Corporate Governance in Commonwealth Authorities and Companies

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The development and implementation of effective corporate governance policies should be treated by the Board as a mainstream business issue which will add value to the organisation. Therefore, the Board should aim to review and improve governance processes, structures and systems as an integral part of its overall objective of enhancing the performance of the organisation. Audit Committee Audit committees are a recognised and important feature of modern corporate governance. In countries such as the US, UK and Canada these committees have become mandatory requirements. In Australia, even though public companies are currently not required to form audit committees, either by statute or ASX Listing Rules, each listed entity is required to disclose in its annual report whether or not it has an audit committee, and if not, to explain why not. 19 Under the CAC Act, directors of Commonwealth authorities (section 32) and whollyowned Commonwealth companies (section 44) are required to establish an audit committee. Such a committee should assist the Board in a range of matters such as financial reporting, risk management and internal control. An audit committee is usually constituted as a sub-committee of the Board. However, there is no one model of audit committee that will necessarily fit all organisations. Instead, the construct and functions of the committee will depend on the particular circumstances of each organisation, including its size, complexity and nature of operations. When properly structured and given a clear mandate, audit committees can provide considerable benefit to organisations. A key characteristic of the audit committee is a degree of independence from the organisation’s management. There is a strong argument that the audit committee should ideally be comprised entirely of independent directors and, where executives attend, it is by invitation of the committee. The main role of the audit committee is to improve management reporting by oversighting audit functions, internal controls and the financial reporting process. Audit committees should be diligent in their oversight functions and should work closely with management, internal audit and external auditors to promote accurate, high-quality and timely disclosure of financial and other information to the Board and other key stakeholders, such as the responsible Minister(s). 20 To effectively satisfy their responsibilities, members of an audit committee require basic “financial literacy” – the ability to comprehend financial statements. Where a committee member does not have this comprehension upon initial appointment arrangements should be made to ensure that appropriate competence is attained within a reasonable period of time after appointment. 19 ASX Listing Rule 4.10.2 20 Ernest & Young (1999) Audit Committees: Summary and Analysis of the Report of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees. CORPORATE GOVERNANCE IN COMMONWEALTH AUTHORITIES AND COMPANIES 12
Information on the audit committee structure, its roles and responsibilities and the frequency of meetings held could be provided in a CAC body’s annual report to enable external assessment of the independence and effectiveness of the committee. 21 Management The CEO leads the management team and is ultimately responsible and accountable to the Board for the day-to-day management of the operations of the CAC body. The CEO, together with senior management, has the responsibility for implementing strategies and policies approved by the Board; developing and implementing appropriate control mechanisms to manage risks faced by the organisation; maintaining an effective organisational structure that clearly assigns responsibility, authority and reporting relationships; measuring performance; and providing regular and reliable reports to the Board which allows the directors to monitor performance of the organisation and management (these reports should be in the form of both formal Board reports and informal communication as the need arises). The CEO should also play an active part in setting the organisation strategy and identifying any revisions that may be required for the Board’s attention. The Board collectively, and individual directors as appropriate, should have direct access to senior management. Furthermore, senior managers should report and make presentations at Board meetings as necessary. Where a CEO sits on the Board, any apparent conflicts of interest need to be clearly identified. It should be noted, that this applies equally to all board members as well, whether executive or not. 22 Ideally, the Board charter should have a clear procedure for dealing with such conflicts. Who are the Stakeholders? In addition to the relationship between the responsible Minister(s), Board and management of a CAC body, corporate governance is also affected by the relationships among other stakeholders in the governance system. For example, employees and other stakeholders play an important role in contributing to the long-term success and performance of an organisation. CAC stakeholders are many and varied. However, the following key stakeholders can be readily identified: ◗ Parliament – represents citizens and passes legislation; ◗ Minister(s) – responsible to Parliament for particular CAC bodies; ◗ central agencies, such as the Department of Finance and Administration, often have an interest in the performance of the CAC; 21 In 1997 the ANAO released a better practice publication on Audit Committees which provides further guidance on establishing efficient and effective audit committees. 22 As directors of a company are fiduciary agents, any power conferred upon them, as a result of their position within the organisation, can not be used to obtain some private advantage, or for any purpose foreign to the power (See R Tomasic, J Jackson & R Woellner, Corporations Law: Principles, Policies and Processes, 2 nd Ed, Butterworths, Sydney 1992). CORPORATE GOVERNANCE IN COMMONWEALTH AUTHORITIES AND COMPANIES 13 A Corporate Governance Framework
Page 1: PRINCIPLES AND BETTER PRACTICES Cor
Page 6 and 7: Corporate governance is also now be
Page 8 and 9: In this paper, the concept of the B
Page 10 and 11: 2. A Corporate Governance Framework
Page 12 and 13: Figure 2: General obligations of th
Page 14 and 15: In addition, the Board is expected
Page 18 and 19: ◗ international interests - treat
Page 20 and 21: Each of these elements is discussed
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Page 24 and 25: Board Skills In order to undertake
Page 26 and 27: Better Practice The majority of the
Page 28 and 29: Strategy Setting For the Board and
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Page 32 and 33: Statutory Accountability It is crit
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Page 40 and 41: References ANAO (1997a), Applying P
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Page 44 and 45: Financial and Operational Reporting
Page 46 and 47: Appendix B - Existing CAC Governanc

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