ASX Corporate Governance Council Summary of Principles of Good Corporate Governance and Best Practice Recommendations March 2003 What is corporate governance? Corporate governance is the system by which companies are directed and managed. It influences the objectives of the company how risk is monitored and assessed, and how performance is
optimised. Good corporate governance structures encourage companies to create value and provide accountability and control systems commensurate with the risks involved. Why is good corporate governance important to Australia? It can lower the cost of capital. It promotes investor confidence. It is important for Australia to respond to
global best practice. How is good corporate governance achieved? There is no single model of good corporate governance. The ASX Corporate Governance Council has recommended 10 core principles that underlie good corporate governance. These principles are of equal importance. Their adoption is not mandatory.
The essential corporate governance principles A company should: Page 1. Lay solid foundations for management and oversight 15 Recognise and publish the respective roles and responsibilities of board and management. 2. Structure the board to add value 19 Have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties. 3. Promote ethical and responsible decision-making 25
Actively promote ethical and responsible decision-making. 4. Safeguard integrity in financial reporting 29 Have a structure to independently verify and safeguard the integrity of the companys financial reporting. 5. Make timely and balanced disclosure 35 Promote timely and balanced disclosure of all material matters concerning the company. 6. Respect the rights of shareholders 39 Respect the rights of shareholders and facilitate the effective exercise
of those rights. 7. Recognise and manage risk 43 Establish a sound system of risk oversight and management and internal control. 8. Encourage enhanced performance 47 Fairly review and actively encourage enhanced board and management effectiveness. 9. Remunerate fairly and responsibly 51 Ensure that the level and composition of remuneration is sufficient
and reasonable and that its relationship to corporate and individual performance is defined. 10. Recognise the legitimate interests of stakeholders 59 Recognise legal and other obligations to all legitimate stakeholders. Principal 1: Lay solid foundations for management and oversight Formalise and disclose the functions reserved to the board and those delegated to management. Adopt a formal board charter that details
the functions and responsibilities of the board or a formal statement of delegated authority to management. Principle 2: Structure the board to add value A majority of the board should be independent directors. An independent director is independent of management and free of any business or other relationship that could materially interfere with or could reasonably be perceived to materially interfere with the exercise of their unfettered and
independent judgement. Principle 2 The chairperson should be an independent director. The roles of chairperson and chief executive officer should not be exercised by the same individual. The board should establish a nomination committee. Principle 3: Promote ethical and
responsible decision-making Clarify the standards of ethical behaviour required of company directors and key executives establish a code of conduct Integrity is noted as fundamental, though not able to be achieved by regultion. Principle 4: Safeguard integrity in financial reporting Require the CEO and the CFO to state in writing to the board that the companys financial reports
present a true and fair view of its financial condition in accordance with relevant accounting standards. Establish an audit committee of at least 3, not chaired by chair of board and comprised of nonexecutive directors, mostly independent. Principle 5: Make timely and balanced disclosure Develop continuous disclosure policies and procedures. Principle 6: Respect the rights of
shareholders Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings. Principle 7: Recognise and manage risk Establish a system to identify, assess, monitor and manage risk inform investors of material changes to the
companys risk profile. The CEO and CFO should certify to the board that the companys risk management and compliance systems are operating effectively. Principle 8: Encourage enhanced performance Disclosure of performance evaluation of the board. Induction program for new directors. All board members to have direct access to
company secretary. Board members to have access to independent advice at company expense. Principle 9: Remunerate fairly and responsibly Disclose companys remuneration policies including cash, fees and other benefits. The board should establish a remuneration committee Principle 10: Recognise the legitimate
interests of stakeholders Public or social accountability is generally based on notions of legitimacy, fairness and ethics. The board has a responsibility to set the tone and standards of the company and to oversee adherence to these. Establish a code of conduct to guide compliance with legal and other obligations & disclose to legitimate stakeholders.
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