Australian exchange publishes guidebook on governance

Sydney, 7 June 2003

Australian companies involved in mergers, takeovers or other corporate actions will be expected to comment on media or market rumours following the introduction of new Australian Stock Exchange (ASX) rules.

Thus, for example, if news leaks that Rupert Murdoch's News Corporation is about to embark on a venture in China, the company will not be able to avoid comment, but will have either to deny the report or provide details.

The new rule, part of a package drawn up by the ASX for introduction in the next financial year starting in August, is contained in the concept of ¢â‚¬Ëœtotal disclosure'.

Other new guidelines provide that the terms of executive's contracts should be disclosed to the ASX as and when they are signed, that the chairman of companies and most of the board should be independent, and that managers should be obliged to certify the accuracy of financial reports.

Remuneration committees should consist only of non-executive directors, with the majority of them independents, and chaired by someone other than the corporation's chairman.

The new framework is partly a result of the corporate scandals and accounting frauds that felled once-powerful US firms such as Enron, and corporate collapses in Australia such as the A$5 billion ($5.45 billion) failure of general insurer HIH.

A Royal Commission has just published a three volume report on the collapse of HIH cataloguing mismanagement on a massive scale unchecked by an ineffective board and not spotted by the ASIC, the country's regulatory body.

The ASX does not prosecute those who defy its code, but may report them to the authorities of the six states, the Federal government, or the ASIC. Its own remedy is to require companies to explain in annual reports why they have not followed the ASX guidelines, or, in more urgent cases, to suspend a company from trading, a remedy it says it will use if the rules on continuous disclosure appear to be breached.

Some question whether adding to the plethora of rules that affect corporations will work. Professor John Farrer, Professor of law at Bond University in Perth says Australia lacks a strong fiduciary culture in public and business life.

He says: "This is partly due to historical reasons but substantially due to a tendency to obscure the basic fiduciary principles by dense legalism which is then treated as a kind of technical word game by boards and their professional advisers. More of the same is simply not the answer.

The planned changes in Australia have led to a surge in interest in courses on corporate governance in universities and the private sector. According to the Australian Institute of Company Directors more than 27,000 people signed up for its courses this year, a rise of 27 per cent, and its flagship courses is booked up for three months in advance.

*The ASX code contains a detailed and easy-to-read guide on how to develop better corporate governance. Please click here,or go to the List of codes and best practices section of this website and click on Australia.