules;

to oversee the companys control and accountability systems; to maintain

financial records and prepare financial reports; and

to protect employee entitlements.

Under statute, directors are permitted to delegate their powers, but may still be held liable
for any power exercised by a delegate unless the director believed on reasonable grounds
that the delegate would act in conformity with the duties of directors, and that the
delegate was reliable and competent.
The Corporations Act imposes civil penalties (including penalties of up to AUD 200,000,
disqualification orders and compensation orders) for breaches of the duties relating to
care and diligence, good faith, use of position, use of information, maintenance of
financial records, requirements for financial reports and prevention of insolvent training.
Some violations of the Corporations Act, especially where dishonesty or recklessness is
involved, attract criminal sanctions.

Corporate governance responsibilities/functions of members of the management

body and current challenges for the management body
The board, as the organ charged with overall management of the company, has primary
responsibility for all of the companys corporate governance systems and practices. The

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Governance Principles recommend that the board articulate its role, and delineate that
role from the functions which the board has delegated. The board would usually be
responsible for:

appointing and removing the chief executive and ratifying the appointment of
senior executives, and monitoring the performance of senior executives;

considering, directing and approving strategies proposed by management and

overseeing the implementation of strategy;

approving

and

overseeing

budgets,

major

capital

expenditure,

capital

management, acquisitions and disposals;

reviewing and monitoring the companys risk management framework and

compliance systems;

overseeing the companys control and accountability systems; and

approving and overseeing financial and other reporting.

Directors may not delegate functions imposed specifically on them under statute, such as
making the directors declaration in the annual financial report.
Key current challenges for the management body include continuous disclosure
requirements, executive remuneration, and increased shareholder activism and conduct
risk.

Public disclosures concerning management body practices

The Corporations Act requires companies to produce annual financial reports (including
auditors reports) and directors reports. The information about the board and its
activities that must be included in the directors report is:

the name of each person who has been a director and the term of their board
membership;

for each director details of their qualifications, experience, special

responsibilities, interest in shares of the company, and other directorships held;

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meetings held by the board and its committees, and each directors attendance at
them; and

indemnities and insurance granted to officers or auditors; and contracts under

which directors are entitled to receive any benefit.
Indemnities, or insurance in relation to members
It is almost universal for companies to take out director indemnity insurance to cover
directors against negligent acts, errors or omissions. However, the Corporations Act
prohibits a company from insuring its officers against conduct arising out of a wilful
breach of their duties or a misuse of position or information. A company also cannot
indemnify directors against liabilities owed to the company or related bodies corporate,
liabilities for pecuniary penalties or compensation orders for breaches of duties, or
liabilities owed to third parties and not arising out of conduct in good faith. A company
must not indemnify or insure a director against legal costs incurred in defending
proceedings in which a director is found to have a liability for which they could not be
indemnified, criminal proceedings in which the director is found guilty, or certain
proceedings brought by ASIC or a liquidator.

TRANSPARENCY AND REPORTING

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The board is responsible for managing a companys disclosure obligations, which include
periodic reports (such as directors reports and financial reports), and continuous
disclosure requirements. This is consistent with the boards legal responsibility to act
with due care and diligence, specific statutory duties to approve certain reports, and its
obligation to manage accountability and transparency systems within the company. The
Corporations Act requires the chief executive and chief financial officer to endorse
financial statements before they are adopted by the board; however, ultimately, the board
must approve the financial statements before they are released.
Both the Corporations Act and the Listing Rules confer continuous disclosure
obligations. A company must immediately notify the ASX of material price-sensitive
information, with limited carve-outs for information that is confidential and which
concerns an incomplete proposal or negotiation, is insufficiently definite, or is a trade
secret (among other limited exceptions). The Governance Principles recommend that
companies put in place formal mechanisms to ensure that material information is brought
to the attention of senior management and disclosed when required. These mechanisms
should set out the roles and responsibilities of directors, officers and employees as
delegated by the board.
There are certain routine disclosures that must be made to ASIC, such as notifications
about changes in directors and share capital, which are primarily the responsibility of the
company secretary.
Corporate governance related disclosures
All compulsory annual financial reports and directors reports must be prepared and sent
to members within four months of the end of each financial year, and disclosed to ASIC
and ASX. Directors reports must contain the information referred to as compulsory
disclosures and, among other things, must include:

a review of the years operations and activities, likely developments, information

about dividends, and details of share and option issuances;

unless it is published on the companys website, a corporate governance report,

disclosing the extent to which the company has complied with the Governance
Recommendations, and the reasons for any departures;

the remuneration report, including each directors remuneration, and the boards
policy for determining the remuneration of directors and senior managers, and the
relationship between that policy and the companys performance; and
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information about non-audit services provided by the auditor, and the auditors
independence.
The annual financial report consists of the companys financial statements for the year,
the notes to the financial statements, and the directors declaration about the statements
and notes. It must comply with Australian accounting standards and must give a true and
fair view of the companys financial position and performance.
Listed companies must also prepare a financial report and directors report for each halfyear, covering a more limited ambit than the matters required in the full annual report,
and provide the half-year reports to ASIC and the ASX.

Role of audit and auditors in such disclosures

Auditors have a significant role in public companies in Australia. Companies must
appoint an auditor, and must have:

their annual financial reports audited; and

their half year financial reports reviewed,

by the auditor in accordance with the accounting standards. For an audit, the auditor
must form a view as to whether the Corporations Act requirements have been complied
with and, if not, must state why. Auditors have rights to access company books and to
require information and assistance from company officers.
The Corporations Act imposes requirements for auditor independence which prohibit
certain relationships with auditors and require auditor rotation (a gap of two years is
required after the auditor is involved in the audit for five successive years). The auditor
must make a declaration to the company that the independence requirements have not
been breached each time an audit is conducted.
Auditors have compulsory whistle-blowing obligations they are required to report to
ASIC any significant contravention of the Corporations Act, any undue influence or
attempt to mislead the auditor, or interference with the proper conduct of the audit.
Auditors must be available to shareholders at the AGM to take questions relevant to the
conduct of the audit.
corporate governance information should be published on websites

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The Governance Principles recommend that boards publish corporate governance and
other information for shareholders on the company website, including:

charters of the board and its committees;

the functions reserved for the board and those delegated to senior executives;

the companys processes for evaluating the performance of senior executives, the
board, board committees and individual directors;

a board skills matrix identifying, on a collective basis, the mix of skills that the
board currently has or is looking to achieve;

the companys policies and practices regarding remuneration of directors (both

executive and non-executive) and senior executives;

all announcements made to ASX, notices of meeting, and historical

announcements and financial information; and

corporate governance policies, including the code of conduct, policy on diversity,

continuous disclosure compliance policy, policy on communications with shareholders,
and policy for the management of business risks.
Law, regulation and practice concerning corporate social responsibility
There is no overarching legislative requirement for companies or their directors to
consider or address corporate social responsibility matters in Australia, although various
specific legislative regimes fall within this general ambit (environmental regulation,
occupational health and safety, and so on).
In 2006, two significant public reviews examined corporate social responsibility law and
practice in Australia, and both concluded that no specific legal rules were required to
enable or mandate standards of corporate social responsibility. The consensus view in
Australia is that although directors owe their duties to the company, it is legitimate for
directors to consider, manage and balance the economic, social and environmental impact
of the companys activities when exercising their authority. Directors are therefore
entitled to consider these matters, but there is no statutory duty requiring them to do so.
The Governance Principles require companies to act ethically and responsibly. They
recommend that companies state the ethical standards that apply to personnel in a code of

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conduct, and publish it (or a summary). The Governance Principles also state that
companies should have regard for the reasonable expectations of their stakeholders.
The Governance Principles also require companies to maintain and disclose a diversity
policy, including measurable objectives to achieve gender diversity.

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ROLE OF EMPLOYEES IN CORPORATE GOVERNANCE

Employees that are not officers of a company do not generally have any formal corporate
governance responsibilities. However, general duties owed by employees require
compliance with a companys corporate governance policies and systems.
Employees owe common law duties of loyalty, care and skill. They are required to obey
all lawful orders of their employer, to act in the best interests of the employer, and not to
engage in misconduct. There are also statutory duties, which prohibit employees
misusing their position or employment information to gain an advantage for themselves
(or another person) or to cause detriment to the company, and requiring the protection of
certain whistle-blowers. All of these duties are consistent with a requirement that
employees abide by the corporate governance systems established by companies.
The common law does not generally require employees to disclose the misconduct of
others. While employees are generally required to comply with governance requirements
relevant to their own roles, they would not be required to monitor and report on others
unless this was formally required in their role. That said, the Corporations Act protects
certain whistle-blower activities, and protects whistle-blowers from persecution. These
protections are designed to encourage people within companies, or with special
connections to companies, to alert ASIC and other authorities to illegal behavior.

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