Review of Commonwealth Government Business Enterprises ...

Australian Government
Department of Finance and Deregulation
June 2011
Review of Commonwealth
Government Business Enterprises
Governance and Oversight Guidelines
Exposure Draft
Discussion Paper

FIN_2011_0019
Exposure Draft

Contents
Introduction 2
Part 1 – Overview 5
1.1 Mandate and Objectives 5
Part 2 – Board and Corporate Governance (previously Part 3) 6
2.1 Public Sector Accountability 6
2.2 Ethical Standards 7
2.3 Board Appointment and Performance 8
2.4 CEO Succession Planning 11
2.5 Board Tenure 12
2.6 Board Induction, Training and Performance Evaluation 14
Part 3 – Planning and Reporting (Previously Part 2, Reporting) 17
3.1 Requirements 17
3.2 Corporate Plans 20
3.3 Statement of Corporate Intent (SCI) 23
3.4 Progress Reports 24
3.5 Annual Reports 26
3.6 Keeping Shareholder Minister(s) Informed 27
3.7 Commercial Freedoms 29
3.8 Annual General Meetings 30
Part 4 – Financial Governance 31
4.1 Capital Structure and Dividend Policy 31
4.2 Financial Targets for GBEs 32
4.3 Managing Risks 35
Part 5 – Other Governance Matters 37
Appendix A: 39
Revised Commonwealth Government Business Enterprises
Governance and Oversight Guidelines
Exposure Draft
Appendix B: 63
Commonwealth Government Business Enterprise Guidelines June 1997
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Introduction
The Governance Arrangements for Commonwealth Government Business Enterprises
(GBE Guidelines) is a policy document that provides a framework for defning the Australian
Government’s working relationship with its Government Business Enterprises (GBEs) and the
various responsibilities of the parties to that relationship. The document forms part of the
overall corporate governance framework under which GBEs operate and as such complements
the Commonwealth Authorities and Companies Act 1997 (CAC Act) and, in the case of GBEs
that are Commonwealth authorities, their enabling legislation, or, in the case of GBEs that are
Commonwealth companies, their constitution and the Corporations Act 2001 (Corporations Act).
A GBE is either a Commonwealth authority or a Commonwealth company that is prescribed as a
GBE under Regulation 4 of the Commonwealth Authorities and Companies Regulations 1997
(CAC Regulations).
Currently, there are seven Commonwealth government GBEs which are a mixture of companies
and statutory authorities. They incur different business risks resulting from, among other things,
different levels of competition in their product markets and from their varying capital structures.
In 2009-10, GBEs generated revenues of over $11.57bn and returned dividends of $265.9m to
the Commonwealth.
Government Business
Enterprises
2009-10
Revenue
Commonwealth authorities
2009-10
Dividend
Exposure Draft
Equity @
30 June 2010
Australian Government Solicitor $115.9m $3.5m $44.6m
Australian Postal Corporation $4,753.4m $171.9m $1,559.1m
Defence Housing Australia $983.9m $52.7m $1,290.8m
Commonwealth companies
ASC Pty Limited $515.7m $5.0m $208.4m
Australian Rail Track Corporation
Limited
$604.8m Nil $2,497.8m
Medibank Private Limited $4,594.3m $32.8m $1,720.0m
NBN Co Limited $3.9m Nil $232.0m
Total $11,571.9m $265.9m $7,552.7m
This discussion paper highlights a number of possible reforms to the GBE Guidelines and provides
an opportunity for relevant stakeholders to comment on the proposals. Section 1 of the paper
discusses the more signifcant areas of policy change and Section 2 contains the proposed revised
GBE Guidelines.

The key topics identifed for discussion are:
• Mandate and objectives:
- Clarifying the process for the review of the mandate and objectives of a GBE.
• Public sector accountability:
- Clarifying matters for inclusion in letters of appointment for directors and Chief Executive
Offcers (CEOs);
- Establishing a requirement for new directors to formally respond to letters of appointment,
giving an undertaking to the Shareholder Minister(s) that they will advise them of any
matters which may impact on their ability to be a director;
- Formally requiring boards to establish, document and maintain a code of conduct and
conficts policy;
- Establishing a general requirement for GBEs to behave in a politically impartial manner; and
- Guidance on taxation planning.
• Board appointments and performance:
- Establishing guidance on appointment processes to ensure that high-calibre directors
are appointed to GBE boards, and that appointment processes are open, transparent,
defensible and aligned with government policy objectives;
- Establishing guidance on the tenure of directors to maintain a balance between introducing
new skills and ideas and business continuity, and outlining the need for directors to attend
all board meetings;
- Incorporating a general requirement for board induction, training and performance
reviews; and
- Including a general requirement to renew board committee charters and composition annually.
• Guidance on the role of CEOs:
- Providing guidance on the Commonwealth’s preference for the appointment of CEOs to
facilitate clear board governance practices; and
- Establishing a general requirement for GBEs to implement and maintain a succession plan
for CEOs.
• Planning and reporting requirements:
- Providing guidance for publishing Statements of Corporate Intent (SCI) on GBE websites
and reporting on performance against the SCI’s broad objectives in GBE annual reports to
enhance transparency;
- Formally adopting quarterly performance reporting (which is the basis under which the
vast majority of GBEs report in practice) and outlining key features that each report should
provide to enhance transparency;
- Establishing minimum requirements for fnancial and non-fnancial performance indicators
to be included in Corporate Plans and progressively reported against;
- Establishing guidelines for the preparation and presentation of business cases;
- Providing additional guidance on the setting of fnancial targets;
- Including a requirement to hold Annual General Meetings; and
- Including a general requirement for risk management to be addressed in Corporate Plans
and performance reports in order to increase transparency and accountability of GBE risk
management practices;
Exposure Draft
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• Keeping the Shareholder Minister(s) informed:
- Aligning the requirements with the CAC Act;
- Establishing guidance on the development of Commercial Freedoms Frameworks for
each GBE; and
- Providing additional guidance to GBEs in respect of business case requirements which
require Shareholder Minister(s) consultation and endorsement.
• Changing the title of document to ‘Commonwealth Government Business Enterprises
Governance and Oversight Guidelines’:
- This more accurately refects the purpose of the document and will help to avoid any
potential confusion with the ‘Governance Arrangements for Australian Government Bodies’
policy document.
Other changes include updating references to provisions of the CAC Act and the Corporations Act,
as well as formatting changes to improve the general readability and fow of the document.
The current GBE Guidelines have no legal authority and the Commonwealth relies on the GBEs
and their boards to comply with the policies contained in the document. We are close to fnalising
discussions/consultation on the most appropriate mechanism for embedding the application and
enforcement of the revised GBE Guidelines. We will be seeking to provide for an express power
to be inserted into the CAC Act to enable the Finance Minister to issue guidelines to GBEs. This
will be comparable to the powers under s 64 of the FMA Act.
Your comments on the proposed changes are sought by 30 June 2011.
Comments can be directed to:
Ms Stacie Hall
Assistant Secretary - Government Businesses Advice Branch
Department of Finance and Deregulation
Treasury Building,
Parkes Place West, Parkes
CANBERRA ACT 2600
Phone: 02 6215 2727
Fax: 02 6267 3009
GBAB@fnance.gov.au
Exposure Draft

Part 1 - Overview
1.1 Mandate and Objectives
1.1.1 A GBE’s mandate includes functions outlined in enabling legislation (for Commonwealth
authorities) or company constitutions (for Commonwealth companies) as well as any
guidance provided by: the Finance Minister where the GBE is located within the Finance
and Deregulation portfolio; or the Minister with portfolio responsibility for the particular
GBE and the Finance Minister (hereafter referred to as the Shareholder Minister(s) for the
purposes of the GBE Guidelines).
1.1.2 The current GBE Guidelines require that GBE mandates be reviewed “about every three
years”. This approach was adopted from the rationale outlined in the 1997 ‘Review of
GBE Governance Arrangements’ by Mr Richard Humphry AO (the Humphry Review)
which considered that mandates should be regularly reviewed to ensure that government
objectives were being met and that continued government ownership remained desirable. 1
1.1.3 In practice, mandates are more regularly considered in the context of:
• the corporate planning processes, where GBEs present to the Shareholder
Minister(s) their proposed objectives and strategies covering a period of at least
three years;
• GBE business proposals, such as signifcant acquisitions that are submitted by
GBEs to the Shareholder Minister(s) for consideration; and
• Government policy proposals that directly or indirectly impact on GBEs.
1.1.4 During each of these processes, the Shareholder Minister(s) and their department(s)
consider how the GBE’s mandate is being affected and whether the proposals are
desirable from a shareholding and whole of government perspective. Accordingly, there
may be merit in adopting a principle that mandates are considered annually as part of
the corporate planning process and that stand-alone reviews of mandates be undertaken
periodically as required.
Proposed Change:
1.911 The mandate of a GBE will be considered by the Shareholder Minister(s) as part of
the annual corporate planning process. In addition, the Shareholder Minister(s) will,
where appropriate, periodically undertake a stand-alone review of the mandate. will be
reviewed by the Government about every three years and consideration given to the
rationale for continuing Commonwealth ownership of the organisation.
Exposure Draft
1 Humphry AO, R. “Review of GBE Governance Arrangements”, p13 (March 1997).
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Part 2 - Board and Corporate Governance
(previously Part 3)
2.1 Public Sector Accountability
2.1.1 The legal roles and expectations of directors are outlined in both the Corporations Act
and the CAC Act. The CAC Act (section 15, Report of Operations) now outlines the
requirements for boards to report on arrangements in place for contributing to the
appropriate governance and performance of each GBE. Finance considers that it would be
appropriate for GBE boards to expand their reporting to include this information.
Proposed Change:
3.2 2.2 Boards have absolute responsibility for the performance of the GBE, and are fully
accountable for this to the Shareholder Minister(s). Boards should implement
effective governance frameworks to support their role and responsibilities, and report
on implementation in the Annual Report.
2.1.2 Finance is proposing that new appointees to GBE boards receive a letter from the
Shareholder Minister(s) (or in the case of Chief Executive Offcers (CEO), the employing
board) advising of their appointment and outlining other matters of relevance to the
position. These letters are signifcant because they provide an initial frame of reference
to new appointees in regard to their obligations and accountabilities and outline the
Shareholder Minister(s)’ expectations of the GBE.
2.1.3 Letters of appointment should also outline the appointee’s public sector accountability
obligations. All appointees should be aware that the activities of a GBE are (potentially)
subject to Parliamentary scrutiny (e.g. through Parliamentary Committee inquiries,
estimates hearings etc) and audit processes (e.g. through an independent performance
audit conducted by the ANAO). This is in line with the requirements under the Governance
Arrangements for Portfolio Bodies 2 that letters of appointment cover such matters.
2.1.4 Further, the ASX has recently highlighted the importance of developing comprehensive
appointment letters that assist appointees to develop a strong understanding of their
role. The ASX has developed an indicative list of matters that should be considered when
drafting appointment letters. 3 There may be merit in adapting the list to the GBE context
and adding it to the revised GBE Guidelines as a guide to developing better practice
appointment letters.
2.1.5 The list could be used by departments assisting the Shareholder Minister(s) to develop
appointment letters and by GBEs preparing CEO appointment letters.
2.1.6 Finance also recommends the inclusion of a requirement for formal responses to letters
of appointment to be included as part of the appointment process. Such an acceptance
letter would include an undertaking by the appointee to advise the Shareholder Minister(s)
if there is any change in their circumstances that might impact their ability to be a director.
Exposure Draft
2 http://www.fnance.gov.au/fnancial-framework/governance/docs/Governance-Arrangements-for-Australian-Government-Bodies.pdf
3 ASX Principles, page 14
(http://asx.ice4.interactiveinvestor.com.au/ASX0701/Corporate%20Governance%20Principles/EN/body.aspx?z=1&p=13&v=1&uid= )

Proposed Change: (New)
3.3 2.3 a. Appointment letters for all directors and Chief Executive Offcers (CEOs) should
include the following:
• director powers and duties (attaching a link to the Commonwealth Authorities and
Companies Act 1997 and the GBE Guidelines);
• a copy of the GBE’s constitution or enabling legislation (which would include the
circumstances in which an offce of director becomes vacant);
• general public sector performance and accountability obligations, including that the
GBE may be subject to Parliamentary scrutiny and audit processes;
• information on the operations of the GBE, full details of their legislative obligations,
their public sector accountability obligations and directors’ responsibilities, and
outlining the circumstances in which the GBE will bear the cost of directors obtaining
independent professional advice in carrying out their duties;
• the term of appointment and remuneration arrangements (with particular reference to
Remuneration Tribunal arrangements); and
• reference to Directors and Offcers insurance arrangements, confdentiality of information
and board decisions, confict of interest matters, and induction arrangements.
b. Directors are to formally respond to the letter of appointment within 30 days of receipt
and provide an undertaking to advise the Shareholder Minister(s) if there is any change in
circumstances that might impact on their ability to be a director.
2.2 Ethical Standards
2.2.1 The current GBE Guidelines require that the GBE directors ensure that GBEs and GBE
offcers maintain “the highest standards of integrity, accountability and responsibility.’’ 4
This is particularly important in retaining public confdence in how resources are being
used and to recognise Ministerial accountabilities to the Parliament.
2.2.2 It is therefore important that directors, staff and contractors understand their ethical
obligations and that the board actively promotes an ethical culture within each GBE.
One way of promoting an ethical culture is to create and maintain a code of conduct.
In practice, GBEs already have a code of conduct and outline it in their Statement of
Corporate Intent, which is tabled in the Parliament 5 and in many instances published as
a stand-alone document. However, it may be appropriate to adopt the code of conduct
as a formal requirement under the GBE Guidelines so that GBEs are clear as to their
responsibilities in this area.
2.2.3 Clause 15 of the Commonwealth Authorities and Companies Act (Report of Operations)
Orders 2008 (the Orders) requires Commonwealth authorities to outline their ‘policy on
the establishment and maintenance of appropriate ethical standards’ in the Statement of
Governance. There is no similar requirement under the Orders for Commonwealth companies.
• Further, employees of Statutory Agencies under the Public Service Act 1999 are
subject to the ‘APS Values and Code of Conduct’. This applies to Defence Housing
Australia being the only GBE that is a Statutory Agency.
4
Exposure Draft
Current GBE Governance Arrangements, paragraph 1.3d (iii) http://www.fnance.gov.au/publications/governance-arrangements/index.html
5 Current GBE Governance Arrangements, paragraphs 2.5 to 2.7.
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2.2.4 The Australian Institute of Company Directors (AICD) has a code of conduct for directors of
corporations. 6 However, this does not apply to employees and contractors.
2.2.5 Further, Finance considers it important that GBEs should avoid activities that could give
rise to questions about their political impartiality. In particular, GBEs should not make
direct or indirect political donations or participate in activities sponsored or in support of
partisan political causes. This is refected in the revised Guidelines.
2.2.6 As a general guide, Finance considers that a code of conduct for GBEs should cover the
following areas: being professional and apolitical; customer service; work practices and
performance; confict of interest; relationship with suppliers; gifts and benefts; outside
employment; appropriate use of assets and resources; and confdentiality of information.
Proposed Change: (New)
2.4 Boards should continue to regularly monitor the ongoing independence of each director
and the board generally to ensure that they continue to exercise unfettered and
independent judgement.
2.5 In particular, the government expects GBE boards to establish and maintain a code of
conduct for directors, employees and contractors and to ensure that GBEs, in undertaking
their business, avoid activities that could give rise to questions about their political
impartiality. For example, GBEs should not make direct or indirect political donations or
participate in activities sponsored or in support of partisan political causes.
2.6 The code of conduct may cover the following matters: being professional and apolitical;
customer service; work practices and performance; confict of interest; relationship
with suppliers; gifts and benefts; outside employment; appropriate use of assets and
resources; and confdentiality of information, including in electronic form.
2.3 Board Appointment and Performance
2.3.1 The selection of suitably qualifed people to the governing board of a GBE is an important
responsibility of the Shareholder Minister(s) and the government. Board appointments are
the most direct way that the Shareholder Minister(s) can infuence the performance of a
GBE. Equally, board planning is an important component of the overall risk management
strategy of a GBE and should form part of the board’s regular activities.
2.3.2 Finance considers that the process proposed will increase transparency, accountability,
and importantly, ensure the calibre and diversity of candidates appointed to GBE boards
continues to be appropriate to the importance and scale of these signifcant Australian
public sector entities.
2.3.3 The proposed changes are consistent with the government’s policy principles on
transparent and accountable public administration and draw on government appointment
processes used internationally. They also refect developments in the private sector, the
revised ASX guidelines, 7 and the work of the Commonwealth Government’s Corporations
and Markets Advisory Committee (CAMAC), 8 whose recent publications focus on the need
to enhance board diversity and quality.
Exposure Draft
6 Australian Institute of Company Directors. “Code of Conduct”, page 1 (September 2005). Refer to
http://www.companydirectors.com.au/General/Search?q=Code%20of%20Conduct
7 ASX Corporate Governance Principles and Recommendations Second Edition August 2007,
http://asx.ice4.interactiveinvestor.com.au/ASX0701/Corporate%20Governance%20Principles/EN/body.aspx?z=1&p=-1&v=1&uid=
8 Australian Government Corporations and Markets Advisory Committee (CAMAC): March 2009 report, Diversity on Boards of Directors
(www.camac.gov.au), http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFFinal+Reports+2009/$fle/Board_Diversity_B5.pdf

2.3.4 These changes aim to make GBE director appointment processes more structured and
open, and to keep the ongoing composition of the board under review. This approach has
been used successfully in other jurisdictions including New Zealand where the Crown
Ownership Monitoring Unit (COMU) has the objective of developing an active and open
approach to board composition and renewal with a view to maintaining the best balance
of skills and experiences that match the strategic direction and needs of the GBE. 9 In
addition, the changes refect developments in appointment processes in the private
sector and international governments. Principally the recommended changes incorporate
current Government policy (in respect of merit and transparency in senior Government
appointments, and gender and diversity targets). The changes also aim to improve board
planning and ensure that recommended candidates represent the best possible feld.
2.3.5 The proposed changes also refect the importance of the cost and timeliness associated
with any board appointment process. Consideration has been given to the need to
balance the requirement for greater accountability, independence and rigor against the
need for effciency and cost-effectiveness. The New Zealand COMU has quite a mature
recruitment model which also includes an on-line application system for members of the
public. However, given the broad range of activities undertaken by Australia’s GBEs, we
consider that allocating greater responsibility to GBE boards for the sourcing of suitably
qualifed candidates for director positions will result in the generation of a stronger feld of
appropriate candidates in a more effcient manner. For each vacancy, boards will need to
determine whether to arrange to publically advertise upcoming vacancies and/or to identify
candidates via executive search processes.
2.3.6 There have been a number of studies over recent years that have concluded that
organisations with gender diverse boards have a higher level of organisational
effectiveness and fnancial performance than their more male dominated counterparts.
For example, the CAMAC report on ‘Diversity on Board of Directors’ 10 examined the issue
of diversity on boards, including the participation of women. It concluded that a focus on
a more robust and open approach to board appointments will foster a governance culture
that embraces diversity in the composition of corporate boards.
2.3.7 Gender diverse boards show greater evidence of diversity of thought and perspective and
at the same time, greater unity and collegiality. Unity is a fundamental strength of an active
and independent board and implies a focus on the importance of the board as a whole,
active support by all directors for decisions made, an atmosphere of trust, respect and
confdence amongst members and a combination of internal dissent and external solidarity.
Exposure Draft
9 New Zealand Crown Ownership Monitoring Unit, ‘Selection Criteria’ http://www.comu.govt.nz/board-appointments/what-we-look-for/
10 Australian Government Corporations and Markets Advisory Committee (CAMAC): March 2009 report,
Diversity on Boards of Directors (www.camac.gov.au)
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2.3.8 The proportion of women on GBE boards is currently around 25% and compares
favourably to both the 9.2% female representation on ASX top 200 companies (2010) 11 and
international results. 12 The proposed amendments to the ASX Guidelines13 recommend
the development of measurable objectives for achieving gender diversity, and the CAMAC
report suggests that greater gender equity can be achieved by ensuring appointment
processes are more transparent, and by formalising processes for keeping board
composition under review in response to both performance and changing needs. In
keeping with the introduction of measurable objectives for achieving gender diversity,
the revised GBE Guidelines have incorporated the government’s policy in the updated
document, requiring GBEs to develop Board plans that incorporate strategies for achieving
the government’s policy with respect to a target of 40% representation by women on
government boards by 2015.
2.3.9 Where departmental offcers are appointed to GBE boards, they are expected to act in the
best interest of the GBE and not be there to represent the interests of the government,
which may be at variance with those of the GBE. It is envisaged that such appointments
would only occur in exceptional circumstances, such as for GBEs that are to be wound
down, and where it is not practical to appoint a director through the normal processes.
2.3.10 It should be noted that the fnal decision on appointment of directors remains with the
Shareholder Minister(s) and the Prime Minister, or at his/her discretion, the Cabinet, and it
is expected that any appointments made will be in line with agreed selection criteria.
Proposed change:
3.4c 2.7c The appointment of departmental offcers to GBE boards will may only be considered
in exceptional circumstances, having regard to their ability to represent the interests
of the Government, their possession of the business skills referred to above, and to
any potential conficts of interest that might arise. , and the particular circumstances
of the GBE (such as GBEs in winding-down mode). In such cases, the appointed
departmental offcers are expected to act in the best interests of the GBE when there
is a divergence between the interests of the GBE and those of the Government.
Board Appointment and Performance
3.5 2.8 The Board Chairperson Chair shall head a board Board Nomination and Remuneration
committee, which shall, provide the Shareholder Minister(s), through the board, with
a list of suitable candidates for Board membership with recommendations on board
composition and membership.
a. The Chair shall, following consultation with the Shareholder Minister(s), develop a board
plan which includes:
• The medium term aims in relation to board composition, taking into account the
strategic objectives of the GBE;
• A forecast of likely board vacancies; and
• An assessment of the skill requirements for the board in the context of the strategic
requirements of the GBE.
Exposure Draft
11 Australian Government, Equal Opportunity for Women in the Workplace Agency, 2010 Census Key Findings Report;
http://www.eowa.gov.au/Information_Centres/Resource_Centre/Statistics/GenderWorkplaceStats_3_11-Onlineversion.pdf
12 CAMAC report, page 55, http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFFinal+Reports+2009/$fle/Board_Diversity_B5.pdf
13 Proposed amendments to the ASC Corporate Governance Council Corporate Governance Principles and Recommendations’ 22 April 2010
(Exposure draft) http://www.asx.com.au/governance/corporate-governance.htm

. The Chair shall write to the Shareholder Minister(s) at least three months prior to a
vacancy arising on the board or in the role of CEO
• Through the Chair, the board should advise the Shareholder Minister(s) about its preferred
candidate for the position of CEO. The CEO is directly accountable to the board.
• Following consultation with the Shareholder Minister(s), the board may provide,
through the Chair, a shortlist of candidates for board vacancies.
• Additional processes for identifying candidates such as public advertising or the use
of executive search processes may be undertaken by agreement with the
Shareholder Minister(s).
• Chairs may recommend the reappointment of an existing director where this is sought
by the director and where appropriate (i.e. based on evidence of good performance,
where the tenure falls within the requirements set out in legislation applying to the
GBE and where the term has not been excessive).
• All recommendations for appointment should have regard to government policy on
fostering a governance culture that embraces diversity in the composition of boards
with the objective of achieving the Government’s target of 40% of Government board
members to be women, 40% of board members to be men, and the remaining 20% of
positions to be held by either women or men, with this target to be achieved by 2015.
3.5(a) 2.9 The Shareholder Minister(s) may elect to appoint a candidate not proposed by the
Committee Chair.
3.5(b) Shareholder Ministers shall consult with the Prime Minister and theTreasurer on all
Board appointments.
2.4 CEO Succession Planning
2.4.1 The selection of a CEO is an important governance function for the board. As part of
this responsibility, the board should also have in place a plan for the eventual or sudden
replacement (e.g. through an unanticipated departure, health reasons etc) of the existing
CEO to ensure business continuity and stability.
2.4.2 Ideally, succession planning should start well in advance of the time at which a CEO is to
be replaced. This is the strongest case for succession planning – to increase the time to
react and to broaden the portfolio of alternatives.
2.4.3 A study published in the Harvard Business Review found that almost 40% of new CEOs
fail in their frst 18 months and this is attributed to selecting the wrong individual by having
no or poor succession planning in place. 14
2.4.4 Succession planning is therefore an important component of the overall risk management
strategy of a business and should therefore form part of the board’s regular activities.
Accordingly, Finance proposes that the GBE Guidelines be amended requiring that boards
have a succession plan in place for the CEO and to provide an annual assurance to
Shareholder Minister(s).
• While the CEO is normally appointed by the board of the GBE, appointments are
required to be referred to the Prime Minister or Cabinet for agreement.
Exposure Draft
14 Charan, R. ‘Ending the CEO Succession Crisis’, Harvard Business Review, 1 Feb 2005 http://hbr.org/products/8851/8851p4.pdf
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2.4.5 The independence of the board from executive management is an important element
of an appropriate governance framework. The appointment of CEOs to the boards of
GBEs, via the creation of a Managing Director (MD) position, departs from better practice
governance approaches. The New Zealand approach is to have no MDs overseeing the
daily operations of the state owned enterprises, which ensures a distinct separation
between shareholders, board and management. Finance notes that any decision to
appoint a CEO to the board remains at the discretion of the Shareholder Minister(s).
While the CEO (and often the senior management team) attends all board meetings, the
fnal decision about any matter on the agenda rests with the board. In addition to this,
and depending on the Chair, the board may schedule some ‘board-only’ time to deal with
confdential matters; without the CEO present.
Proposed change: (New)
2.10 Any decision to appoint the CEO as a director, is at the discretion of the Shareholder
Minister(s) and the CEO recruitment and succession arrangements undertaken by the
board should refect this.
2.11 Boards are to implement and maintain a succession plan for CEO positions and to
provide an annual assurance to Shareholder Minister(s) that this is the case.
2.5 Board Tenure
2.5.1 The renewal of directors is a key aspect to the performance of a GBE. Accordingly,
when considering non-executive director appointments, the Commonwealth needs to
be conscious of balancing the competing objectives of maintaining continuity, skills and
experience on GBE boards, with board planning and the introduction of fresh thinking. 15
2.5.2 In seeking to achieve this balance, most GBE boards are suffciently large to retain a core
level of corporate knowledge and at the same time cope with the introduction of new
directors contributing different perspectives and skills to issues facing the GBE. While
terms are generally for three years, 16 and reappointment may be considered at the end of
that period, Finance considers that setting an indicative maximum board service period
of two three-year periods for directors (i.e. a maximum of six years), and three three-year
periods for Chairs (i.e. a maximum of nine years, inclusive of any time where the Chair
served as a director) may assist in ensuring that GBE boards are periodically refreshed. 17
2.5.3 This principle is favoured in Canada, where the Board Resourcing and Development Offce
(BRDO) suggests that appointments to boards of government-owned businesses should
be staggered and, under normal circumstances, directors should be appointed for a
maximum of six years. 18
Exposure Draft
15 The Uhrig Review (p110-101) considers the issue of board tenure and notes that in all appointments there is a balance to be made between the benefts
of continuity, and the opportunity to enhance performance from board renewal.
16 GBE Governance Arrangements, paragraph 3.7(http://www.fnance.gov.au/publications/governance-arrangements/index.html)
17 These terms are consistent with the fndings of the Uhrig Review (p101). Further, it is consistent with the advice of the ASX Principles (p18) that board
renewal is critical to performance and that entities be conscious of the duration of each director’s tenure.
18 Board Resourcing and Development Offce (BRDO) 2005, Appointment Guidelines – Governing Boards and Other Public Sector Organizations, British
Columbia, Canada, 14 July 2005. p20. (http://www.fn.gov.bc.ca/brdo/appoint/AppointmentGuidelines_PublicAgencies.pdf). It was also favoured by the
Uhrig Review (p101).

2.5.4 A similar principle operates in New Zealand where terms of up to three years are favoured.
A director may be reappointed for a second term of three years depending on the
director’s performance and their skills continuing to be relevant to the business.
However, a director may only be appointed for a third term of three years under
‘exceptional circumstances’. 19
2.5.5 There may be limited circumstances where this may not be appropriate. For example:
• The BRDO suggests that where a GBE requires a director with a highly specialised
skill set, it may be appropriate that the director serve for more than six years. In
general, Finance does not consider that this is relevant to the Australian context as
current GBEs operate in market sectors that are not so highly specialised that there
is great diffculty in attracting suitably qualifed candidates. Further, GBEs should
maintain a balance of skills on the board and retain the capacity to obtain specialist
advice on specifc issues to augment the board’s skills.
• Alternatively, there may be circumstances in which a GBE could beneft from
continuity through a period of major change or while the GBE is managing a
signifcant risk (such as a signifcant divestment or acquisition). In these cases, a
shorter reappointment period of one or two years might be appropriate. 20 Finance
considers that such exemptions might be relevant in the case of GBEs that are being
restructured, sold or wound-up or, where other exceptional circumstances exist,
which may necessitate such a reappointment.
2.5.6 Another relevant situation is the case of an existing director being appointed Chair of the
same GBE. In this case, extending the service period by up to three terms (making a total
of nine years) may be warranted to allow for an adequate period to make a contribution at
this level and to assist in providing continuity of direction for the GBE.
• The appointment of a Chair is a special case given the infuence that the position
holds over the GBE’s governance and strategic direction and an extended term
may therefore be appropriate. However, there is also a need for planning when
appointing new directors such that the transition to a new leadership team is as
seamless as possible.
2.5.7 Accordingly, Finance proposes that the GBE Guidelines be amended to introduce an
indicative total service period for non-executive directors of two terms (or a total of
six years), and in the case of the Chair three terms (or a total of nine years). Further
reappointments should be considered on a case-by-case basis, taking into account any
exceptional circumstances. Formalising this requirement should assist with periodically
updating board composition and addressing any potential perceptions that a decision to
not reappoint after two terms may be attributed to poor performance.
2.5.8 Finance also considers it appropriate to provide additional guidance on the criteria under
which the Chairs and the Shareholder Minister(s) may review a director’s position on a
board, to provide greater clarity in relation to expectations for performance and tenure, and
to minimise misunderstandings.
Exposure Draft
19 Crown Company Monitoring Agency Unit (CMCAU) 2007, Owner’s Expectation Manual, New Zealand, March 2002. p 43.
http://www.comu.govt.nz/resources/pdfs/oem-soe-07.pdf (This is also supported by the Uhrig Review (page 101).
20 Uhrig Review, page 101.
13

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Proposed Change:
3.7 2.13 Board appointments should normally be for terms of three years. The Board
Nomination and Remuneration Committee is free to include retiring Directors in its list of
candidates.
a. The term for non-executive directors should not normally exceed two terms (i.e. six
years) and for the Chair three terms (i.e. nine years). Appointment terms may be
staggered or varied in duration to maintain board continuity.
b. Appointments exceeding two terms will be considered on a case-by-case basis taking
into account exceptional circumstances.
3.6 2.14 The Remuneration Tribunal determines remuneration for directors that is compatible
with their roles and responsibilities, and having regard to, amongst other things,
rates paid by the private sector, and federal public offces.
3.8 2.15 The Shareholder Ministers may, at their discretion, remove directors at any time prior
to the completion of their term of appointment.
a. In the event that a GBE is not performing satisfactorily, the Shareholder Ministers
will initiate prompt remedial action. Dismissal of the directors would be considered,
particularly in any case of failure to keep Ministers adequately informed, and in
situations of ongoing under-performance in respect of fnancial or other aspects of the
operations of the business.
b. A director may be placed in a situation where continuing to be a GBE director could
embarrass the GBE or the Shareholder Minister(s). In such situations, the director
should raise the issue with their Chair immediately. The Chair in turn will decide
whether it is necessary to raise the issue with the Shareholder Minister(s). In a worst
case situation, the director may be asked to resign, or failing that, be removed.
2.6 Board Induction, Training and Performance Evaluation
2.6.1 As is the case in the private sector, board knowledge, skills and performance can be
strengthened through effective induction programs for new directors and ongoing training,
and regular performance reviews of all directors. 21 Better practice would also indicate that
senior managers could beneft from induction and training programs. 22
2.6.2 Training enables directors to build on their existing skills, and become more effective
participants in board discussions and in the execution of their directors’ duties. In addition,
regular board reviews provide an assessment of how a board is performing. Performance
reviews therefore serve as a guide to the effectiveness of directors and can improve
performance through feedback.
2.6.3 The ASX Corporate Governance Council’s revised ‘Corporate Governance Principles and
Recommendations – 2 nd Edition’ (the ASX Principles) recommends that the performance of
the board be reviewed regularly and that induction procedures include elements designed
to allow new board appointees to participate fully and actively in board decision-making. 23
Exposure Draft
21 ASX Corporate Governance Council, Corporate Governance Principles and Recommendations – 2nd Edition (ASX Principles), pp15 and 19 (August 2007).
http://www.asx.com.au/governance/corporate-governance.htm
22 ASX Principles, page 15.
23 ASX Principles, page 19.

2.6.4 These issues have also previously been considered by the Joint Committee of Public
Accounts and Audit (JCPAA) in Report No. 372 Corporate Governance and Accountability
Arrangements for Commonwealth Government Business Enterprises. (December 1999),
which recommended that the GBE Guidelines be amended to include a requirement
that GBE boards ensure that there are appropriate and effective induction, education and
training programs offered to new and existing directors. 24 More recently, the CAMAC
report expresses a similar position. 25 Finance considers that the GBE Guidelines should
also be amended to refect this position.
2.6.5 Finance continues to support the spirit of the recommendation and considers that the
GBE Guidelines should not be too prescriptive in mandating specifc program elements. In
this regard, GBE boards will have varying levels of experience and therefore should retain
some fexibility in determining the precise nature of their development needs.
2.6.6 However, as a general principle, Finance considers that directors should be encouraged to
attend training to build on their previous experience and skills and develop the additional
skills needed to enhance their contribution. Finance considers it appropriate to include
a general requirement in the GBE Guidelines for GBE boards to ensure that director
orientation and development mechanisms are in place and that senior managers also have
these opportunities.
2.6.7 A similar argument can be made in relation to board performance reviews. In that case,
the JCPAA also recommended that the GBE Guidelines be amended to include a section
requiring confdential board and director performance appraisal. 26 The responsibility for
assessing board performance rests with the GBE Chairs. Chairs are to conduct an
annual assessment of the performance of each director individually; the board as a whole
will assess the performance of itself; and the board will then assess the performance
of the Chair.
2.6.8 To enhance transparency and accountability, Finance recommends that GBE Chairs then
provide written confrmation to the Shareholder Minister(s) that this process has been
followed. There is no requirement for the Shareholder Minister(s) to be provided with
details of individual assessments.
2.6.9 Good governance requires that the respective powers and responsibilities of boards and
management are clearly defned. Finance recommends that boards establish and maintain
clear terms of reference for their sub-committees to defne their functions and powers
and to ensure that directors and management each have a clear understanding of their
respective responsibilities and roles.
2.6.10 The current GBE Guidelines are silent about expectations around board attendance. The
absence of a director can have an adverse impact on the board’s deliberations and may
bring into question their motivation and commitment to being on the board. Finance
considers that guidance around explicit expectations for board attendance, and the
sanctions for non-attendance, be included in the GBE Guidelines.
Exposure Draft
24 JCPAA Report No. 372 Corporate Governance and Accountability Arrangements for Commonwealth Government Business Enterprises
(JCPAA Report 372), page 68 (December 1999) at http://www.aph.gov.au/house/committee/jcpaa/GBE/contents.pdf
25 Australian Government Corporations and Markets Advisory Committee, Guidance for Directors April 2010.
http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFFinal+Reports+2010/$fle/Guidance_for_directors_Report_April2010.pdf
26 JCPAA Report 372, page 68, at http://www.aph.gov.au/house/committee/jcpaa/GBE/contents.pdf
15

16
Proposed Change: (New)
2.16 Boards are to work with departmental offcials, as representatives of the Shareholder
Minister(s) to develop and implement an appropriate induction and development
program for directors. Induction programs should incorporate information on general
public sector, legal, attendance, performance and accountability obligations.
2.17 On an annual basis, the GBE board as a whole will assess its performance; and the
board will assess the performance of the Chair. Chairs are expected to provide written
confrmation to the Shareholder Minister(s) that this process has been followed, and
raise any areas of concern with the Shareholder Minister(s) as required.
a. Part of the performance assessment will include a review of the level of director
attendance at board meetings. Directors are expected to attend all scheduled board
meetings, and attendance is to be reported in the annual report. Chairs are to raise
on-going non-attendance issues with the Shareholder Minister(s) for consideration
and possible further action.
2.18 Boards are to ensure that board committees do not duplicate work performed by the
CEO and management. The composition and charter of each board committee should
be reviewed annually by 1 December each year to ensure that they remain appropriate in
the context of the governance needs of the GBE.
Exposure Draft

Part 3 - Planning and Reporting
(Previously Part 2, Reporting)
3.1 Requirements
3.1.1 Since the publication of the GBE Guidelines in 1997, there have been a number of
legislative developments which prescribe the reporting requirements and obligations to be
met by GBEs.
3.1.2 The CAC Act for Commonwealth authorities and the Corporations Act for Commonwealth
companies comprehensively describe the main requirements and rules for the effcient
and timely fow of information between the government and the GBEs in line with their
accountability to the Parliament and the public. Accordingly, Finance proposes to update
the GBE Guidelines to refect these subsequent legislative changes.
Proposed change: (New)
3.1 The planning and reporting requirements for GBEs are contained in the CAC Act and
Orders, with additional requirements for Commonwealth companies contained in the
Corporations Act. The reporting requirements outlined in these Guidelines can be
summarised as follows:
Requirement Commonwealth Commonwealth
Authorities Companies
Corporate Plan content CAC Act Section 17 CAC Act Section 42
Annual Reports CAC Act Section 9 CAC Act Section 36
Statement of Clause 15 of the CAC Recommended to
Governance Act Orders 2.2 follow Clause 15 of the
CAC Act Orders
Report on Operations CAC Act Schedule 1 CAC Act Division 2
and Financial Corporations Act 2001
Statements (Chapter 2M);
Additional Notifcation CAC Act Sections 15 CAC Act Sections 40
Requirements and 16 and 41
Supplementary Interim
Reports
CAC Act Section 13 CAC Act Section 38
Performance Audit Auditor-General Act Auditor-General Act
1997 section 16 and 17 1997 section 16 and 17
Exposure Draft
17

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3.1.3 This information fow also enables the Shareholder Minister(s) to exercise oversight of
GBEs with particular focus on strategic direction and meeting performance objectives.
From the Commonwealth’s perspective, the two principal objectives for GBEs are: to
maintain and enhance shareholder value and to manage risk.
3.1.4 To assist GBEs in meeting these objectives, and to assist the Shareholder Minister(s) in
monitoring GBE performance against these objectives, we propose to align GBE planning
and reporting requirements with the private sector and expand on the requirements
of the CAC Act and the Corporations Act. The requirements also align with practices
recommended by the OECD and practices outlined by other jurisdictions, such as the
Victorian Department of Treasury and Finance, and the New Zealand Treasury.
3.1.5 The timing of GBE planning, reporting and distribution requirements outlined in the
legislation can be simplifed using a visual framework. Meeting the key dates outlined in
the framework is an important feature of an open, accountable and transparent relationship
between GBEs and the Shareholder Minister(s).
3.1.6 In particular, the revised GBE Guidelines recommend that the timeframe for receipt of
quarterly reports should be one month after the period end (previously six weeks) and the
timeframe for the Shareholder Minister(s) to comment or provide feedback on progress
reports should be shortened to one month from receipt. This shorter timeframe will allow
for a more timely reporting and responding cycle.
Proposed Change: (New)
3.2 GBEs are to provide the Shareholder Minister(s) with a series of annual corporate
planning and reporting documents for comment and review by the key dates shown in
Table 2. GBEs are to engage with the Shareholder Minister(s) early in the reporting and
planning processes to allow suffcient time for GBEs to build Government priorities into
the processes.
a. In reviewing the documents, the Shareholder Minister(s) may seek clarifcation of the
information provided, or request certain amendments.
Exposure Draft

Table 2: Best Practice Timetable for GBE Reports and Dividends
Exposure Exposure Draft Draft
19

20
3.2 Corporate Plans
3.2.1 GBEs are required to prepare a corporate plan at least once a year and provide it to the
Shareholder Minister(s) under sections 17 and 42 of the CAC Act (for Commonwealth
authorities and companies respectively).
3.2.2 Subsections 17(6) and 42(6) of the CAC Act specify what information GBEs are to include
in corporate plans (so far as they are applicable). Finance considers that this specifc
information should be outlined in a subsidiary instrument to the CAC Act and in a form
that would facilitate periodic amendment. As such, Finance considers that the information
contained in these subsections should be removed from the CAC Act and instead
prescribed under the CAC Regulations.
3.2.3 In making reference to the GBE’s mandate in the corporate plan, GBEs are to distinguish
between core business (activities that are in line with existing core competencies) and
non-core business (activities that require new competencies to be developed). The
distinction between core and non-core business relates to the threshold for the
Shareholder Minister(s) consultation requirements (refer also to 3.6.5).
3.2.4 GBEs are also required to provide a number of key fnancial and non-fnancial performance
indicators in corporate plans. As a minimum, Finance would expect GBEs to ensure
that the KPI information contained in the corporate plan refects the GBE’s performance
across a fve-year period (two prior years and three forward years) to facilitate the analysis
of trends and longer term performance. The Victorian Government has published a
comprehensive guide to the information required to allow for comparison and analysis of
their state-owned enterprises 27 with other like businesses and Finance considers that the
provision of similar fnancial information would be appropriate.
3.2.5 It should be noted that Finance considers the list of KPIs to be a minimum for measuring a
GBE’s fnancial and non-fnancial performance. Boards and/or the Shareholder Minister(s)
may propose and agree other indicators that are relevant to measuring the performance of
the GBE. In recognising that it may not be valuable to report against each KPI in quarterly
progress reports, some KPIs will only be measured on an annual basis. This recognises
that for some KPIs, quarterly measurement will not contribute anything useful to the
assessment of performance.
3.2.6 To strengthen the reporting of annual performance by each GBE, the Corporate Plan is to
include an estimate of the current shareholder (commercial) value of the Commonwealth’s
investment in the GBE and how that value was assessed. This will enable the Shareholder
Minister(s) to determine whether GBE boards are increasing shareholder value over time.
While the preference is for such valuations to be determined using a discounted cash fow
methodology, other methodologies which may be more appropriate for individual (smaller)
GBEs can be used.
Exposure Draft
27 http://www.dtf.vic.gov.au/CA25713E0002EF43/pages/publications-regulation-guidelines#corporateplanningrequirements, Victorian Government,
Corporate Planning & Performance Reporting Requirements for Government Business Enterprises October 2009, page 18 outlines a comprehensive
table of both fnancial and non-fnancial Key Performance Indicators and the information required to develop the measures.

Proposed Change: (Replaces entire 2.1)
2.1 3.3 Corporate plans are to be prepared in accordance with the appropriate section of the
CAC Act and Corporations Act (refer summary at paragraph 3.1).
a. To supplement the information required to be provided in GBE corporate plans under
the CAC Act and the Corporations Act, the plans should include details of the following
matters (so far as they are applicable):
i. details of the broad mandate of the GBE, (including a summary of core activities
that are in line with existing core competencies, and proposed non-core activities
that require new competencies to be developed), together with a summary of
those functions that may require its retention as a government owned GBE;
ii. an estimate of the current commercial value of the Commonwealth’s investment in
the GBE and how that value was assessed, with the expectation that a discounted
cash fow methodology would be used as the valuation basis, unless otherwise
agreed by the Finance Minister;
iii. fnancial projections, to be prepared in the same format as the progress and
fnal report and consisting of proft and loss statement, balance sheet and cash
fow statement;
iv. capital expenditure projections linked to the physical assets of the GBE (where
material), its business objectives and acquisition, maintenance and disposal plans;
v. cash fow (liquidity) projections;
vi. a summary of the GBE’s risk management policies, material risks and strategies
for managing these risks. This is in addition to the requirements set out in
paragraph 4.15 (refer guidance in Part 4 Financial Governance); and
vii.proposed borrowing(s) (refer guidance in Part 4 Financial Governance).
b. If the GBE has a subsidiary (or subsidiaries), the reporting is to cover both the GBE
and its subsidiaries.
c. GBEs are to incorporate targets for the following minimum key performance indicators
(KPIs) across a fve-year period (two prior years and three forward years) in corporate
plans, and if appropriate results are to be reported in quarterly progress reports as
outlined in the table below:
Exposure Draft
21

22
Measure Key Performance
indicator
Defnition
Financial Total shareholder (Commercial value at end, less commercial
Performance return
value at start plus dividends paid less equity
injected)/commercial value at start
Dividend yield Dividends paid/average commercial value
Dividend payout Dividends paid/net cash fow from operating
ratio
activities less depreciation expense
EBIT Earnings before net interest and tax
EBITDA Earnings before net interest, tax, depreciation,
amortisation and fair value adjustments for
fnancial instruments
Return on equity
(RoE)
Net proft after tax/average equity
Net proft after tax
(NPAT)
The bottom line of the Income Statement
Underlying net proft The bottom line of the Income Statement
after tax
adjusted for one-off items and AASB fair value
movements
Business Operating margin EBITDA/operating revenue
Effciency Return on capital EBIT adjusted for AASB fair value movements
employed
(net of tax)/average capital employed. Capital
employed is defned as total assets less current
liabilities
Debtors age (days) (Debtors/revenue) x 365
Leverage/ Gearing Ratio Net interest bearing debt/net interest bearing
Solvency
debt plus equity
Interest Cover EBITDA/interest paid
Current ratio Current assets/current liabilities
Liquidity Ratio Cash and equivalents/current liabilities
Customers Customer
Percentage of customers rating the GBE very
and
Satisfaction
good or excellent as determined by survey
Stakeholders Meeting Community
Service obligations
Staff Staff Retention and Number of staff replaced/average number of
turnover rates staff for the period
Staff Satisfaction Percentage of staff very/extremely satisfed as
determined by survey
Lost time injury
frequency rates and
OHS incident rate
Lost time injuries per million hours worked
Wages expense
ratio
Cost of wages and salaries/operating revenue
Exposure Exposure Draft Draft
d. The Shareholder Minister(s) may propose and agree other indicators that are relevant to the
measuring of the performance of the GBE, to be included in the corporate plan prior to the
Shareholder Minister(s) responding to the plan.

3.3 Statement of Corporate Intent (SCI)
3.3.1 A SCI is prepared in conjunction with a GBE’s corporate plan each year and tabled in the
Parliament. The SCI is a forward looking document, which is designed to provide the
Parliament with a high level summary of the GBE’s objectives, accountability regime and
broad performance expectations for the period covered by the SCI.
3.3.2 While the SCI is necessarily prepared at a high level to prevent the disclosure of
commercially sensitive information that might damage the GBE’s competitive position,
the SCI plays an important role in providing the Parliament and the public with information
about the GBE’s prospective activities.
3.3.3 When read alongside the GBE’s annual report, the SCI provides a more complete picture of
the GBE’s objectives and achievements during the year. However, given its forward-looking
nature, the SCI is not designed to be the primary document upon which the Parliament
assesses GBE performance, rather the annual report fulfls this function.
3.3.4 Finance proposes that the SCI’s role could be further enhanced through two
additional measures.
3.3.5 Firstly, while SCI’s are tabled in the Parliament, their accessibility to the public could be
enhanced by requiring publication on GBE websites. Websites have, in recent years,
become a major point through which the public accesses information (such as annual
reports) on private sector and government entities. Most GBEs already publish their SCI
on their website, and Finance considers it is appropriate to formalise this as a requirement
in the GBE Guidelines. 28
3.3.6 Secondly, accountability to the Parliament could be enhanced through GBE annual reports
including reporting of achievements against SCI expectations of performance.
3.3.7 While some level of reporting of performance against corporate plan objectives is currently
required of Commonwealth authority GBEs in their Report of Operations, 29 no equivalent
reporting requirements currently exist for Commonwealth companies through the director’s
report required by the Corporations Act. 30
3.3.8 Reporting against SCI objectives would assist interested stakeholders in following the
achievements of specifc GBE objectives from the time they are set, through to when
outcomes are achieved. This change was also recommended by the OECD in its Corporate
Governance Guidelines 31 and the Australian National Audit Offce in its report Agencies’
Performance Monitoring of Commonwealth Government Business Enterprises. 32
Exposure Draft
28 http://www.comu.govt.nz/resources/pdfs/oem-soe-07.pdf
29 Clause 10(1) of the Commonwealth Authorities and Companies (Report of Operations) Orders 2005.
http://www.comlaw.gov.au/comlaw/Legislation/ActCompilation1.nsf/0/D01E012B7D5A01A3CA256FC3007EE1EF/$fle/CwlthAuthCompanies1997_WD02.pdf
Note that these Orders do not currently apply to companies registered under the Corporations Act 2001.
30
Annual reporting by companies registered under the Corporations Act 2001, including Commonwealth companies, is covered by Part 2M.3 of the
Corporations Act 2001.
31 OECD Guidelines on Corporate Governance of State-Owned Enterprises 2005, page 42 www.oecd.org/daf/corporateaffairs/soe/guidelines
32 http://www.anao.gov.au/director/publications/auditreports/2000-2001.cfm?pageNumber=4 Australian National Audit Offce, Report No. 15, 2000-2001,
Agencies’ Performance Monitoring of Commonwealth Government Business Enterprises p69.
23

24
Proposed Change:
2.6 3.8 The SCI is a brief (no more than fve pages), high level, plain English document that is
to be no more than fve pages expressed in terms of outputs programs or outcomes. It
is an integral part of the corporate plan, but does not include commercial-in-confdence
commercially sensitive information. An SCI would normally contain a business
description and mission statement, corporate vision, objectives, code of ethics, values
of the GBE, statement of accountability (including reporting obligations) and broad
expectations on fnancial and non-fnancial performance selected key indicators of
fnancial and non-fnancial performance as outlined in paragraph 3.3(c) above.
2.7 3.9 The SCI is GBEs are to arrange for the SCI to be tabled in the Parliament within ffteen
sitting days of the Parliament, following the start of the new fnancial year and then be
published as soon as practicable on the GBE’s website.
3.4 Progress Reports
3.4.1 Periodic progress reports are an important mechanism in ensuring that GBEs are
accountable for their performance to the government. The reports play an important role
in enhancing the Shareholder Minister(s)’ understanding of the operations and fnancial
performance of GBEs, the risks of their operations and factors infuencing their operating
environment. Performance reports also assist offcials in providing high quality advice and
assurance to the Shareholder Minister(s) on the performance and risks of the GBE.
3.4.2 The current GBE Guidelines provide for the preparation of six-monthly progress reports by
GBEs, or by agreement with the Shareholder Minister(s), quarterly reports. 33 In practice,
quarterly reporting has been adopted for all GBEs and the framework is working well for
all entities.
3.4.3 Finance considers that quarterly performance reports should be formally adopted by all
GBEs as the default reporting arrangement, with alternative arrangements agreed by
the Shareholder Minister(s) on an exceptions basis. In general, there is a reasonable
expectation that quarterly reporting would not be a signifcant imposition on GBEs given
that the management of each GBE will already be preparing some form of regular reporting
for its board in order to assist it in executing its fduciary duties.
3.4.4 GBE progress reports are evolving documents that have been tailored to meet the
government’s requirements over time. In each case, they provide analysis of performance
against the corporate plan, including a mix of fnancial information, trends, major
milestones and operational information. The reports serve both to update the Shareholder
Minister(s) on the GBE’s achievements and emerging risk factors and to facilitate analysis
by departments advising Minister(s).
3.4.5 Finance considers that there is merit in the GBE Guidelines outlining those aspects of
quarterly progress reports that are central to adequately understanding GBE performance
and fulflling the oversight function. There is currently little guidance on this in the GBE
Guidelines and some general principles could assist GBEs in preparing these reports.
3.4.6 In particular, we suggest that the GBE Guidelines require a reporting format that compares
quarterly and year-to-date performance information against the forecasts outlined in the
corporate plan for that fnancial year. This would include detailed analysis of revenue and
expense performance for the period and explanations of deviations from budgeted and
corporate plan forecasts. 34
Exposure Draft
33 GBE Governance Arrangements, paragraph 2.8.
34 Refer to New Zealand Crown Company Monitoring Advisory Unit Owner’s Expectations Manual for State Owned Enterprises, October 2007 (page 17);
http://www.comu.govt.nz/resources/pdfs/oem-soe-07.pdf

3.4.7 The focus on comparing budgeted and corporate plan forecasts with quarterly results
would not only allow the Shareholder Minister(s) to understand how the performance of
the GBE has compared with its intentions at the start of the planning period, but would
also provide a general indication of its accuracy in forecasting. Notwithstanding this focus,
and consistent with current practice, those GBEs providing revised forecasts for the full
year could continue to provide this information to indicate how their evolving business
environment will impact on full year results.
3.4.8 Finance understands that GBEs periodically re-forecast their year-end outturn, depending of
performance against budget during the year. Accordingly, Finance is seeking to strengthen
the GBE Guidelines to refect the reporting of these re-forecasts to ensure the changes are
captured and explained in the quarterly reports.
3.4.9 Finance considers that reports should at a minimum include analysis of the GBE’s
performance against its broader corporate plan objectives (including its KPIs and
operational performance targets/forecasts) during the period, along with explanations for
any changes to corporate plan objectives. 35
3.4.10 In addition, Finance considers that reports should include commentary on any emerging
issues or changes to risk factors that might have a material impact on the GBE’s
performance for the rest of the fnancial year and/or into the future.
Proposed Change:
2.8 3.10 Confdential six monthly reports (or quarterly reports, as agreed from time to time
by the Shareholder Ministers) quarterly progress reports are to be provided by the
Chair directors of a wholly owned GBE to the Shareholder Minister(s) on progress
against, and any changes to, the corporate plan. one month after the period end. The
minimum requirement for progress reports is that they should include:
a. analysis of the GBE’s quarterly and year-to-date performance against corporate plan
forecasts for the corresponding period, including detailed analysis of revenue and
expense (including capital expenditure) performance for the period and explanations
for deviations from corporate plan forecasts;
a b. progress reports include fnancial statements, the format of which is approved by the
Finance Minister;
c. analysis of the GBE’s performance against its broader corporate plan objectives
(such as its KPIs and operational performance targets/forecasts where relevant)
including any major achievements during the period along with explanations for any
changes to strategies;
d. commentary on any emerging issues and risks or changes to risk factors that might
have a material impact on performance. Details of strategies for managing any
material risks that were not identifed in the corporate plan should also be provided.
This is in addition to the requirements set out in paragraph 4.15 below;
e. a clear statement of the GBE’s outlook for the rest of the fnancial year in terms
of meeting its full year re-forecast outturn, key risks and opportunities arising and
management plans; and
Exposure Draft
f. commentary on progress in meeting CSOs (where relevant).
35 Refer also to the New Zealand COMU State Owned Enterprise Guidelines (SOE Reporting and Accountability);
http://www.comu.govt.nz/about-comu/accountability/
25

26
3.5 Annual Reports
3.5.1 The annual reporting process is an important element of the GBE governance framework
via which GBEs are required to review and report on their on-going performance against
publically stated performance measures. To facilitate this on-going monitoring and
scrutiny of performance, annual reports are to contain the information necessary to
enable an informed assessment of the GBEs performance against the broad performance
36, 37
expectations that have been included in the previous year’s SCI.
3.5.2 The development and maintenance of frameworks and practices which facilitate
transparency, accountability and disclosure are at the core of strong corporate governance.
Although strong corporate governance is not a guarantee of future performance, many
experts agree that there is a strong correlation between sound corporate governance and
sound corporate outcomes in both the private and public sectors. A well governed GBE
will be more likely to be effcient and to produce effective outcomes.
3.5.3 Accordingly, Finance considers that the quality of the reporting would be enhanced by
requiring GBEs to include a statement summarising the corporate governance practices
of the GBE in their annual reports. To ensure consistency in reporting across the various
GBEs, the report is to refer to the governance reporting guidelines set out in the CAC Act.
3.5.4 The Auditor-General may conduct a performance audit of a Commonwealth authority or
a Commonwealth company that is a GBE, or of any of its subsidiaries, if the Shareholder
Minister(s) or the Joint Committee of Public Accounts and Audit request the audit.
Following completion, the report of the audit is to be tabled in both Houses of Parliament
as soon as possible. Finance proposes to update the GBE Guidelines to refect these
aspects of the accountability framework.
Proposed Change:
2.11 3.13 The directors of GBEs are required to provide an annual report or the annual general
meeting documents, to the Shareholder Minister(s). The portfolio Minister tables
the report or documents in each House of the Parliament. in accordance with the
requirements of the CAC Act.
a. Where a GBE is a statutory Commonwealth authority the annual report or the fnancial
statements included therein, is prepared in accordance with guidance promulgated by
the Finance Minister. the CAC Act, the authority’s enabling legislation and any other
applicable legislation and guidance issued by the Finance Minister or portfolio.
b. Where a GBE is a company, the annual report is prepared in accordance with the CAC
Act and the Corporations Act.
(i) The annual report of a company GBE should include a statement of the main
corporate governance practices that the GBE had in place during the reporting
period, similar to that required by the Australian Stock Exchange (ASX) listing rules.
An indicative list of matters that a GBE may include when making the statement is
included at Attachment A.
Exposure Draft
c. GBEs should include comments on performance against the fnancial and non-fnancial
expectations outlined in the SCI relating to that fnancial year.
36 Australian National Audit Offce Audit Report 15 2000-2001 Agencies’ Performance Monitoring of Commonwealth Government Business Enterprises,
Recommendation No 3 (page 70) http://www.anao.gov.au/director/publications/auditreports/2000-2001.cfm?pageNumber=4
37 Refer Paragraphs 3.3.2 and 3.3.7 of this discussion paper.

2.11b(i) 3.14 The current disclosure requirements for the Statement on Governance
are outlined in the Commonwealth Authorities and Companies (Report of
Operations) Orders (the Orders). While the Orders only apply to Commonwealth
authorities, Commonwealth companies should, as a matter of better practice,
also include a Statement on Governance in their report on operations covering
the matters outlined in the Orders.
2.13 3.16 GBEs are to note that the Auditor-General may is able to conduct a performance
audit of a wholly owned GBE Commonwealth Authority GBE or a wholly-owned
Commonwealth Company GBE, or any of its subsidiaries in certain circumstances
in the circumstances outlined in the Auditor-General Act 1997.
3.5.5 The requirements for the preparation of Interim Reports are now detailed in the CAC Act
for both GBEs that are Commonwealth authorities and GBEs that are Commonwealth companies.
Finance proposes to update the GBE Guidelines to refect the requirements of the CAC Act.
Proposed Change:
2.14 The Finance Minister may require:
(a) the directors of a wholly owned GBE to prepare an interim report covering operations
for the frst six months, or for the frst three, six and nine months of each fnancial
year; and
(b) to provide it to the portfolio Minister within 2 months after the end of the period to
which the report relates.
3.17 The Finance Minister may require the directors of a wholly-owned GBE to prepare an
interim report in accordance with the requirements of the CAC Act.
3.6 Keeping Shareholder Minister(s) Informed
3.6.1 Shareholder Minister(s) are ultimately accountable to the taxpayers of the Commonwealth
for the performance of the GBEs. The transparency of GBE performance is important to
Shareholder Minister(s), and the principle of ‘no surprises’ is critical to the relationship
between the Shareholder Minister(s) and GBE boards. The relationship between offcials
and the senior management of GBEs is also critical to the free fow of information required
to keep the Shareholder Minister(s) informed and for any business initiatives the GBEs may
wish to undertake.
3.6.2 Paragraph 2.17 of the current GBE Guidelines provides that GBEs follow a disclosure principle
that is similar to the continuous disclosure requirements of the ASX Listing Rules. 38
3.6.3 However, the ASX listing rules are designed for publicly-listed entities whose shares are
traded daily on the ASX. As government-owned entities, GBEs are subject to a different
governance and accountability framework compared to ASX listed entities, including the
CAC Act and associated instruments. For example, sections 15 and 16, 40 and 41 of the
CAC Act, for Commonwealth authorities and companies respectively, require entities to
notify the Responsible Minister(s) of signifcant events.
Exposure Draft
3.6.4 Accordingly, Finance proposes to supplement any reference to the disclosure requirements
of the ASX Listing Rules with the requirements with the CAC Act.
38 The continuous disclosure requirements for ASX listed entities are covered under Chapter 3 ‘Continuous Disclosure’ of the ASX Listing Rules
http://www.asxgroup.com.au/asx-listing-rules-guidance-notes-and-waivers.htm
27

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Proposed change: (replaces 2.17, 2.18 and 2.10 entirely)
2.17 and 2.19 3.19 The directors of a Commonwealth authority GBE or a wholly owned
Commonwealth company GBE are required to keep the Shareholder Minister(s) informed of
the operations of the GBE and its subsidiaries and should follow a disclosure principle which is
similar to the continuous disclosure requirements of the Australian Stock Exchange listing rules.
a. Should a GBE become aware of any information that may have a material effect on
its value and/or performance 39 , that information must be immediately provided to the
Shareholder Minister(s).
b. Directors are required to give the Shareholder Minister(s) such other information in
relation to the GBE’s operations as the Shareholder Minister(s) require(s), within the
time limits set by the Minister(s).
c. Where there are two Shareholder Minister(s), all correspondence and reports from GBEs
should be sent to both Ministers simultaneously. Whilst the Shareholder Minister(s)
will consult in relation to all correspondence, they may decide that, in relation to some
matters, one of the Ministers will correspond on behalf of both Ministers.
d. The Shareholder Minister(s) may consult with the Prime Minister and/or Treasurer
about any material matter (as defned above) affecting the value of the GBE, and
provide copies of corporate plans, progress reports and correspondence on other
major matters to the Prime Minister and/or the Treasurer for possible comment.
3.20 Additional notifcation requirements are contained in the CAC Act for both GBEs that are
Commonwealth authorities, and for GBEs that are Commonwealth companies.
3.6.5 Signifcant business opportunities and other matters arising outside the corporate planning
and approval process require separate consideration by the Shareholder Minister(s). As
these matters may include changes to the strategic direction agreed in the corporate
planning process, GBEs will need to prepare a separate proposal for Shareholder Ministerial
consideration prior to entering into new agreements or altering agreed strategic direction.
3.6.6 Finance is proposing that GBEs be required to prepare and submit a business case to the
Shareholder Minister(s) outlining the background and rationale for each proposal.
3.6.7 To facilitate prompt consideration of business cases by the Shareholder Minister(s), GBEs
are to provide the necessary information in a comprehensive and timely manner. The
proposal is to contain information outlined in the appropriate CAC Act sections for both
GBE authorities and for GBE companies. The Victorian government’s guidelines set out
similar requirements to those outlined in the CAC Act. 40
3.6.8 In addition, Finance considers that some indication be provided to GBEs to assist in
determining when to advise the Shareholder Minister(s) of information that may impact
GBE performance and results. Finance considers that the provision of a threshold
percentage of the GBE’s shareholder value will be of assistance to GBEs in determining
the materiality of information to be provided.
3.6.9 Finance also considers that the provision of an appropriate threshold value will assist
GBEs in determining the threshold value for notifcation of business cases. The threshold
dollar value for consultation is to be agreed between the GBE board and the Shareholder
Minister(s) as part of the annual planning process.
Exposure Draft
39 Finance considers 5% of the GBE’s commercial value is an appropriate threshold.
40 Victorian Government, ‘Corporate Planning & Performance Reporting Requirements’ for Government Business Enterprises October 2009, page 8;
http://www.dtf.vic.gov.au/CA25713E0002EF43/pages/publications-regulation-guidelines#corporateplanningrequirements

Proposed change: (New)
3.21 Proposals for signifcant business initiatives 41 should be developed for inclusion in the
normal corporate planning cycle. Should an urgent initiative arise which is unable to
wait for inclusion in the planning cycle, it is to be treated as a notifable signifcant event,
pursuant to the CAC Act. GBEs are required to notify and consult with the Shareholder
Minister(s) prior to entering into any identifed major business opportunities. These
should include, but not be limited to, new business ventures, major contracts and capital
raising proposals.
3.22 Unless otherwise agreed, GBE boards are required to submit business cases outlining
new proposals to the Shareholder Minister(s) for consideration. GBEs should
distinguish between business cases that relate to core business and those that relate
to non-core business. The threshold dollar value for consultation for proposed non-core
business opportunities will be lower than that for core business opportunities and is to
be agreed in consultation between the board and the Shareholder Minister(s) as part of
the annual corporate planning process. As a minimum, business cases should address
the following:
a. the rationale for the project and an explanation of how it fts into the GBE’s
corporate strategy;
b. cost, anticipated return (net present value), the effect on shareholder value and some
measure of the project’s risk;
c. key assumptions around revenue and costs (including base case, scenarios and
sensitivity analysis), plus key risks and mitigation strategies;
d. proposed funding strategy;
e. the impact on the GBE’s capital structure and credit rating (if applicable); and
f. expected outcome and impact on future dividends.
3.23 GBEs should allow a reasonable amount of time (not less than 10 working days) for the
Shareholder Minister(s) and their department(s) to respond to any business case, and
factor that into the decision making timeframe.
3.24 All business case proposals, subsequent updates and supplementary information are
confdential to the Shareholder Minister(s), their advisers and departments.
3.7 Commercial Freedoms
3.7.1 Given the different commercial environments, business activities and risk profles of each
GBE, it has been necessary to develop additional GBE-specifc guidance and limitations on
the business activities of some GBEs, on a case-by-case basis.
3.7.2 Currently Medibank Private Limited, Australia Post and ASC Pty Limited have these
frameworks in place, variously termed ‘Commercial Freedoms Frameworks’ or ‘Tasks and
Responsibilities’ documents. Finance proposes to formalise this element of the existing
governance framework by linking GBE-specifc Commercial Freedoms Frameworks to
the GBE Guidelines to ensure clarity exists in relation to the context within which such
Commercial Freedoms Frameworks are developed and maintained.
Exposure Draft
41 Finance considers a threshold value of 5% of total shareholder equity for larger GBEs and 10% of total shareholder value for small GBEs.
29

30
Proposed Change: (New)
3.25 The Shareholder Minister(s) may, in consultation with the board, establish further guidance
and limits on the activities of a GBE. This will be documented in the form of a Commercial
Freedoms Framework appropriate to the commercial activities, environment and risk
profle of the GBE, having regard to the GBE’s mandate as agreed by the Government.
3.8 Annual General Meetings
3.8.1 The current GBE Guidelines are silent on requirements for GBEs relating to the conduct
of annual general meetings (AGMs). As some GBEs are able to seek written shareholder
resolution in lieu of holding a physical meeting, many GBEs do not currently conduct
AGMs. Finance considers the conduct of a physical AGM to be a sound opportunity to
provide feedback to the board (and not just the Chair) on the GBE’s performance and also
to engage with the board on GBE strategy.
Proposed Change: (New)
3.26 GBEs are to conduct Annual General Meetings, to which the Shareholder Minister(s)
or their delegate(s) are invited to attend. The focus of the meetings will be to discuss
both the board’s and the GBE’s performance over the past year and to engage on the
development of strategy going forward.
Exposure Draft

Part 4 - Financial Governance
4.1 Capital Structure and Dividend Policy
4.1.1 As is the practice in the private sector, it is important for GBEs to maintain an appropriate
capital structure, as this imposes a discipline on GBEs to both optimise effciency and to
maximise returns to the shareholder. The appropriate capital structure for each GBE is to
be determined by the board in consultation with the Shareholder Minister(s) as part of the
annual planning and reporting cycle. It is important that the capital structure of each GBE
incorporates an appropriate mix of debt and equity, as this supports shareholder objectives of
maximising the value of each GBE 42 and reduces opportunities for inappropriate goal setting.
4.1.2 Finance would like to strengthen the processes for establishing and monitoring progress
towards an appropriate capital structure in the context of the annual corporate planning
process. The proposed changes provide for increased scrutiny of capital expenditure
proposals and dividend forecasts in the corporate plan consultation process. Specifc
guidance for a suitable credit rating is also provided as an appropriate target for GBEs.
4.1.3 Please note that some of the changes proposed below in respect of fnancial governance
are taken up as proposed changes to earlier parts, particularly Part 1.8c.
Proposed Change:
1.6 1.8 A principal objective for each GBE is that it adds to its shareholder value. To
achieve this it is required to:
c. earn at least a commercial rate of return;
i. This means recovering the full cost of resources employed, including the
cost of capital; and
ii. Each GBE is to work towards a principal fnancial target and a dividend
policy, agreed in advance with the Shareholder Minister(s), with the principal
fnancial target to be set on the basis that each GBE should be required to
earn commercial returns at least suffcient to justify the long-term retention of
assets in the business, and to pay commercial dividends from those returns.
1.7 1.9 In addition to setting a commercial rate of return principal fnancial target, the
Shareholder Minister(s) may set other fnancial targets and non-fnancial targets,
for particular GBEs, on a case-by-case basis in consultation with the GBE (refer
also to paragraphs 2.2 and 3.3c).
Exposure Draft
42 Review of GBE Governance Arrangements, Richard Humphry AO March 1997, page 48.
31

32
Proposed Change:
4.1 Each GBE should have a target an optimal capital structure (the combination of fnancial
liabilities and equity used to fund the assets of the GBE) that is agreed annually between
the board directors and Shareholder Minister(s) in the corporate plan consultation process.
a. An optimal capital structure is one that, in light of economic, industry and frm
GBE specifc factors, would provide for an investment grade credit rating, whilst
at the same time imposing a discipline on the GBE to optimise effciency. Finance
recommends a target minimum credit rating of BBB.
b. As part of developing a target optimal capital structure, consideration will be given
to the forecast level of capital expenditure in the GBE’s annual corporate plan, and
appropriate options for funding capital expenditure (including via retained earnings or
debt). Consideration will also be given to longer term objectives outlined in a GBE’s
annual corporate plan.
c. 4.3 In providing for a GBE to expand its capital base through retained earnings,
any proposed future capital expenditure should add shareholder value. That is, as
a minimum, capital expenditure plans should must meet a hurdle rate of return
that is consistent with the GBE’s principal fnancial target (as discussed under the
subheading) (refer paragraphs 1.8 and 4.7, ‘Financial Targets for GBEs’).
4.2 A GBE’s level of estimated dividends (and forecast payout ratio) is to be agreed
annually between the board and the Shareholder Minister(s) through the corporate plan
consultation process and should have regard to the maintenance of, or progress toward,
its optimal capital structure.
a. In that context the The level of estimated dividends shall be driven by the desired
capital structure, the proftability of the enterprise, and the level of agreed future
capital expenditure.
b. The proposed dividend payout ratio and estimated dividend payment should be
included in the corporate plan for each year covered by the plan.
c. 4.4 The agreed dividend payout ratio should take account of the Government’s
preference for dividends over capital gains. (a payout ratio greater than 60% of
profts after tax and abnormals would refect that preference), but the payout for each
year and for each GBE should relate principally to the considerations described in
paragraph 4.2 above.
d. Profts generated by subsidiaries are to be taken into account in agreeing the level of
estimated dividends and forecast payout ratio.
4.2 Financial Targets for GBEs
4.2.1 Finance considers that the use of a target-setting and performance measurement approach
to fnancial governance and reporting supports and promotes a value-adding perspective
by both the Commonwealth and the GBEs which will drive both improved decision making
and effcient and effective performance.
Exposure Draft

4.2A Weighted Average Cost of Capital
4.2.2 Paragraphs 4.9 and 4.10 of the current GBE Guidelines require that GBEs classifed as
trading GBEs should use the Weighted Average Cost of Capital (WACC) as their principal
fnancial target as recommended by the ANAO 43 and accepted by government. The WACC
target is designed to encourage businesses to target returns suffcient to justify the assets
used in the business and cover the cost of capital employed.
4.2.3 More specifcally, the WACC requires that returns are suffcient to cover the cost of debt and
the cost of equity, which is generally estimated via the capital asset pricing model (CAPM).
4.2.4 Finance considers that the WACC remains a useful fnancial target for most GBEs.
However, for GBEs that are service-based and carry little or no debt as part of their optimal
capital structure (such as the Australian Government Solicitor), the WACC will essentially
be the cost of equity calculation. This is because the cost of debt calculation will be zero
where there are no borrowings or very low where the GBE has limited borrowings.
4.2.5 For newly established GBEs and for GBEs that are in the process of being wound up,
it may be appropriate to target the achievement of relevant principal and other fnancial
targets over the medium term. Nevertheless, establishing appropriate fnancial targets in
consultation with the Shareholder Minister(s) on an annual basis is required to drive the
decisions of the GBE.
4.2.6 The current GBE Guidelines defne adding to shareholder value as where the return on
assets (ROA) is increased. However, the ROA does not necessarily refect shareholder
value. Rather, the ROA is used to determine the effciency of the business i.e. the return
generated from the assets held.
4.2.7 Finance therefore proposes that reference to the ROA be removed and that the revised
GBE Guidelines defne adding to shareholder value in the context of meeting or exceeding
the fnancial targets agreed with the Shareholder Minister(s) including the principal fnancial
target related to WACC.
4.2.8 Other performance measures remain important and the revised GBE Guidelines will
continue to provide scope for GBEs and the Shareholder Minister(s) to discuss additional
fnancial targets and measures. This will continue to promote a more robust and holistic
approach to determining GBE performance.
Proposed Change:
Financial Targets for GBEs
4.13 4.7 All GBEs are required to add to shareholder value in their operations with a view to
at least meeting the fnancial targets agreed by the Shareholder Minister(s) in the
annual corporate plan.
a. Increases in shareholder value are achieved when the return on assists is increased
GBE’s weighted average cost of capital (WACC) is exceeded, regardless of whether
or not the target return is reached. However where a GBE achieves a return which is
less than its fnancial target, it has not achieved the minimum return acceptable to the
shareholder, and the shareholder would expect the adoption of strategies aimed at
achieving the target.
Exposure Draft
43 Australian National Audit Offce in Report No. 15, 2000-2001, Agencies’ Performance Monitoring of Commonwealth Government Business Enterprises,
refer to http://www.anao.gov.au/uploads/documents/2000-01_Audit_Report_15.pdf
33

34
4.14 4.8 Setting appropriate fnancial targets aims to:
a. ensure that GBEs operate and price their goods and services effciently replicate the
discipline that the threat of takeover would exert over the directors and managers of a
frm owned by the private sector; and
b. provide an environment for GBEs which is competitively neutral with the private
sector and is consistent with Competitive Neutrality policy.
4.15 4.9 For GBEs that are classifed as trading GBEs, the target is the weighted average
cost of capital (WACC). GBEs (other than those covered under paragraph 4.10)
should target a weighted average cost of capital (WACC). This principal fnancial
target requires the GBE to earn returns suffcient to cover the cost of debt and
the required return on equity. WACC is used to estimate the required rate of
return on total assets, taking into account the different required rates of return
attached to the different components of the company’s GBE’s capital structure.
a. The cost of debt is the expected rate at which the GBE is able to borrow; and
b. The required return on equity is the risk free rate plus a risk premium
appropriate to the GBE.
4.16 4.10 For GBEs that are classifed as fnancial GBEs, service-based providers and
therefore carry little debt as part of their optimal capital structure, the cost of
equity element of the WACC can be targeted (rather than the WACC itself) as the
principal fnancial target. the target is a return on equity. (a) This target is the risk
free rate (government bond rate) plus the proportion of market a risk premium
appropriate to the GBE.
4.17 4.11 Any other fnancial targets which might be set for particular GBEs, on a case-bycase
basis consistent with the requirements of paragraph 3.3 of these Guidelines,
should be consistent with the objective of increasing shareholder value. In some
cases, such as for newly established GBEs, it may be appropriate to target the
achievement of relevant principal and other fnancial targets over the medium term.
Nevertheless, establishing appropriate fnancial targets is required to drive the
decisions of the GBE.
4.18 4.12 The Shareholder Minister(s) will agree with each GBE the methodology they will
use to measure performance against their principal fnancial target and other
fnancial targets. WACC, or return on equity, as appropriate. This measure These
measures will be based on shareholder value added and the change in shareholder
value added year-on-year.
4.19 The basic methodology is outlined in An Economic Framework for Assessing the
Financial Performance of Government Trading Enterprises, Steering Committee on
National Performance Monitoring of Government Trading Enterprises, July 1996, which
draws on material provided by the Industry Commission.
Exposure Exposure Draft Draft

4.3 Managing Risks
4.3.1 The government is exposed to a number of risks associated with GBEs. This includes
fnancial, operational, political and reputational risks.
4.3.2 Risk management is ultimately the responsibility of the GBE board whose role it is to
identify, monitor and control the risks that may affect the operations of the GBE. The
current GBE Guidelines refect this.
4.3.3 The current GBE Guidelines also require corporate plans and progress reports to ‘contain a
statement’ that the board has appropriate risk management policies and practices in place
and that adequate systems and expertise are being applied to achieve compliance with
those policies and procedures.
4.3.4 Sections 17 and 42 of the CAC Act provide that GBEs are to report on strategies for
managing fnancial risk associated with investment/fnancing programs and analysis of
factors likely to create signifcant fnancial risk. However, given the government’s potential
exposure from the actions of GBEs and to enhance both transparency and accountability,
Finance considers that GBEs should be required to increase the level of information
disclosed in relation to risks in the corporate plan and progress reports.
4.3.5 More specifcally, Finance considers that corporate plans should include a summary of the
GBE’s risk management policy, material risks that the GBE will and is likely to face over the
period covered under the corporate plan, and strategies for managing these risks. 44 Progress
reports should inform the Shareholder Minister(s) of any emerging risks that were not
identifed in the corporate plan and strategies for managing these risks. This is consistent
with the ANAO’s views and recommendations on the risk management practices of GBEs. 45
The changes are also consistent with the JCPAA’s fnding that the GBE Guidelines clarify the
risk management responsibilities of the board 46 (part 3.3 of the Guidelines refers).
4.3.6 The current GBE Guidelines are silent on requirements for GBEs to behave as model
corporate citizens in respect to their taxation obligations. Finance considers it appropriate for the
revised Guidelines to provide a clear statement of an appropriate taxation management approach
for GBEs.
4.3.7 Please note that some of the changes proposed to address risk management are taken up
in proposed changes to Part 3, ‘Planning and Reporting’.
Exposure Draft
44 This is consistent with the ASX Principles (page 32), which suggests that a summary of a GBE’s risk management policies be disclosed. Refer
http://asx.ice4.interactiveinvestor.com.au/ASX0701/Corporate%20Governance%20Principles/EN/body.aspx?z=1&p=13&v=1&uid=
45 Australian National Audit Offce, Audit Report No.2 ‘Government Business Enterprise Monitoring Practices’, page 47 (September 1997), please refer to
http://www.anao.gov.au/uploads/documents/2000-01_Audit_Report_15.pdf
46 JCPAA Report 372, page 95.
35

36
Proposed Change:
Corporate Plans
2.1 (d)(iv) 3.3a To supplement the information required to be provided in GBE corporate plans
under the CAC Act and the Corporations Act, the plans should include details
of the following matters (so far as they are applicable):
vi. a summary of the GBE’s risk management policies, material risks and strategies for
managing these risks. This is in addition to the requirements set out in paragraph
4.15 (refer guidance in Part 4 Financial Guidance).
3.10d. commentary on any emerging issues and risks or changes to risk factors that might
have a material impact on performance. Details of strategies for managing any material
risks that were not identifed in the corporate plan should also be provided. This is in
addition to the requirements set out in paragraph 4.15.
Managing Risks
4.9 4.14 Directors GBE boards are responsible for managing risks. Directors Boards should
therefore establish processes and practices within the GBE to manage all risks
associated with the GBE´s operations.
4.10 4.15 Directors GBE boards should keep the Shareholder Minister(s) informed of risk
management strategies by outlining them in corporate plans and progress reports,
and other reports when necessary as outlined in paragraph 3.3 above. In addition,
and unless otherwise qualifed because of circumstances applying to a particular
Board GBE, corporate plans and progress reports should contain a statement that
the board has appropriate risk management policies and practices in place and
that adequate systems and expertise are being applied to achieve compliance with
those policies and procedures.
4.11 4.16 The Government Commonwealth, as a shareholder, is sensitive to commercial
risk. In some circumstances, it may therefore choose to set limits on the activities
of particular GBEs; for example on liabilities, fnancial exposures, use of derivative
instruments, etc.
a. In normal circumstances, a GBE should only use derivative fnancial instruments for
the purpose of hedging exposures.
4.11 b Shareholder ministers may require the Board of a GBE to provide a risk
management plan, the contents to be agreed on a case-by-case basis.
4.18 GBE boards are expected to engage in normal tax planning activities that are within
the spirit of the law. It is not appropriate for GBEs to lead the market in aggressive tax
planning strategies.
4.23 4.21 GBEs will usually borrow from fnancial markets. Borrowing from the
Commonwealth Budget requires the specifc approval of the Finance Minister.
GBE boards should be aware that some lenders will want to include in their loan
documentation the right to call up their loan(s) if the control of the GBE changes.
The Shareholder Minster(s) prefer(s) that GBE boards do not agree to such clauses
being included in loan documentation or to any other clauses that would be
triggered, at the lender’s discretion, by an ownership change.
Exposure Draft

Part 5 - Other Governance Matters
5.1.1 As has been touched on above in relation to the introduction of the CAC Act and to changes
to the Corporations Act (Part 3 above), there have been a number of changes in legislation
since the current GBE Guidelines were introduced in 1997. The following sections have
been updated to refect changes and amendments to employment legislation and to ensure
consistency across the documentation.
5.1.2 The setting of remuneration for CEOs is a matter for the board to determine in consultation
with the Remuneration Tribunal. However, in order to maintain maximum transparency
and accountability around the establishment and maintenance of appropriate remuneration
levels for CEOs, GBEs may wish to advise the Shareholder Minister(s) of updates to the
arrangements agreed between the board and the CEO.
Proposed Change:
5.1 Subject to these Guidelines, GBEs are free to manage relations with their employees
consistent with the Fair Work Act 2009 Workplace Relations Act 1996 and in accordance
with the following:
a. The Board of each GBE is required to consult with the Remuneration Tribunal in
determining remuneration packages for Chief Executive Offcers. The CEOs of GBEs
are, with limited exceptions, covered by the Tribunal’s Principal Executive Offce (PEO)
Classifcation Structure. As such, the Board, where it is the employing body, may
determine remuneration for the offce, consistent with the PEO framework set by
the Tribunal. The Tribunal may seek the views of the Shareholder Minister(s) prior to
agreeing to any new or changed arrangements to these packages.
b. The Remuneration Tribunal determines the remuneration for the directors GBE
directors that is compatible with their roles and responsibilities, and having regard
to, amongst other things, rates paid by the private sector federal public offces and
internal relativities.
c. GBEs are encouraged to apply the government’s workplace relations policy, currently
the Australian Government Employment Bargaining Framework.
c. d. Any matters specifed from time-to-time by the Minister for Industrial Relations
responsible for workplace relations policy, after consultation with the Prime
Minister and the Finance Minister.
Exposure Draft
37

Partly Owned Subsidiaries of GBEs and Joint Ventures involving GBEs
5.2.1 Finance considers that the guidance in relation to Partly Owned GBEs, Partly Owned
Subsidiaries of GBEs and Joint Ventures Involving GBEs provides an appropriate framework
for the governance of subsidiaries, partly-owned GBEs and joint ventures within the
parameters of the various legislative requirements. The minor changes proposed refect
changes in legislation and legislative frameworks since the current GBE Guidelines were
issued, and refect the desire to capture requirements for new GBE subsidiaries.
5.2.2 To strengthen the guidance on the establishment and management of partly owned
subsidiaries of GBEs, Finance considers it appropriate to include some additional direction
on the makeup of subsidiary boards.
Proposed Change: (New)
5.8a. Where the GBE has any subsidiary it will ensure that control of the affairs of that
subsidiary will be exercised by a majority of the directors of that subsidiary, who
are directors or employees of the GBE or have been approved by the Shareholder
Minister(s) for appointment as directors of that subsidiary.
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Appendix A:
Commonwealth Government Business
Enterprises Governance and
Oversight Guidelines
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Table of Contents
Part 1 - Overview 41
Defnition 41
Application 41
Principles 41
Mandate and Objectives 42
Part 2 - Board and Corporate Governance 44
Board Responsibility and Conduct 44
Board Appointments and Performance 45
Part 3 – Planning and Reporting 48
Requirements 48
Corporate Plans 50
Statements of Corporate Intent 52
Progress Reports 52
Annual Reports 53
Keeping Shareholder Ministers Informed 54
Part 4 - Financial Governance 56
Capital Structure and Dividend Policy 56
Financial Targets for GBEs 57
Managing Risks 58
GBE Borrowings 58
Part 5 - Other Governance Matters 59
Workplace Relations 59
Superannuation 59
Partly Owned GBEs 59
Partly Owned Subsidiaries of GBEs and Joint Ventures involving GBEs 60
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Arrangements for GBEs Being Established, Sold, Restructured or Wound Up 61

Part 1 - Overview
Defnition
1.1 A Government Business Enterprise (GBE) is a Commonwealth authority or
Commonwealth company as defned by the Commonwealth Authorities and Companies
Act 1997 (CAC Act) and prescribed as a GBE under the Commonwealth Authorities and
Companies Regulations 1997.
Application
1.2 The Commonwealth Government Business Enterprise Governance and Oversight
Guidelines (the GBE Guidelines) apply to GBEs that are Commonwealth authorities
(authority GBEs) and GBEs that are wholly-owned Commonwealth companies (whollyowned
company GBEs). 1
a. When forming subsidiaries or entering into joint ventures, GBE Directors should ensure
that there are no provisions in the company constitution or any shareholders agreement
of the subsidiary which prevent the GBE from complying with the GBE Guidelines.
1.3 For GBEs that are Commonwealth companies and are not wholly-owned Commonwealth
companies, the extent to which these GBE Guidelines apply will be identifed in legislation
applying specifcally to the GBE, the company constitution or shareholders’ agreement
(see paragraphs 5.3 to 5.12 of these guidelines for more detail).
1.4 These GBE Guidelines should be read in conjunction with the CAC Act
(http://www.fnance.gov.au/fnancial-reporting-and-accounting-policy/index.html).
Principles
1.5 The main features of the Commonwealth’s relationship with its GBEs are:
a. a strong interest in the performance and fnancial returns of the GBE;
b. reporting and accountability arrangements that facilitate best practice governance and
active oversight by the Commonwealth; and
c. action by the Commonwealth in relation to the strategic direction of its GBEs where it
prefers a different direction from the one proposed.
1.6 The Commonwealth’s ownership interest is generally represented by two `Shareholder
Ministers´. The Shareholder Ministers are the Responsible Minister (that is the Minister
responsible for the GBE) and the Finance Minister 2 . The Finance Minister is generally the
sole Shareholder Minister for those GBEs within the Finance portfolio.
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1 That is, where the Commonwealth has a 100 per cent ownership interest in the company.
2 Under section 5 of the CAC Act, the Finance Minister is the Minister who administers the CAC Act.
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1.7 The key principles underpinning the GBE Guidelines are:
a. Shareholder Ministers exercise strategic control consistent with their accountability to
the Parliament and the public.
b. Shareholder Ministers set clear objectives for GBEs.
c. The directors of a GBE develop the business strategies and handle the day-to-day
management policies.
d. The directors of a GBE ensure that:
i. the GBE´s activities are conducted so as to seek to minimise any divergence of
interests between the GBE and the shareholders;
ii. GBEs are managed in the best interests of the entity as a whole; and
iii. GBEs and their offcers maintain the highest standards of integrity, accountability
and responsibility.
e. Required standards of disclosure are satisfed. In particular consistent with directors’
responsibilities under the CAC Act, regular and timely disclosure is to be made by GBEs
of information:
i. which may affect the value of the GBE;
ii. which may infuence government decisions in relation to the GBE; or
iii. in which the government has a legitimate interest.
f. Information is produced for the Shareholder Minister(s) and the community according to
the highest standards;
i. where appropriate, information enables ready comparison with other relevant
information.
g. The Shareholder Minister(s) must be consulted on matters of signifcance.
Mandate and Objectives
1.8 A principal objective for each GBE is that it adds to its shareholder value. To achieve this it
is required to:
a. operate effciently, that is, at minimum cost for a given scale and quality of outputs;
b. price effciently;
i. A GBE should set prices taking into account economic forces, including the level of
demand for, and the enterprise’s capacity for and cost of supplying, individual goods
and services; and
ii. The government may impose price conditions on GBEs providing goods and
services in a monopolistic market or Community Service Obligations (CSOs). Such
price conditions and CSOs, where appropriate, would be in addition to those arising
from regulation by the Australian Competition and Consumer Commission and
generally specifed in legislation or through contractual arrangements.
c. earn at least a commercial rate of return;
i. This means recovering the full cost of the resources employed, including the cost of
capital; and
ii. Each GBE is to work towards a principal fnancial target and a dividend policy,
agreed in advance with the Shareholder Ministers, with the principal fnancial target
to be set on the basis that each GBE should be required to earn commercial returns
at least suffcient to justify the long-term retention of assets in the business, and to
pay commercial dividends from those returns.
d. comply with the Commonwealth’s Competitive Neutrality (CN) policy.
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1.9 In addition to setting a principal fnancial target, the Shareholder Minister(s) may set other
fnancial targets and non-fnancial targets, for particular GBEs, on a case-by-case basis in
consultation with the GBE (Refer also to paragraphs 2.2 and 3.3c).
1.10 A GBE should operate in the industry sector, and provide the goods and services (including
CSOs), that the government has mandated.
a. The government may impose service quality standards on GBEs providing goods and
services in a monopolistic market or CSO goods and services.
b. In providing each GBE with a clear mandate and set of objectives, the Shareholder
Minister(s) will ensure that the objectives include any requirements to meet the
government’s explicitly stated social and economic policy objectives.
1.11 The mandate of a GBE will be considered by the Shareholder Minister(s) as part of the
annual corporate planning process. In addition, the Shareholder Minister(s) will, where
appropriate, periodically undertake a stand-alone review of the mandate.
1.12 Ministerial directions to GBEs, including those prescribed in enabling legislation and
company constitutions, will be in writing and tabled in both Houses of Parliament within 15
sitting days after giving the direction and reported in each GBE’s annual report.
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Part 2 - Board and Corporate Governance
Board Responsibility and Conduct
2.1 The general conduct of directors is subject to the provisions of the Corporations Act (for a
wholly-owned Commonwealth company GBE), the CAC Act (for Authority GBEs) and the
common law and equity. The CAC Act provisions are based on the Corporations Act and
both provide for civil and criminal penalties for breaches.
2.2 Boards have absolute responsibility for the performance of the GBE, and are fully
accountable for this to the Shareholder Minister(s). Boards should implement effective
governance frameworks to support their role and responsibilities, and report on their
implementation in the Annual Report.
2.3 Board members have their fduciary and other duties drawn to their attention by the
Shareholder Minister(s) in, or with, correspondence offering appointment, and are to fully
accept the individual responsibility this places on them.
a. Appointment letters for all directors and Chief Executive Offcers (CEOs) should include
the following:
• director powers and duties (attaching a link to the Commonwealth Authorities and
Companies Act 1997 and the GBE Guidelines);
• a copy of the GBE’s constitution or enabling legislation (which would include the
circumstances in which an offce of director becomes vacant);
• general public sector performance and accountability obligations, including that the
GBE may be subject to Parliamentary scrutiny and audit processes;
• information on the operations of the GBE, full details of their legislative obligations,
their public sector accountability obligations and directors’ responsibilities, and
outlining the circumstances in which the GBE will bear the cost of directors
obtaining independent professional advice in carrying out their duties;
• the term of appointment and remuneration arrangements (with particular reference
to Remuneration Tribunal arrangements); and
• reference to Directors and Offcers insurance arrangements, confdentiality
of information and board decisions, confict of interest matters, and induction
arrangements.
b. Directors are to formally respond to the letter of appointment within 30 days of receipt
and provide an undertaking to advise the Shareholder Minister(s) if there is any change
in circumstances that might impact on their ability to be a director.
2.4 Boards should continue to regularly monitor the ongoing independence of each director
and the board generally to ensure that they continue to exercise unfettered and
independent judgement.
2.5 In particular, the government expects GBE boards to establish and maintain a code of
conduct for directors, employees and contractors and ensure that GBEs, in undertaking
their business, avoid activities that could give rise to questions about their political
impartiality. For example, GBEs should not make direct or indirect political donations or
participate in activities sponsored or in support of partisan political causes.
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2.6 The code of conduct may cover the following matters: being professional and apolitical;
customer service; work practices and performance; confict of interest; relationship with
suppliers; gifts and benefts; outside employment; appropriate use of assets and resources;
and confdentiality of information, including in electronic form.
Board Appointments and Performance
2.7 GBE boards are to comprise directors with an appropriate mix of skills, who are to be
appointed on the basis of their individual capacity to contribute to the board having
an appropriate balance of relevant skills (such as commerce, fnance, accounting, law,
marketing, workplace relations, management and other skills relevant to the GBE’s
operations) and contribute to the achievement of the GBE´s objectives.
a. Boards should draw on outside expertise where necessary to augment their own skills.
b. The Chair shall not also be an executive of the GBE, unless otherwise agreed by the
Shareholder Minister(s).
c. The appointment of departmental offcers to GBE boards may only be considered in
exceptional circumstances, having regard to their possession of the skills referred to
above, any potential conficts of interest that might arise and the particular circumstances
of the GBE (such as GBEs in winding-down mode). In such cases, the appointed
departmental offcers are expected to act in the best interests of the GBE when there is a
divergence between the interest of the GBE and those of the government.
2.8 The Chair shall head a board committee, which shall, provide the Shareholder Minister(s),
through the board with recommendations on board composition and membership.
a. The Chair shall, following consultation with the Shareholder Minister(s), develop a board
plan which includes:
• The medium term aims in relation to board composition, taking into account the
strategic objectives of the GBE;
• A forecast of likely board vacancies; and
• An assessment of the skill requirements for the board in the context of the strategic
requirements of the GBE.
b. The Chair shall write to the Shareholder Minister(s) at least three months prior to a
vacancy arising on the board or in the role of CEO.
• Through the Chair, the board should advise the Shareholder Minister(s) about its
preferred candidate for the position of CEO. The CEO is directly accountable to
the board.
• Following consultation with the Shareholder Minister(s), the board may provide,
through the Chair, a shortlist of candidates for board vacancies.
• Additional processes for identifying candidates such as public advertising or the
use of executive search processes may be undertaken by agreement with the
Shareholder Minister(s).
• Chairs may recommend the reappointment of an existing director where this is
sought by the director and where appropriate (i.e. based on evidence of good
performance, where the tenure falls within the requirements set out in legislation
applying to the GBE and where the term has not been excessive).
• All recommendations for appointment should have regard to government policy on
fostering a governance culture that embraces diversity in the composition of boards
with the objective of achieving the Government’s target of 40% of Government
board members to be women, 40% of board members to be men, and the
remaining 20% of positions to be held by either women or men, with this target to
be achieved by 2015.
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2.9 The Shareholder Minister(s) may elect to appoint a candidate not proposed by the Chair.
2.10 Any decision to appoint the CEO as a director is at the discretion of the Shareholder
Minister(s) and the CEO recruitment and succession arrangements undertaken by the
board should refect this.
2.11 Boards are to implement and maintain a succession plan for CEO positions and to provide
an annual assurance to the Shareholder Minister(s) that this is the case.
2.12 Where an appointment is proposed, the Shareholder Minister(s) shall consult the Prime
Minister seeking his/her, or at his/her discretion, Cabinet’s approval of the appointment
before each appointment is fnalised.
2.13 Board appointments should normally be for terms of three years.
a. The term for non-executive directors should not normally exceed two terms (i.e. six
years) and for the Chair three terms (i.e. nine years). Appointment terms may be
staggered or varied in duration to maintain board continuity.
b. Appointments exceeding two terms will be considered on a case-by-case basis taking
into account exceptional circumstances.
2.14 The Remuneration Tribunal determines remuneration for directors that is compatible with
their roles and responsibilities, and having regard to, amongst other things, rates paid by
the private sector, federal public offces and internal relativities.
2.15 The Shareholder Minister(s) may, at their discretion, remove directors at any time prior to
the completion of their term of appointment.
a. In the event that a GBE is not performing satisfactorily, the Shareholder Minister(s)
will initiate prompt remedial action. Dismissal of the directors would be considered,
particularly in any case of failure to keep Ministers adequately informed, and in
situations of ongoing under-performance in respect of fnancial or other aspects of the
operations of the business.
b. A director may be placed in a situation where continuing to be a GBE director could
embarrass the GBE or the Shareholder Minister(s). In such situations, they should
raise the issue with their Chair immediately. The Chair in turn will decide whether it is
necessary to raise the issue with the Shareholder Minister(s). In a worst case situation,
the director may be asked to resign, or failing that, be removed.
2.16 Boards are to work with departmental offcials, as representatives of the Shareholder
Minister(s) to develop and implement an appropriate induction and development program
for directors. Induction programs should incorporate information on general public sector,
legal, performance and accountability obligations.
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2.17 On an annual basis the GBE board as a whole will assess its performance; and the
board will assess the performance of the Chair. Chairs are expected to provide written
confrmation to the Shareholder Minister(s) that this process has been followed and raise
any areas of concern with the Shareholder Minister(s) as required.
a. Part of the performance assessment will include a review of the level of director
attendance at board meetings. Directors are expected to attend all scheduled board
meetings, and attendance is to be reported in the annual report. Chairs are to raise
on-going non-attendance issues with the Shareholder Minister(s) for consideration and
possible further action.
2.18 Boards are to ensure that board committees do not duplicate work performed by the
CEO and management. The composition and charter of each board committee should be
reviewed annually by 1 December each year to ensure that they remain appropriate in the
context of the governance needs of the GBE.
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Part 3 - Planning and Reporting
Requirements
3.1 The planning and reporting requirements for GBEs are contained in the CAC Act and
Orders, with additional requirements for Commonwealth companies contained in the
Corporations Act. The reporting requirements outlined in these Guidelines can be
summarised as follows:
Table 1: Summary of Legislative Requirements
Requirement Commonwealth
Authorities
Commonwealth
Companies
Corporate Plan content CAC Act Section 17 CAC Act Section 42
Annual Reports CAC Act Section 9 CAC Act Section 36
Statement of Governance Clause 15 of the CAC Act
Orders 2.2
Report on Operations and
Financial Statements
Additional Notifcation
Requirements
(Signifcant Events)
Supplementary
Interim Reports
Performance Audit Auditor-General Act 1997
section 16 and 17
Recommended to
follow Clause 15 of the
CAC Act Orders
CAC Act Schedule 1 CAC Act Division 2
Corporations Act 2001
Chapter 2M;
CAC Act Sections 15 and 16 CAC Act Sections 40 and 41
CAC Act Section 13 CAC Act Section 38
Auditor-General Act 1997
section 16 and 17
3.2 GBEs are to provide the Shareholder Minister(s) with a series of annual corporate planning
and reporting documents for comment and review by the key dates shown in Table 2. GBEs
are to engage with the Shareholder Minister(s) early in the reporting and planning processes
to allow suffcient time for GBEs to build Government priorities into the processes.
a. In reviewing the documents, the Shareholder Minister(s) may seek clarifcation of the
information provided, or request certain amendments.
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Table 2: Best Practice Timetable for GBE Reports and Dividends
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Corporate Plans
3.3 Corporate plans are to be prepared in accordance with the appropriate section of the CAC
Act and Corporations Act (refer summary at paragraph 3.1).
a. To supplement the information required to be provided in GBE corporate plans under
the CAC Act and the Corporations Act, the plans should include details of the following
matters (so far as they are applicable):
i. details of the broad mandate of the GBE, (including a summary of core activities
that are in line with existing core competencies, and proposed non-core activities
that require new competencies to be developed), together with a summary of
those functions that may require its retention as a government owned GBE;
ii. an estimate of the current commercial value of the Commonwealth’s investment in
the GBE and how that value was assessed, with the expectation that a discounted
cash fow methodology would be used as the valuation basis, unless otherwise
agreed by the Finance Minister;
iii. fnancial projections, to be prepared in the same format as the progress and
fnal report and consisting of proft and loss statement, balance sheet and cash
fow statement;
iv. capital expenditure projections linked to the physical assets of the GBE (where
material), its business objectives and acquisition, maintenance and disposal plans;
v. cash fow (liquidity) projections;
vi. a summary of the GBE’s risk management policies, material risks and strategies for
managing these risks. This is in addition to the requirements set out in paragraph
4.15 (refer guidance in Part 4 Financial Governance); and
vii. proposed borrowing(s) (refer guidance in Part 4 Financial Governance).
b. If the GBE has a subsidiary (or subsidiaries), the reporting is to cover both the GBE and
its subsidiaries.
c. GBEs are to incorporate targets for the following minimum key performance indicators
(KPIs) across a fve-year period (two prior and three forward years) in corporate plans,
and if appropriate results are to be reported against in progress reports as outlined in
the following table:
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Measure Key Performance
indicator
Financial
Performance
Business
Effciency
Leverage/
Solvency
Customers and
Stakeholders
Staff
Defnition
Total shareholder return (Commercial value at end, less commercial
value at start plus dividends paid less equity
injected)/commercial value at start
Dividend yield Dividends paid/average commercial value
Dividend payout ratio Dividends paid/net cash fow from operating
activities less depreciation expense
EBIT Earnings before net interest and tax
EBITDA Earnings before net interest, tax, depreciation,
amortisation and fair value adjustments for
fnancial instruments
Return on equity (RoE) Net proft after tax/average equity
Net proft after tax (NPAT) The bottom line of the Income Statement
Underlying net proft
after tax
The bottom line of the Income Statement
adjusted for one-off items and AASB fair
value movements
Operating margin EBITDA/operating revenue
Return on capital
employed
EBIT adjusted for AASB fair value movements
(net of tax)/average capital employed.
Capital employed is defned as total assets
less current liabilities
Debtors age (days) (Debtors/revenue) x 365
Gearing Ratio Net interest bearing debt/net interest bearing
debt plus equity
Interest Cover EBITDA/interest paid
Current ratio Current assets/current liabilities
Liquidity Ratio Cash and equivalents/current liabilities
Customer Satisfaction Percentage of customers rating the GBE very
good or excellent as determined by survey
Meeting Community
Service obligations
Staff Retention and
turnover rates
Number of staff replaced/average number of
staff for the period
Staff Satisfaction Percentage of staff very/extremely satisfed as
determined by survey
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Lost time injury
frequency rates and
OHS incident rate
Lost time injuries per million hours worked
Wages expense ratio Cost of wages and salaries/operating revenue
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d. The Shareholder Minister(s) may propose and agree other indicators that are relevant to the
measuring of the performance of the GBE, to be included in the corporate plan prior to the
Shareholder Minister(s) approving the Plan.
3.4 The Shareholder Minister(s) may elect to meet with the directors of a GBE prior to
responding to the corporate plan.
3.5 The response by the Shareholder Minister(s) will:
a. be within 45 days of receipt of the plan;
i. Draft corporate plans should be provided to departmental offcers for discussion
with the GBE prior to being endorsed by the board to ensure a timely response; and
b. include (if necessary) any proposed changes to the corporate plan to better refect the
government’s policies and objectives for the GBE.
3.6 All corporate plans and subsequent updates, reports or supplementary information are
confdential to the Minister(s), their advisers and departments.
Statements of Corporate Intent
3.7 The directors of a Commonwealth authority GBE or a wholly-owned Commonwealth
company GBE and the Shareholder Minister(s) will annually agree on a Statement of
Corporate Intent (SCI), which shall be a public document.
3.8 The SCI is a brief, high level, plain English document that is to be no more than fve pages
expressed in terms of programs or outcomes. It is an integral part of the corporate plan,
but does not include commercially sensitive information. A SCI would normally contain
a business description and mission statement, corporate vision, objectives, values of
the GBE, statement of accountability (including reporting obligations) and selected key
indicators of fnancial and non-fnancial performance as outlined in paragraph 3.3(c) above.
3.9 GBEs are to arrange for the SCI to be tabled in the Parliament within ffteen sitting days
following the start of the new fnancial year and then be published as soon as practicable
on the GBE’s website.
a. Shareholder Ministers may agree to later tabling, in which case Parliament would
be informed.
Progress Reports 3
3.10 Confdential quarterly progress reports are to be provided by the Chair to the Shareholder
Minister(s) one month after the period end. The minimum requirement for progress reports
is that they should include:
a. analysis of the GBE’s quarterly and year-to-date performance against corporate plan
forecasts for the corresponding period, including detailed analysis of revenue and
expense (including capital expenditure) performance for the period and explanations for
deviations from corporate plan forecasts;
b. fnancial statements, the format of which is approved by the Finance Minister;
c. analysis of the GBE’s performance against its broader corporate plan objectives (such
as its KPIs and operational performance targets/forecasts where relevant) including any
major achievements during the period along with explanations for any changes
to strategies;
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3 Progress reports are distinct from the interim reports to Parliament (see paragraph 3.17).

d. commentary on any emerging issues and risks or changes to risk factors that might
have a material impact on performance. Details of strategies for managing any material
risks that were not identifed in the corporate plan should also be provided. This is in
addition to the requirements set out in paragraph 4.15 below;
e. a clear statement of the GBE’s outlook for the rest of the fnancial year in terms
of meeting its full year re-forecast outturn, key risks and opportunities arising and
management plans; and
f. commentary on progress in meeting CSOs (where relevant).
3.11 Shareholder Ministers may elect to comment on the progress report within 45 days of
its receipt.
3.12 All progress reports are confdential to the Ministers, their advisers and departments.
Annual Reports
3.13 The directors of a GBE are required to provide an annual report to the Shareholder
Minister(s) in accordance with the requirements of the CAC Act.
a. Where a GBE is a Commonwealth authority the annual report is prepared in accordance
with the CAC Act, the authority’s enabling legislation and any other applicable legislation
and guidance issued by the Finance Minister or portfolio.
b. Where a GBE is a company, the annual report is prepared in accordance with the CAC
Act and the Corporations Act.
c. GBEs should include comments on performance against the fnancial and non-fnancial
expectations outlined in the SCI relating to that fnancial year.
3.14 The current disclosure requirements for the Statement on Governance are outlined in the
Commonwealth Authorities and Companies (Report of Operations) Orders (the Orders).
While the Orders only apply to Commonwealth authorities, Commonwealth companies
should, as a matter of better practice, also include a Statement on Governance in their
report on operations covering the matters outlined the Orders.
3.15 Financial statements of GBEs and their subsidiaries, associated with annual reports are
audited, or reported on, by the Auditor-General.
3.16 GBEs are to note that the Auditor-General is able to conduct a performance audit of a
Commonwealth Authority GBE or a wholly-owned Commonwealth company GBE, or any of
its subsidiaries, in the circumstances outlined in the Auditor-General Act 1997.
3.17 The Finance Minister may require the directors of a wholly-owned GBE to prepare an
interim report in accordance with the requirements of the CAC Act.
3.18 The Shareholder Minister(s) assess the fnancial performance of all GBEs on a regular basis
and may write to a GBE about issues identifed in such assessments.
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Keeping Shareholder Ministers Informed
3.19 The directors of a Commonwealth authority GBE or a Commonwealth company GBE are
required to keep the Shareholder Minister(s) informed of the operations of the GBE and
its subsidiaries and should follow a disclosure principle which is similar to the continuous
disclosure requirements of the Australian Stock Exchange listing rules.
a. Should a GBE become aware of any information that may have a material effect on
its value and/or performance 4 , that information must be provided immediately to the
Shareholder Minister(s).
b. Directors are required to provide such other information in relation to the GBE’s
operations as the Shareholder Minister(s) require(s), within the time limits set by
the Minister(s).
c. Where there are two Shareholder Ministers, all correspondence and reports from
GBEs should be sent to both Ministers simultaneously. Whilst Shareholder Ministers
will consult in relation to all correspondence, they may decide that, in relation to some
matters, one of the Ministers will correspond on behalf of both Ministers.
d. The Shareholder Minister(s) may consult with the Prime Minister and/or Treasurer
about any material matter (as defned above) affecting the value of the GBE and provide
copies of corporate plans, progress reports and correspondence on other major matters
to the Prime Minister and/or the Treasurer for possible comment.
3.20 Additional notifcation requirements are contained in the CAC Act for both GBEs that are
Commonwealth authorities, and for GBEs that are Commonwealth companies.
3.21 Proposals for signifcant business initiatives 5 should be developed for inclusion in the
normal corporate planning cycle. Should an urgent initiative arise which is unable to
wait for inclusion in the planning cycle, it is to be treated as a notifable signifcant event,
pursuant to section the CAC Act. GBEs are required to notify the Shareholder Minister(s)
prior to entering into any identifed business opportunities. These should include, but not
be limited to, new business ventures, major contracts and capital raising proposals.
3.22 Unless otherwise agreed, GBE boards are required to submit all business cases outlining
new proposals to the Shareholder Minister(s) for consideration. GBEs should distinguish
between business cases that relate to core business and those that relate to non-core
business. The threshold dollar value for consultation for proposed non-core business
opportunities will be lower than that for core business opportunities and are to be agreed
in consultation between the board and the Shareholder Minister(s) as part of the annual
corporate planning process. As a minimum, business cases should address the following:
a. the rationale for the project and an explanation of how it fts into the GBE’s
corporate strategy;
b. cost, anticipated return (net present value), the effect on shareholder value and some
measure of the project’s risk;
c. key assumptions around revenue and costs (including base case, scenarios and
sensitivity analysis), plus key risks and mitigation strategies;
d. proposed funding strategy;
e. the impact on the GBE’s capital structure and credit rating (if applicable);and
f. expected outcome, and impact on future dividends.
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4 Finance considers 5% of the GBE’s commercial value is an appropriate threshold.
5 Finance considers a threshold value of 5% of total shareholder equity for larger GBEs and 10% of total shareholder value for small GBEs.

3.23 GBEs should allow a reasonable amount of time (not less than 10 working days) for the
Shareholder Minister(s) and their department(s) to respond to any business case, and
factor that into the decision making timeframe.
3.24 All business case proposals, subsequent updates and supplementary information are
confdential to the Shareholder Minister(s), their advisers and department(s).
3.25 The Shareholder Minister(s) may, in consultation with the board, establish further guidance
and limits on the activities of a GBE. This will be documented in the form of a Commercial
Freedoms Framework appropriate to the commercial activities, environment and risk profle
of the GBE, having regard to the GBE’s mandate as agreed by the Government.
3.26 GBEs are to conduct Annual General Meetings, to which the Shareholder Minister(s)
or their delegate(s) are invited to attend. The focus of the meetings will be to discuss
both the board’s and the GBE’s performance over the past year and to engage on the
development of strategy going forward.
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Part 4 - Financial Governance
Capital Structure and Dividend Policy
4.1 Each GBE should target an optimal capital structure (the combination of fnancial liabilities
and equity used to fund the assets of the GBE) that is agreed annually between the board
and the Shareholder Minister(s) in the corporate plan consultation process.
a. An optimal capital structure is one that, in light of economic, industry and GBE specifc
factors, would provide for an investment grade credit rating, whilst at the same time
imposing a discipline on the GBE to optimise effciency. Finance recommends a target
credit rating of BBB.
b. As part of developing a target optimal capital structure, consideration will be given
to the forecast level of capital expenditure in the GBE’s annual corporate plan, and
appropriate options for funding capital expenditure (including via retained earnings or
debt). Consideration will also be given to longer term objectives outlined in a GBE’s
annual corporate plan.
c. In providing for a GBE to expand its capital base through retained earnings, any proposed
future capital expenditure should add shareholder value. That is, as a minimum, capital
expenditure plans should meet a hurdle rate of return that is consistent with the GBE’s
principal fnancial target (Refer 1.8 and 4.7 ‘Financial Targets for GBEs’).
4.2 A GBE’s level of estimated dividends (and forecast payout ratio) is to be agreed annually
between the directors and the Shareholder Minister(s) through the corporate plan
consultation process and should have regard to the maintenance of, or progress toward, its
optimal capital structure.
a. The level of estimated dividends shall be driven by the desired capital structure, the
proftability of the enterprise, and the level of agreed future capital expenditure.
b. The proposed dividend payout ratio and estimated dividend payment should be included
in the corporate plan for each year covered by the plan.
c. The agreed dividend payout ratio should take account of the Government’s preference
for dividends over capital gains.
d. Profts generated by subsidiaries are to be taken into account in agreeing the level of
estimated dividends and forecast payout ratio.
4.3 Dividends should be paid in two instalments: an interim dividend and a fnal dividend.
a. Interim dividends are paid by 30 April and fnal dividends by 31 October.
b. The Shareholder Minister(s) may agree on variations to those dates, after consultation
with the Board of the GBE.
4.4 Interim and fnal dividends to be paid should be agreed between the board and the
Shareholder Minister(s), as soon as possible after the half yearly progress reports for the
periods ending December and June have been received by the Shareholder Minister(s).
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4.5 The capital structure of a GBE is to be reviewed where the application of dividend policy
has not led to, or is unlikely to lead to, an optimal capital structure within a reasonable
period of time.
4.6 Dividend policy for partly owned GBEs should have regard to the above principles, the
extent of Commonwealth ownership and the views of other shareholders.

Financial Targets for GBEs
4.7 All GBEs are required to add to shareholder value in their operations with a view to at least
meeting fnancial targets agreed by the Shareholder Minister(s) in the annual corporate plan.
a. Increases in shareholder value are achieved when the GBE’s weighted average cost of
capital (WACC) is exceeded, regardless of whether or not the target return is reached.
However where a GBE achieves a return which is less than its fnancial target, it has not
achieved the minimum return acceptable to the shareholder, and the shareholder would
expect the adoption of strategies aimed at achieving the target.
4.8 Setting appropriate fnancial targets aims to:
a. ensure that GBEs operate and price their goods and services effciently; and
b. provide an environment for GBEs which is competitively neutral with the private sector
and is consistent with Competitive Neutrality policy.
4.9 GBEs (other than those covered under paragraph 4.10) should target a weighted average
cost of capital (WACC). This principal fnancial target requires the GBE to earn returns
suffcient to cover the cost of debt and the required return on equity. WACC is used
to estimate the required rate of return on total assets, taking into account the different
required rates of return attached to the different components of the GBE’s capital structure.
a. The cost of debt is the expected rate at which the GBE is able to borrow; and
b. The required return on equity is the risk free rate plus a risk premium appropriate to
the GBE.
4.10 For GBEs that are service-based and therefore carry little debt as part of their optimal
capital structure, the cost of equity element of the WACC can be targeted (rather than the
WACC itself) as the principal fnancial target. This target is the risk free rate (government
bond rate) plus a risk premium appropriate to the GBE.
4.11 Any other fnancial targets which might be set for particular GBEs, on a case-by-case
basis consistent with the requirements of paragraph 3.3 of these Guidelines, should be
consistent with the objective of increasing shareholder value. In some cases, such as
for newly established GBEs, it may be appropriate to target the achievement of relevant
principal and other fnancial targets over the medium term. Nevertheless, establishing
appropriate fnancial targets is required to drive the decisions of the GBE.
4.12 The Shareholder Minister(s) will agree with each GBE the methodology they will use to
measure performance against their principal fnancial target and other fnancial targets.
These measures will be based on shareholder value added and the change in shareholder
value added year-on-year.
4.13 Financial targets should not be adjusted for any unfunded components of CSOs.
Rather, any adjustments considered necessary should be made, notionally, to the GBE’s
actual revenues.
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Managing Risks
4.14 GBE boards are responsible for managing risks. Boards should therefore establish
processes and practices within the GBE to manage all risks associated with the
GBE´s operations.
4.15 GBE boards should keep the Shareholder Minister(s) informed of risk management
strategies by outlining them in corporate plans and progress reports, and other reports
when necessary as outlined in paragraph 3.3 above. In addition, and unless otherwise
qualifed because of circumstances applying to a particular GBE, corporate plans and
progress reports should contain a statement from the board that the GBE has appropriate
risk management policies and practices in place and that adequate systems and expertise
are being applied to achieve compliance with those policies and procedures.
4.16 The Commonwealth, as a shareholder, is sensitive to commercial risk. In some
circumstances, it may therefore choose to set limits on the activities of particular GBEs; for
example on liabilities, fnancial exposures, use of derivative instruments, etc.
a. In normal circumstances, a GBE should only use derivative fnancial instruments for the
purpose of hedging exposures.
4.17 As a general rule the Commonwealth will not provide formal guarantees of GBE liabilities.
Accordingly, GBE boards should take this policy into account when making decisions which
affect a GBE’s operations and performance.
a. Guarantees provided in the past continue to apply to existing borrowings until they
mature, in order to protect the interests of investors.
4.18 GBE boards are expected to engage in normal tax planning activities that are within
the spirit of the law. It is not appropriate for GBEs to lead the market in aggressive tax
planning strategies.
GBE Borrowings
4.19 Ongoing oversight of GBE borrowings is an integral part of the corporate plan and progress
report processes outlined in Part 3 of these Guidelines.
4.20 The Commonwealth will consider sanctioning borrowing proposals beyond the frst forward
year for GBEs that have a proven track record of good performance and accountability,
and which provide appropriate justifcation (including expected rates of return) in corporate
plans to support proposed capital expenditure programs.
4.21 GBEs will usually borrow from fnancial markets. Borrowing from the Commonwealth
Budget requires the specifc approval of the Finance Minister. GBE boards should be
aware that some lenders will want to include in their loan documentation the right to call
up their loan(s) if the control of the GBE changes. The Shareholder Minister(s) prefer(s) that
GBE boards do not agree to such clauses being included in loan documentation or to any
other clauses that would be triggered, at the lender’s discretion, by an ownership change.
4.22 Wholly-owned GBEs should generally avoid issuing debt securities that would bring them
within the defnition of “disclosing entity” under the Corporations Act.
a. This will minimise the potential for confict between the information provision
requirements of the CAC Act, these GBE Guidelines and the Corporations Act.
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Part 5 - Other Governance Matters
Workplace Relations
5.1 Subject to these Guidelines, GBEs are free to manage relations with their employees
consistent with the Fair Work Act 2009 and in accordance with the following:
a. the CEOs of GBEs are, with limited exceptions, covered by the Tribunal’s Principal
Executive Offce (PEO) Classifcation Structure. As such, the Board, where it is the
employing body, may determine remuneration for the offce, consistent with the
PEO framework set by the Tribunal. The Tribunal may seek the views of Shareholder
Minister(s) prior to agreeing to any new or changed arrangements to these packages;
b. the Remuneration Tribunal determines the remuneration for GBE directors that is
compatible with their roles and responsibilities, and having regard to, amongst other
things, federal public offces and internal relativities;
c. GBEs are encouraged to apply the government’s workplace relations policy, currently
the Australian Government Employment Bargaining Framework; and
d. any matters specifed from time-to-time by the Minister responsible for workplace
relations policy, after consultation with the Prime Minister and the Finance Minister.
Superannuation
5.2 Superannuation arrangements for GBEs are covered by the Superannuation Benefts
(Supervisory Mechanisms) Act 1990 (the Act). GBEs (except with respect to any staff
employed for those employing staff under the Public Service Act 1999) are able to establish
and operate superannuation arrangements of their choice, provided that any relevant
prescribed requirements made under the Act are complied with.
Partly Owned GBEs, Partly Owned Subsidiaries of GBEs and
Joint Ventures involving GBEs
Partly Owned GBEs
5.3 Where the Commonwealth decides to move to, or adopt, partial ownership of a GBE these
Guidelines should apply to the maximum extent possible, consistent with minimising the
risk of a potential oppression action by minority shareholders under section 232 of the
Corporations Act.
5.4 Government approval is required for any proposal to set up a partly owned GBE, or to
change Commonwealth ownership of an existing GBE from whole to partial ownership
(including by the introduction of employee share ownership schemes). The approval may
anticipate a continuous process of a reduced share or level of Commonwealth ownership
leading to transfer of the controlling interest to other parties and to eventual sale of all of
the Commonwealth’s interest.
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5.5 Where the government decides to move to partial ownership of a GBE in which it is likely to
retain a controlling interest for a period of time, the Shareholder Minister(s), in consultation
with the Attorney-General, should, before any shares in the GBE are sold or issued:
a. review any enabling or other relevant legislation and the company constitution or
memorandum and articles of association (M&As) of the GBE (as applicable), to assess
the extent to which they are consistent with the GBE Guidelines; and
b. provide, through a shareholders´ agreement with potential owners and/or changes to
the enabling legislation and the M&As or company constitution (where applicable),
for the GBE Guidelines to apply to the maximum extent consistent with the policy
objectives the government is pursuing through its movement to partial ownership of
the GBE.
5.6 In negotiations with potential other owners of a GBE that the Commonwealth will not
control, the Shareholder Minister(s) should aim to have the GBE Guidelines applied to
the maximum extent possible, having regard to the policy objectives of the government in
the circumstances.
Partly Owned Subsidiaries of GBEs and Joint Ventures
involving GBEs
5.7 GBEs are generally free to establish partly owned subsidiaries, purchase control of other
companies or enter into joint venture arrangements; however under paragraph 3.19 of
these Guidelines they are required to notify the Shareholder Minister(s) of signifcant
proposals to form subsidiaries, joint ventures, etc 6 .
a. When becoming involved in joint ventures, GBEs should generally adopt the
incorporated form or enter into the joint venture through a subsidiary.
5.8 Where a GBE establishes a wholly-owned subsidiary, or purchases a 100% interest in a
company (thereby creating a subsidiary), the board of the GBE should ensure, prior to any
move to partial ownership of the subsidiary, that no obstacles are present in the company
constitution and any shareholders’ agreement of the subsidiary to prevent the GBE from
complying with the GBE Guidelines for as long as the Commonwealth has a controlling
interest in the subsidiary through the GBE.
a. Where the GBE has any subsidiary it will ensure that control of the affairs of that
subsidiary will be exercised by a majority of the directors of that subsidiary, who
are directors or employees of the GBE or have been approved by the Shareholder
Minister(s) for appointment as directors of that subsidiary.
5.9 Where a GBE establishes a subsidiary with less than 100% ownership or purchases a
controlling interest in a company with less than a 100% ownership, the directors of the
GBE should ensure, primarily through the company constitution and any shareholders´
agreement of the subsidiary, that the subsidiary operates so as to enable the GBE to
comply with the GBE Guidelines to the maximum extent possible, for as long as the
Commonwealth has a controlling interest in the subsidiary through the GBE, consistent
with not exposing the subsidiary to any signifcant risk of successful oppression action by
minority shareholders under section 232 of the Corporations Act.
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6 Also refer to CAC Act, section 15 for authorities and section 40 for companies.

5.10 The above requirements relating to GBEs establishing subsidiaries do not apply to cases in
which a GBE is undertaking equity investment and promotion of companies as part of its
day-to-day business operations (for example, a GBE which provides fnancial services as its
core function) provided the Shareholder Minister(s) have notifed the GBE of the types of
investments which are exempt.
5.11 Where a GBE, or one of its subsidiaries, becomes involved in a joint venture the GBE
should ensure that the reporting and control arrangements relating to the joint venture
enable the GBE to satisfactorily meet its obligations under the GBE Guidelines.
5.12 The Shareholder Minister(s) should ensure that there are no provisions in enabling
legislation, company constitution, guidelines to directors or shareholders´ agreements of a
GBE which would prevent the GBE from complying with the requirements outlined above
relating to subsidiaries and joint ventures.
Arrangements for GBEs Being Established, Sold, Restructured
or Wound Up
5.13 These Guidelines apply in full to a wholly-owned GBE during an establishment, sale
or restructuring, or winding-up process, until the Shareholder Minister(s) decide(s) on
variations to facilitate the establishment, sale/restructuring or winding-up process and to
streamline reporting. The board will be advised of variations.
5.14 Where a decision has been taken to sell all or part of the Commonwealth’s interest in a
GBE, or where the possibilities of sale are being explored, the board and management
of the GBE are required to provide full co-operation and requested information to the
government during the period leading up to the sale.
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Appendix B:
Commonwealth Government Business
Enterprises Guidelines June 1997
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Governance Arrangements for Commonwealth
Government Business Enterprises
June 1997

Part 1 – Overview
Principles
Application
Mandate and Objectives
Part 2 – Reporting
Corporate Plans
Statements of Corporate Intent
Progress Reports
Table of Contents
Reports on Operations and Financial Statements
Keeping Shareholder Ministers Informed
Part 3 – Boards of Directors
Board Responsibility
Board Appointments and Removal
Part 4 – Financial Governance
Capital Structure and Dividend Policy
Managing Risks
Financial Targets for GBEs
GBE Borrowings
Part 5 – Other Governance Matters
Workplace Relations
Superannuation
Partly Owned GBEs, Partly Owned Subsidiaries of GBEs and Joint Ventures
Involving GBEs
Arrangements for GBEs Being Sold or Restructured
Attachment A: Matters for Inclusion in the Statement of Corporate Governance
Attachment B: Best practice timetable for GBE reports and dividend

Principles
Part 1 – Overview
1.1 The Commonwealth’s relationship to its GBEs is similar to the relationship between
a holding company and its subsidiaries, features of which include:
(a) a strong interest in the performance and financial returns of the GBE;
(b) reporting and accountability arrangements that facilitate active oversight by
the shareholder; and
(c) action by the shareholder in relation to the strategic direction of its GBEs
where it prefers a different direction from the one proposed.
1.2 The Commonwealth’s ownership interest is represented by two ‘Shareholder
Ministers’, the portfolio Minister (that is the Minister responsible for the portfolio in
which the GBE is located) and the Finance Minister.
(a) All correspondence, reports, etc from GBEs should be sent to both
Shareholder Ministers simultaneously. Whilst Shareholder Ministers will
consult in relation to all correspondence, they may decide that, in relation to
some matters, one of the Shareholder Ministers will correspond on behalf of
both Ministers.
(b) The Shareholder Ministers may provide copies of corporate plans, progress
reports and correspondence on other major matters to the Prime Minister
and/or the Treasurer for possible comment.
1.3 The guiding principles of the governance arrangements are:
(a) Shareholder Ministers exercise strategic control consistent with their
accountability to the Parliament and the public.
(b) Shareholder Ministers set clear objectives for GBEs;
i. any Community Service Obligations (CSOs) that a GBE is to undertake
are generally specified through contractual arrangements.
(c) The directors of a GBE develop the business strategies and handle the day-today
management policies.
(d) The directors of a GBE ensure that:
i. the GBE’s activities are conducted so as to minimise any divergence of
interests between the GBE and the shareholders;
ii. GBEs are managed in the best interests of the shareholders; and
iii. GBEs and their officers maintain the highest standards of integrity,
accountability and responsibility.

(e) Required standards of disclosure are satisfied. In particular, timely disclosure
is to be made by GBEs of information:
i. which may affect the shareholder value of the organisation;
ii. which may influence Government decisions in relation to the GBE; or
iii. in which the Government has a legitimate interest.
(f) Information is produced for the shareholder and the community according to
the highest standards;
i. where appropriate, information enables ready comparison with other
relevant information.
(g) The Shareholder Ministers must be consulted on matters of significance.
Application
1.4 These arrangements apply to:
(a) Government Business Enterprises (GBEs) that are wholly owned by the
Commonwealth; and
(b) indirectly, subsidiaries of wholly owned GBEs through the governance
arrangements that the wholly owned GBE has with its subsidiaries.
1.5 For partly owned GBEs, the extent to which the governance arrangements apply
will be identified in legislation applying specifically to the GBE, and/or the GBE’s
memorandum and articles of association and/or shareholders’ agreement
(see paragraphs 5.3 to 5.12 for more detail).
Mandate and Objectives
1.6 A principal objective for each GBE is that it adds to shareholder value. To achieve
this it is required to:
(a) operate efficiently, that is, at minimum cost for a given scale and quality of
outputs
(b) price efficiently
i. A GBE should set prices taking into account economic forces, including
the level of demand for, and the enterprise’s capacity for and cost of
supplying, individual goods and services.
ii. The Government may impose price conditions on GBEs providing
goods and services in a monopolistic market or CSO goods and services.
Specific arrangements, if needed, would be additional to those arising
from general oversight by the Australian Competition and Consumer
Commission.

(c) earn at least a commercial rate of return
i. This means recovering the full cost of the resources employed, including
the cost of capital.
ii. Each GBE is to work towards a financial target and a dividend policy,
agreed in advance with the Shareholder Ministers, with the financial
target to be set on the basis that each GBE should be required to earn
commercial returns at least sufficient to justify the long-term retention
of assets in the business, and to pay commercial dividends from those
1
returns.
1.7 In addition to setting a commercial rate of return target, the Shareholder Ministers
may set other financial targets and non-financial targets, for particular GBEs, on a
case-by-case basis.
1.8 A GBE should operate in the industry sector, and provide the goods and services
(including CSOs), that the Government has mandated.
(a) The Government may impose service quality standards on GBEs providing
goods and services in a monopolistic market or CSO goods and services.
(b) In providing each GBE with a clear mandate and set of objectives the
Shareholder Ministers will ensure that the objectives include any requirements
to meet explicitly stated Government social and economic objectives.
1.9 The mandate of a GBE will be reviewed by the Government about every three
years, and consideration given to the rationale for continuing Commonwealth
ownership of the organisation.
1.10 Ministerial directions to GBEs, as prescribed in enabling legislation and company
constitutions, are to be in writing and tabled in both Houses of Parliament within
15 sitting days.
1.11 An ultimate objective for each GBE is for it to operate at world best practice.
Corporate Plans
Part 2 – Reporting 2
2.1 The directors of a wholly owned GBE must prepare a corporate plan at least once a
year and give it to the Shareholder Ministers.
(a) The plan covers a period of at least 3 years.
(b) If the GBE has subsidiaries, the plan covers both the GBE and its subsidiaries.
In particular, for each subsidiary the plan includes details of the matters in (d)
below, so far as they are applicable.

(c) The directors keep the Shareholder Ministers informed about:
i. significant changes to the plan; and
ii. matters that arise that might significantly affect the achievement of
objectives in the plan.
(d) The plan includes details of the following matters (so far as they are
applicable):
i. the objectives of the GBE;
• including details of the broad mandate of the GBE, and those
functions that may require its retention as a Government owned
organisation;
ii. assumptions about the business environment in which the GBE operates;
iii. the business strategies of the GBE;
iv. the investment and financing programs of the GBE, including:
• strategies for managing risk; and
• proposed borrowing;
v. financial targets and projections for the GBE;
• with financial projections prepared in the same format as the
progress and final reports — consisting of profit and loss
statement, balance sheet and cash flow statement;
vi. the dividend policy of the GBE;
vii. non-financial performance measures for the GBE;
viii. community obligations of the GBE, including;
• strategies and policies the GBE is to follow in carrying out those
obligations; and
• estimated costs, including strategies for minimising costs;
ix. review of performance (financial and non-financial) against previous
corporate plans and targets;
x. analysis of factors likely to affect achievement of targets or create
significant financial risk for the GBE or for the Commonwealth;
xi. price control and quality control strategies for goods or services supplied
by the GBE in a monopolistic market;
xii. human resource and workplace relations strategies.

(e) The plan also covers any other matters required by the Shareholder Ministers
(which may include further details about the matters in (d) above).
2.2 The Shareholder Ministers may elect to meet with the directors of a GBE prior to
the Ministers responding to the corporate plan.
2.3 The response by the Shareholder Ministers will:
(a) include (if necessary) proposed changes to the corporate plan to better reflect
the Government’s policies and objectives for the business; and
(b) be within 45 days of receipt of the plan.
i. It would assist in meeting the timetable for response if drafts of the
corporate plan were made available for discussion with departmental
officers prior to the plan’s endorsement by the Board.
2.4 All corporate plans and subsequent updates, reports or supplementary information
are confidential to the Ministers, their advisers and Departments.
Statements of Corporate Intent
2.5 The directors of a wholly owned GBE and the Shareholder Ministers agree on a
Statement of Corporate Intent (SCI), which shall be a public document.
2.6 The SCI is a brief (no more than five pages), high level, plain English document
expressed in terms of outputs or outcomes. It is an integral part of the Corporate
Plan, but does not include commercial-in-confidence information. An SCI would
normally contain a business description and mission statement, corporate vision,
objectives, code of ethics, statement of accountability (including reporting
obligations) and broad expectations on financial and non-financial performance.
2.7 The SCI is tabled in Parliament within fifteen sitting days of the Parliament,
following the start of the new financial year.
(a) Shareholder Ministers may agree to later tabling, in which case Parliament
would be informed.
3
Progress Reports
2.8 Confidential six monthly reports (or quarterly reports, as agreed from time-to-time
by the Shareholder Ministers) are provided by the directors of a wholly owned GBE
to the Shareholder Ministers on progress against, and any changes to, the corporate
plan.
(a) Progress reports include financial statements, the format of which is approved
by the Finance Minister.
2.9 The Shareholder Ministers may elect to comment on the report. Any response is
provided by the Ministers within 45 days of receipt of the progress report.

2.10 All progress reports are confidential to the Ministers, their advisers and
Departments.
Reports on Operations and Financial Statements
2.11 The directors of a GBE are required to provide an annual report, or the annual
general meeting documents, to the Shareholder Ministers. The portfolio Minister
tables the report or documents in each House of the Parliament.
(a) Where a GBE is a statutory authority the annual report, or the financial
statements included therein, is prepared in accordance with guidance
promulgated by the Finance Minister.
(b) Where a GBE is a company, the annual report is prepared in accordance with
the Corporations Law.
i. The annual report of a company GBE should include a statement of the
main corporate governance practices that the GBE had in place during
the reporting period, similar to that required by the Australian Stock
Exchange (ASX) listing rules. An indicative list of matters that a GBE
may include when making the statement is included at Attachment A.
2.12 Financial statement of GBEs and their subsidiaries, associated with annual reports,
annual general meeting documents, or interim reports, are audited, or reported on,
4
by the Auditor-General.
2.13 The Auditor-General may conduct a performance audit of a wholly owned GBE, or
any of its subsidiaries, in certain circumstances.
2.14 The Finance Minister may require:
(a) the directors of a wholly owned GBE to prepare an interim report covering
operations for the first six months, or for the first three, six and nine months of
each financial year; and
(b) to provide it to the portfolio Minister within 2 months after the end of the
period to which the report relates.
2.15 The portfolio Minister tables the interim report in each House of Parliament.
2.16 The Shareholder Ministers assess the financial performance of all GBEs on a regular
basis and may write to a GBE about issues identified in such assessments.

Keeping Shareholder Ministers Informed
2.17 The directors of a wholly owned GBE should follow a disclosure principle which is
similar to the continuous disclosure requirements of the Australian Stock Exchange
listing rules: once a GBE comes aware of any information that may have a material
effect on its value, that information must be immediately provided to the
Shareholder Ministers.
(a) Wholly owned GBEs should generally avoid issuing debt securities that would
bring them within the definition of "disclosing entity" under the Corporations
Law. This will minimise the potential for conflict between the proposed
Commonwealth Authorities and Companies Act 1997 (CAC Act) and
section 1001A(1) of the Corporations Law.
2.18 If a wholly owned GBE, or any of its subsidiaries, proposes to participate, change or
dispose of an interest in a company, significant business, significant partnership,
trust, unincorporated joint venture or similar arrangement, the directors should
immediately give the Shareholder Ministers written particulars of the proposal.
(a) The Shareholder Ministers may give written guidelines to the directors that are
to be used by the directors in deciding whether a proposal requires
consultation with the Ministers.
(b) When becoming involved in joint ventures, GBEs should generally adopt the
incorporated form, or enter into the joint venture through a subsidiary.
2.19 The directors of a wholly owned GBE are required to keep the Shareholder
Ministers informed of the operations of the GBE and its subsidiaries, and to give the
Ministers such information in relation to those operations as the Shareholder
Ministers require, within the time limits set by the Ministers.
Board Responsibility
Part 3 – Boards of Directors
3.1 The general conduct of directors is subject to the provisions of the Corporations
Law (for company GBEs) and the proposed CAC Act ( for statutory authority
GBEs). The latter provisions are based on the Corporations Law. Both sets of
provisions include penalties for misconduct.
3.2 Boards have absolute responsibility for the performance of the GBE, and are fully
accountable for this to the Shareholder Ministers.
3.3 Board members have their fiduciary and other duties drawn to their attention by
Shareholder Ministers in, or with correspondence offering appointment, and are to
fully accept the individual responsibility this places on them.

Board Appointments and Removal
3.4 GBE Boards of directors are to comprise people with an appropriate mix of skills,
who are to be appointed on the basis of their individual capacity to contribute to the
Board having an appropriate balance of relevant skills (such as commerce, finance,
accounting, law, marketing, workplace relations and management) and contribute to
the achievement of the GBE’s objectives.
(a) Boards should draw on outside expertise where necessary to augment their
own skills.
(b) The Board Chairperson shall not also be an executive of the GBE, unless
otherwise agreed by the Shareholder Ministers.
(c) The appointment of departmental officers to GBE Boards will only be
considered in exceptional circumstances, having regard to their ability to
represent the interests of the Government, their possession of the business
skills referred to above, and to any potential conflicts of interest that might
arise.
3.5 The Board Chairperson shall head a Board Nomination and Remuneration
Committee, which shall, through the Board, provide Shareholder Ministers with a
list of suitable candidates for Board membership.
(a) Shareholder Ministers may elect to appoint a candidate not proposed by the
Committee.
(b) Shareholder Ministers shall consult with the Prime Minister and the Treasurer
on all Board appointments.
3.6 The Remuneration Tribunal determines the remuneration for the directors that is
compatible with their responsibilities, and having regard to, amongst other things,
rates paid by the private sector.
3.7 Board appointments should normally be for terms of three years. The Board
Nomination and Remuneration Committee is free to include retiring Directors in its
list of candidates.
3.8 Shareholder Ministers may, at their discretion, remove directors prior to the
completion of their term of appointment.
(a) In the event that a GBE is not performing satisfactorily, the Shareholder
Ministers will initiate prompt remedial action. Dismissal of the directors
would be considered, particularly in any case of failure to keep Ministers
adequately informed, and in situations of ongoing under-performance in
respect of financial or other aspects of the operations of the business.
3.9 The Board should consult the Shareholder Ministers about its preferred candidate
for the position of Chief Executive Officer (CEO) and provide sufficient time for
the Shareholder Ministers to respond prior to an appointment being made. The CEO
is directly accountable to the Board.

Part 4 – Financial Governance
Capital Structure and Dividend Policy
4.1 Each GBE should have a target optimal capital structure (the combination of
financial liabilities and equity used to fund the assets of the GBE) that is agreed
annually between the directors and the Shareholder Ministers in the corporate plan
consultation process. An optimal capital structure is one that, in light of economic,
industry and firm specific factors, would provide for an investment grade credit
rating, whilst at the same time imposing a discipline on the GBE to optimise
efficiency.
4.2 A GBE’s level of estimated dividends (and forecast payout ratio) is to be agreed
annually between the directors and the Shareholder Ministers through the corporate
plan consultation process and should have regard to the maintenance of, or progress
toward, its optimal capital structure.
(a) In that context, the level of estimated dividends shall be driven by the desired
capital structure, the profitability of the enterprise, and the level of agreed
future capital expenditure.
(b) The proposed dividend payout ratio and estimated dividend payment should
be included in the corporate plan for each year covered by the plan.
4.3 In providing for a GBE to expand its capital base through retained earnings, any
proposed future capital expenditure should add shareholder value. That is, as a
minimum, capital expenditure plans must meet a hurdle rate of return that is
consistent with the GBE’s principal financial target (as discussed under the
subheading "Financial Targets for GBEs").
4.4 The agreed dividend payout ratio should take account of the Government’s
preference for dividends over capital gains (a payout ratio greater than 60% of
profits after tax and abnormals would reflect that preference), but the payout for
each year and for each GBE should relate principally to the considerations described
in paragraph 4.2 above.
4.5 Dividends should be paid in two instalments: an interim dividend and a final
dividend.
(a) Interim dividends are paid by 30 April and final dividends by 31 October.
(b) The Shareholder Ministers may agree on variations to those dates, after
consultation with the directors of the GBE.
4.6 Interim and final dividends to be paid should be agreed between the directors and
the Shareholder Ministers, as soon as possible after the half yearly progress reports
for the periods ending December and June have been received by the Shareholder
Ministers.

4.7 The capital structure of a GBE is to be reviewed where the application of dividend
policy has not lead to, or is unlikely to lead to an optimal capital structure within a
reasonable period of time.
4.8 Dividend policy for partly owned GBEs should have regard to the above principles,
the extent of Government ownership and the views of other shareholders.
Managing Risks
4.9 Directors are responsible for managing risks. Directors should therefore establish
processes and practices within the GBE to manage all risks associated with the
GBE’s operations.
4.10 Directors should keep the Shareholder Ministers informed of risk management
strategies by outlining them in corporate plans and progress reports, and other
reports when necessary. In addition, and unless otherwise qualified because of
circumstances applying to a particular GBE, corporate plans and progress reports
should contain a statement from the Board that the Board has appropriate risk
management policies and practices in place and that adequate systems and expertise
are being applied to achieve compliance with those policies and procedures.
4.11 The Government, as a shareholder, is sensitive to commercial risk. In some
circumstances, it may therefore choose to set limits on the activities of particular
GBEs; for example on liabilities, financial exposures, use of derivative instruments,
etc.
(a) In normal circumstances, a GBE should only use derivative financial
instruments for the purpose of hedging exposures.
(b) Shareholder Ministers may require the Board of a GBE to provide a risk
management plan, the contents to be agreed on a case-by-case basis.
4.12 As a general rule the Government will not provide formal guarantees of GBE
liabilities. Accordingly, directors should take this policy into account when making
decisions which affect a GBE’s operations and performance.
(a) Guarantees provided in the past continue to apply to existing borrowings until
they mature, in order to protect the interests of investors.
(b) The enabling legislation of public financial enterprises currently provide for
statutory guarantees of most of the obligations of those enterprises.
Financial Targets for GBEs
4.13 All GBEs are required to add to shareholder value in their operations with a view to
at least meeting a financial target agreed by the Shareholder Ministers.
(a) Increases in shareholder value are achieved when the return on assets is
increased, regardless of whether or not the target is reached. However where a
GBE achieves a return which is less than its financial target, it has not
achieved the minimum return acceptable to the shareholder, and the

shareholder would expect the adoption of strategies aimed at achieving the
target.
4.14 Setting an appropriate financial target aims to:
(a) replicate the discipline that the threat of takeover would exert over the
directors and managers of a firm owned by the private sector; and
(b) provide an environment for GBEs which is competitively neutral with the
private sector.
4.15 For GBEs that are classified as trading GBEs, the target is the weighted average cost
of capital (WACC).
(a) This target requires the GBE to earn returns sufficient to cover the cost of
debt and the required return on equity. WACC is used to estimate the
required rate of return on total assets, taking into account the different
required rates of return attached to the different components of the
company’s capital structure.
i. The cost of debt is the expected rate at which the GBE is able to borrow.
ii. The required return on equity is the risk free rate plus the proportion of
market risk premium appropriate to the GBE.
4.16 For GBEs that are classified as financial GBEs, the target is a return on equity.
(a) This target is the risk free rate plus the proportion of market risk premium
appropriate to the GBE.
4.17 Any other financial targets which might be set for particular GBEs, on a case-bycase
basis, should be consistent with the objective of increasing shareholder value.
Measuring against targets
4.18 Shareholder Ministers will agree with each GBE the methodology they will use as
their measure for performance against the WACC, or return on equity, as
appropriate. This measure will be based on shareholder value added and the change
in shareholder value added year-on-year.
4.19 The basic methodology is outlined in An Economic Framework for Assessing the
Financial Performance of Government Trading Enterprises, Steering Committee on
National Performance Monitoring of Government Trading Enterprises, July 1996,
which draws on material provided by the Industry Commission.
4.20 Financial targets should not be adjusted for any unfunded components of CSOs.
Rather, any adjustments considered necessary should be made, notionally, to the
organisation’s actual revenues.

GBE Borrowings
4.21 Ongoing oversight of GBE borrowings is an integral part of the corporate plan and
progress report processes outlined in paragraphs 2.1 to 2.10 above.
4.22 The Government will consider supporting borrowing proposals beyond the first
forward year for GBEs that have a proven track record of good performance and
accountability, and which provide appropriate justification (including expected rates
of return) in corporate plans to support proposed capital expenditure programs.
4.23 GBEs will usually borrow from financial markets. Borrowing from the
Commonwealth Budget requires the specific approval of the Finance Minister.
4.24 Wholly owned GBEs should generally avoid issuing debt securities that would bring
them within the definition of "disclosing entity" under the Corporations Law.
(a) This will minimise the potential for conflict between the proposed CAC Act
and section 1001A(1) of the Corporations Law.
Part 5 – Other Governance Matters
Workplace Relations
5.1 Subject to these governance arrangements, GBEs are free to manage relations with
their employees consistent with the Workplace Relations Act 1996 and in
accordance with the following:
(a) the Board of each GBE is required to consult with the Remuneration Tribunal
in determining remuneration packages for Chief Executive Officers;
(b) the Remuneration Tribunal determines the remuneration for the directors that
is compatible with their responsibilities, and having regard to, amongst other
things, rates paid by the private sector; and
(c) any matters specified from time-to-time by the Minister for Industrial
Relations, after consultation with the Prime Minister and the Finance Minister.
Superannuation
5.2 Superannuation arrangements for GBEs are covered by the Prescribed Requirements
regime determined under the Superannuation Benefits (Supervisory Mechanisms)
Act 1990. Under the Prescribed Requirements regime GBEs (except for those
employing staff under the Public Service Act 1922) are able to establish and operate
superannuation arrangements of their choice. Accountability to the Government is
satisfied by GBEs submitting detailed annual reports to the Government on their
superannuation arrangements.

Partly Owned GBEs, Partly Owned Subsidiaries of GBEs and
Joint Ventures Involving GBEs
Partly Owned GBEs
5.3 Where the Commonwealth decides to move to, or adopt, partial ownership of a GBE
the GBE governance arrangements should apply to the maximum extent possible,
consistent with minimising the risk of a potential oppression action by minority
shareholders under section 260 of the Corporations Law.
5.4 Government approval is required of any proposal to set up a partly owned GBE, or
to change Commonwealth ownership of an existing GBE from whole to partial
ownership (including the introduction of employee share ownership schemes). The
approval may anticipate a continuous process of a reduced share or level of
Commonwealth ownership leading to transfer of the controlling interest to other
parties and to eventual sale of all of the Commonwealth’s interest.
5.5 Where Cabinet decides to move to partial ownership of a GBE in which it is likely
to retain a controlling interest for a period of time, the Shareholder Ministers, in
consultation with the Attorney-General, should, before any shares in the GBE are
sold or issued:
(a) review any enabling or other relevant legislation and the memorandum and
articles of association (M&As) of the GBE, to assess the extent to which they
are consistent with the GBE governance arrangements; and
(b) provide, through a shareholders’ agreement with potential owners and/or
changes to the enabling legislation and the M&As, for the GBE governance
arrangements to apply to the maximum extent consistent with the policy
objectives the Government is pursuing through its movement to partial
ownership of the GBE.
5.6 In negotiations with potential other owners of a GBE that the Commonwealth will
not control, the Shareholder Ministers should aim to have the GBE governance
arrangements applied to the maximum extent, having regard to the policy objectives
of the Government in the circumstances.
Partly owned Subsidiaries of GBEs and Joint Ventures involving GBEs
5.7 GBEs are generally free to establish partly owned subsidiaries, purchase a
controlling interest in other companies or enter into joint venture arrangements;
however under paragraph 2.18 of the GBE governance arrangements they are
required to notify the Shareholder Ministers of significant proposals to form
subsidiaries, joint ventures, etc.
(a) When becoming involved in joint ventures, GBEs should generally adopt the
incorporated form or enter into the joint venture through a subsidiary.
5.8 Where a GBE establishes a fully owned subsidiary, or purchases a 100% interest in
a company (thereby creating a subsidiary), the directors of the GBE should ensure,
prior to any move to partial ownership of the subsidiary, that no obstacles are

present in the M&As and any shareholders’ agreement of the subsidiary to prevent
the GBE from complying with the GBE governance arrangements for as long as the
Commonwealth has a controlling interest in the subsidiary through the GBE.
5.9 Where a GBE establishes a subsidiary with less than 100% ownership or purchases
a controlling interest in a company with less than a 100% ownership, the directors
of the GBE should ensure, primarily through the M&As and any shareholders’
agreement of the subsidiary, that the subsidiary operates so as to enable the GBE to
comply with the GBE governance arrangements to the maximum extent possible,
for as long as the Commonwealth has a controlling interest in the subsidiary through
the GBE, consistent with not exposing the subsidiary to any significant risk of
successful oppression action by minority shareholders under section 260 of the
Corporations Law.
5.10 The above requirements relating to GBEs establishing subsidiaries do not apply to
cases in which a GBE is undertaking equity investment and promotion of companies
as part of its day-today business operations (for example, a GBE which provides
financial services as its core function) provided the Shareholder Ministers have
notified the GBE of the types of investments which are exempt.
5.11 Where a GBE, or one of its subsidiaries, becomes involved in a joint venture the
GBE should ensure that the reporting and control arrangements relating to the joint
venture enable the GBE to satisfactorily meet its obligations under the GBE
governance arrangements.
5.12 The Shareholder Ministers, in consultation with the Attorney-General, should
ensure that there are no provisions in enabling legislation, M&As, guidelines to
directors or shareholders’ agreements of a GBE which would prevent the GBE from
complying with the requirements outlined above relating to subsidiaries and joint
ventures.
Arrangements for GBEs Being Sold or Restructured
5.13 The governance arrangements apply in full to a wholly owned GBE during a sale or
restructuring process, until the Shareholder Ministers decide on variations to
facilitate the sale/restructuring process and to streamline reporting. The directors
will be advised of variations.
5.14 Where a decision has been taken to sell all or part of the Commonwealth’s interest
in a GBE, or where the possibilities of sale are being explored, the directors and
management of the GBE are required to provide full co-operation and requested
information to the Government during the period leading up to the sale.
Footnotes:
1 Details on financial targets are provided in paragraphs 4.13 to 4.17; details on dividends are provided in
paragraphs 4.1 to 4.8.
2 A best practice reporting timetable is at Attachment B.
3 Progress reports are distinct from the interim reports to Parliament (see paragraphs 2.14 and 2.15).
4 Interim reports are discussed in paragraphs 2.14 to 2.15.

Attachment A
Matters for Inclusion in the Statement of Corporate
Governance
The following is an indicative list of matters that a GBE may include when making the
corporate governance statement required under paragraph 2.11 of these arrangements:
(a) whether individual directors, including the Chair, are executive or non-executive
directors;
(b) the names and positions in relation to the GBE of the members of the Board
Nomination and Remuneration Committee;
(c) the main procedures for establishing and reviewing the compensation
arrangements for the directors of the GBE;
(d) the main procedures by which the Board, or members of it, can seek independent
professional advice, at the GBE’s expense, in carrying out their duties;
(e) the Board’s approach to identifying areas of significant business risk, and to
putting arrangements in place to manage them; and
(f) the GBE’s policy on the establishment and maintenance of appropriate ethical
standards.

Best practice timetable for GBE reports and
dividends 5
Date Item Comment
Attachment B
by 31 July Final corporate plan Submitted to Shareholder Ministers.
Final statement of Signed by Shareholder Ministers and
corporate intent the Chairman of the Board.
by 31 August Progress report — June Submitted to Shareholder Ministers.
quarterly or half yearly Quarterly reports submitted on an
report
exceptions basis.
by 30 September Annual report Forwarded to Shareholder Ministers for
tabling in Parliament.
by 31 October Final dividend paid
by 11 November Progress report — Submitted to Shareholder Ministers on
September quarterly
report
an exceptions basis.
by 11 February Progress report — Submitted to Shareholder Ministers.
December quarterly or Quarterly reports submitted on an
half yearly report exceptions basis.
by 30 April Interim dividend paid
by 12 May Progress report — Submitted to Shareholder Ministers on
March quarterly report an exceptions basis.
by 31 May Corporate plan Submitted to Shareholder Ministers for
comment. Shareholder Ministers to
respond by 15 July.
Statement of corporate Submitted to Shareholder Ministers for
intent
comment. Shareholder Ministers to
respond by 15 July.
Attachment Footnote:
5 Variations to time may be agreed between the Shareholder Ministers and the directors, on a case-by-case
basis.