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Australian <strong>Government</strong><br />
Department <strong>of</strong> Finance and Deregulation<br />
June 2011<br />
<strong>Review</strong> <strong>of</strong> <strong>Commonwealth</strong><br />
<strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong><br />
Governance and Oversight Guidelines<br />
Exposure Draft<br />
Discussion Paper
FIN_2011_0019<br />
Exposure Draft
Contents<br />
Introduction 2<br />
Part 1 – Overview 5<br />
1.1 Mandate and Objectives 5<br />
Part 2 – Board and Corporate Governance (previously Part 3) 6<br />
2.1 Public Sector Accountability 6<br />
2.2 Ethical Standards 7<br />
2.3 Board Appointment and Performance 8<br />
2.4 CEO Succession Planning 11<br />
2.5 Board Tenure 12<br />
2.6 Board Induction, Training and Performance Evaluation 14<br />
Part 3 – Planning and Reporting (Previously Part 2, Reporting) 17<br />
3.1 Requirements 17<br />
3.2 Corporate Plans 20<br />
3.3 Statement <strong>of</strong> Corporate Intent (SCI) 23<br />
3.4 Progress Reports 24<br />
3.5 Annual Reports 26<br />
3.6 Keeping Shareholder Minister(s) Informed 27<br />
3.7 Commercial Freedoms 29<br />
3.8 Annual General Meetings 30<br />
Part 4 – Financial Governance 31<br />
4.1 Capital Structure and Dividend Policy 31<br />
4.2 Financial Targets for GBEs 32<br />
4.3 Managing Risks 35<br />
Part 5 – Other Governance Matters 37<br />
Appendix A: 39<br />
Revised <strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong><br />
Governance and Oversight Guidelines<br />
Exposure Draft<br />
Appendix B: 63<br />
<strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong> Enterprise Guidelines June 1997<br />
1
2<br />
Introduction<br />
The Governance Arrangements for <strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong><br />
(GBE Guidelines) is a policy document that provides a framework for defning the Australian<br />
<strong>Government</strong>’s working relationship with its <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong> (GBEs) and the<br />
various responsibilities <strong>of</strong> the parties to that relationship. The document forms part <strong>of</strong> the<br />
overall corporate governance framework under which GBEs operate and as such complements<br />
the <strong>Commonwealth</strong> Authorities and Companies Act 1997 (CAC Act) and, in the case <strong>of</strong> GBEs<br />
that are <strong>Commonwealth</strong> authorities, their enabling legislation, or, in the case <strong>of</strong> GBEs that are<br />
<strong>Commonwealth</strong> companies, their constitution and the Corporations Act 2001 (Corporations Act).<br />
A GBE is either a <strong>Commonwealth</strong> authority or a <strong>Commonwealth</strong> company that is prescribed as a<br />
GBE under Regulation 4 <strong>of</strong> the <strong>Commonwealth</strong> Authorities and Companies Regulations 1997<br />
(CAC Regulations).<br />
Currently, there are seven <strong>Commonwealth</strong> government GBEs which are a mixture <strong>of</strong> companies<br />
and statutory authorities. They incur different business risks resulting from, among other things,<br />
different levels <strong>of</strong> competition in their product markets and from their varying capital structures.<br />
In 2009-10, GBEs generated revenues <strong>of</strong> over $11.57bn and returned dividends <strong>of</strong> $265.9m to<br />
the <strong>Commonwealth</strong>.<br />
<strong>Government</strong> <strong>Business</strong><br />
<strong>Enterprises</strong><br />
2009-10<br />
Revenue<br />
<strong>Commonwealth</strong> authorities<br />
2009-10<br />
Dividend<br />
Exposure Draft<br />
Equity @<br />
30 June 2010<br />
Australian <strong>Government</strong> Solicitor $115.9m $3.5m $44.6m<br />
Australian Postal Corporation $4,753.4m $171.9m $1,559.1m<br />
Defence Housing Australia $983.9m $52.7m $1,290.8m<br />
<strong>Commonwealth</strong> companies<br />
ASC Pty Limited $515.7m $5.0m $208.4m<br />
Australian Rail Track Corporation<br />
Limited<br />
$604.8m Nil $2,497.8m<br />
Medibank Private Limited $4,594.3m $32.8m $1,720.0m<br />
NBN Co Limited $3.9m Nil $232.0m<br />
Total $11,571.9m $265.9m $7,552.7m<br />
This discussion paper highlights a number <strong>of</strong> possible reforms to the GBE Guidelines and provides<br />
an opportunity for relevant stakeholders to comment on the proposals. Section 1 <strong>of</strong> the paper<br />
discusses the more signifcant areas <strong>of</strong> policy change and Section 2 contains the proposed revised<br />
GBE Guidelines.
The key topics identifed for discussion are:<br />
• Mandate and objectives:<br />
- Clarifying the process for the review <strong>of</strong> the mandate and objectives <strong>of</strong> a GBE.<br />
• Public sector accountability:<br />
- Clarifying matters for inclusion in letters <strong>of</strong> appointment for directors and Chief Executive<br />
Offcers (CEOs);<br />
- Establishing a requirement for new directors to formally respond to letters <strong>of</strong> appointment,<br />
giving an undertaking to the Shareholder Minister(s) that they will advise them <strong>of</strong> any<br />
matters which may impact on their ability to be a director;<br />
- Formally requiring boards to establish, document and maintain a code <strong>of</strong> conduct and<br />
conficts policy;<br />
- Establishing a general requirement for GBEs to behave in a politically impartial manner; and<br />
- Guidance on taxation planning.<br />
• Board appointments and performance:<br />
- Establishing guidance on appointment processes to ensure that high-calibre directors<br />
are appointed to GBE boards, and that appointment processes are open, transparent,<br />
defensible and aligned with government policy objectives;<br />
- Establishing guidance on the tenure <strong>of</strong> directors to maintain a balance between introducing<br />
new skills and ideas and business continuity, and outlining the need for directors to attend<br />
all board meetings;<br />
- Incorporating a general requirement for board induction, training and performance<br />
reviews; and<br />
- Including a general requirement to renew board committee charters and composition annually.<br />
• Guidance on the role <strong>of</strong> CEOs:<br />
- Providing guidance on the <strong>Commonwealth</strong>’s preference for the appointment <strong>of</strong> CEOs to<br />
facilitate clear board governance practices; and<br />
- Establishing a general requirement for GBEs to implement and maintain a succession plan<br />
for CEOs.<br />
• Planning and reporting requirements:<br />
- Providing guidance for publishing Statements <strong>of</strong> Corporate Intent (SCI) on GBE websites<br />
and reporting on performance against the SCI’s broad objectives in GBE annual reports to<br />
enhance transparency;<br />
- Formally adopting quarterly performance reporting (which is the basis under which the<br />
vast majority <strong>of</strong> GBEs report in practice) and outlining key features that each report should<br />
provide to enhance transparency;<br />
- Establishing minimum requirements for fnancial and non-fnancial performance indicators<br />
to be included in Corporate Plans and progressively reported against;<br />
- Establishing guidelines for the preparation and presentation <strong>of</strong> business cases;<br />
- Providing additional guidance on the setting <strong>of</strong> fnancial targets;<br />
- Including a requirement to hold Annual General Meetings; and<br />
- Including a general requirement for risk management to be addressed in Corporate Plans<br />
and performance reports in order to increase transparency and accountability <strong>of</strong> GBE risk<br />
management practices;<br />
Exposure Draft<br />
3
4<br />
• Keeping the Shareholder Minister(s) informed:<br />
- Aligning the requirements with the CAC Act;<br />
- Establishing guidance on the development <strong>of</strong> Commercial Freedoms Frameworks for<br />
each GBE; and<br />
- Providing additional guidance to GBEs in respect <strong>of</strong> business case requirements which<br />
require Shareholder Minister(s) consultation and endorsement.<br />
• Changing the title <strong>of</strong> document to ‘<strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong><br />
Governance and Oversight Guidelines’:<br />
- This more accurately refects the purpose <strong>of</strong> the document and will help to avoid any<br />
potential confusion with the ‘Governance Arrangements for Australian <strong>Government</strong> Bodies’<br />
policy document.<br />
Other changes include updating references to provisions <strong>of</strong> the CAC Act and the Corporations Act,<br />
as well as formatting changes to improve the general readability and fow <strong>of</strong> the document.<br />
The current GBE Guidelines have no legal authority and the <strong>Commonwealth</strong> relies on the GBEs<br />
and their boards to comply with the policies contained in the document. We are close to fnalising<br />
discussions/consultation on the most appropriate mechanism for embedding the application and<br />
enforcement <strong>of</strong> the revised GBE Guidelines. We will be seeking to provide for an express power<br />
to be inserted into the CAC Act to enable the Finance Minister to issue guidelines to GBEs. This<br />
will be comparable to the powers under s 64 <strong>of</strong> the FMA Act.<br />
Your comments on the proposed changes are sought by 30 June 2011.<br />
Comments can be directed to:<br />
Ms Stacie Hall<br />
Assistant Secretary - <strong>Government</strong> <strong>Business</strong>es Advice Branch<br />
Department <strong>of</strong> Finance and Deregulation<br />
Treasury Building,<br />
Parkes Place West, Parkes<br />
CANBERRA ACT 2600<br />
Phone: 02 6215 2727<br />
Fax: 02 6267 3009<br />
GBAB@fnance.gov.au<br />
Exposure Draft
Part 1 - Overview<br />
1.1 Mandate and Objectives<br />
1.1.1 A GBE’s mandate includes functions outlined in enabling legislation (for <strong>Commonwealth</strong><br />
authorities) or company constitutions (for <strong>Commonwealth</strong> companies) as well as any<br />
guidance provided by: the Finance Minister where the GBE is located within the Finance<br />
and Deregulation portfolio; or the Minister with portfolio responsibility for the particular<br />
GBE and the Finance Minister (hereafter referred to as the Shareholder Minister(s) for the<br />
purposes <strong>of</strong> the GBE Guidelines).<br />
1.1.2 The current GBE Guidelines require that GBE mandates be reviewed “about every three<br />
years”. This approach was adopted from the rationale outlined in the 1997 ‘<strong>Review</strong> <strong>of</strong><br />
GBE Governance Arrangements’ by Mr Richard Humphry AO (the Humphry <strong>Review</strong>)<br />
which considered that mandates should be regularly reviewed to ensure that government<br />
objectives were being met and that continued government ownership remained desirable. 1<br />
1.1.3 In practice, mandates are more regularly considered in the context <strong>of</strong>:<br />
• the corporate planning processes, where GBEs present to the Shareholder<br />
Minister(s) their proposed objectives and strategies covering a period <strong>of</strong> at least<br />
three years;<br />
• GBE business proposals, such as signifcant acquisitions that are submitted by<br />
GBEs to the Shareholder Minister(s) for consideration; and<br />
• <strong>Government</strong> policy proposals that directly or indirectly impact on GBEs.<br />
1.1.4 During each <strong>of</strong> these processes, the Shareholder Minister(s) and their department(s)<br />
consider how the GBE’s mandate is being affected and whether the proposals are<br />
desirable from a shareholding and whole <strong>of</strong> government perspective. Accordingly, there<br />
may be merit in adopting a principle that mandates are considered annually as part <strong>of</strong><br />
the corporate planning process and that stand-alone reviews <strong>of</strong> mandates be undertaken<br />
periodically as required.<br />
Proposed Change:<br />
1.911 The mandate <strong>of</strong> a GBE will be considered by the Shareholder Minister(s) as part <strong>of</strong><br />
the annual corporate planning process. In addition, the Shareholder Minister(s) will,<br />
where appropriate, periodically undertake a stand-alone review <strong>of</strong> the mandate. will be<br />
reviewed by the <strong>Government</strong> about every three years and consideration given to the<br />
rationale for continuing <strong>Commonwealth</strong> ownership <strong>of</strong> the organisation.<br />
Exposure Draft<br />
1 Humphry AO, R. “<strong>Review</strong> <strong>of</strong> GBE Governance Arrangements”, p13 (March 1997).<br />
5
6<br />
Part 2 - Board and Corporate Governance<br />
(previously Part 3)<br />
2.1 Public Sector Accountability<br />
2.1.1 The legal roles and expectations <strong>of</strong> directors are outlined in both the Corporations Act<br />
and the CAC Act. The CAC Act (section 15, Report <strong>of</strong> Operations) now outlines the<br />
requirements for boards to report on arrangements in place for contributing to the<br />
appropriate governance and performance <strong>of</strong> each GBE. Finance considers that it would be<br />
appropriate for GBE boards to expand their reporting to include this information.<br />
Proposed Change:<br />
3.2 2.2 Boards have absolute responsibility for the performance <strong>of</strong> the GBE, and are fully<br />
accountable for this to the Shareholder Minister(s). Boards should implement<br />
effective governance frameworks to support their role and responsibilities, and report<br />
on implementation in the Annual Report.<br />
2.1.2 Finance is proposing that new appointees to GBE boards receive a letter from the<br />
Shareholder Minister(s) (or in the case <strong>of</strong> Chief Executive Offcers (CEO), the employing<br />
board) advising <strong>of</strong> their appointment and outlining other matters <strong>of</strong> relevance to the<br />
position. These letters are signifcant because they provide an initial frame <strong>of</strong> reference<br />
to new appointees in regard to their obligations and accountabilities and outline the<br />
Shareholder Minister(s)’ expectations <strong>of</strong> the GBE.<br />
2.1.3 Letters <strong>of</strong> appointment should also outline the appointee’s public sector accountability<br />
obligations. All appointees should be aware that the activities <strong>of</strong> a GBE are (potentially)<br />
subject to Parliamentary scrutiny (e.g. through Parliamentary Committee inquiries,<br />
estimates hearings etc) and audit processes (e.g. through an independent performance<br />
audit conducted by the ANAO). This is in line with the requirements under the Governance<br />
Arrangements for Portfolio Bodies 2 that letters <strong>of</strong> appointment cover such matters.<br />
2.1.4 Further, the ASX has recently highlighted the importance <strong>of</strong> developing comprehensive<br />
appointment letters that assist appointees to develop a strong understanding <strong>of</strong> their<br />
role. The ASX has developed an indicative list <strong>of</strong> matters that should be considered when<br />
drafting appointment letters. 3 There may be merit in adapting the list to the GBE context<br />
and adding it to the revised GBE Guidelines as a guide to developing better practice<br />
appointment letters.<br />
2.1.5 The list could be used by departments assisting the Shareholder Minister(s) to develop<br />
appointment letters and by GBEs preparing CEO appointment letters.<br />
2.1.6 Finance also recommends the inclusion <strong>of</strong> a requirement for formal responses to letters<br />
<strong>of</strong> appointment to be included as part <strong>of</strong> the appointment process. Such an acceptance<br />
letter would include an undertaking by the appointee to advise the Shareholder Minister(s)<br />
if there is any change in their circumstances that might impact their ability to be a director.<br />
Exposure Draft<br />
2 http://www.fnance.gov.au/fnancial-framework/governance/docs/Governance-Arrangements-for-Australian-<strong>Government</strong>-Bodies.pdf<br />
3 ASX Principles, page 14<br />
(http://asx.ice4.interactiveinvestor.com.au/ASX0701/Corporate%20Governance%20Principles/EN/body.aspx?z=1&p=13&v=1&uid= )
Proposed Change: (New)<br />
3.3 2.3 a. Appointment letters for all directors and Chief Executive Offcers (CEOs) should<br />
include the following:<br />
• director powers and duties (attaching a link to the <strong>Commonwealth</strong> Authorities and<br />
Companies Act 1997 and the GBE Guidelines);<br />
• a copy <strong>of</strong> the GBE’s constitution or enabling legislation (which would include the<br />
circumstances in which an <strong>of</strong>fce <strong>of</strong> director becomes vacant);<br />
• general public sector performance and accountability obligations, including that the<br />
GBE may be subject to Parliamentary scrutiny and audit processes;<br />
• information on the operations <strong>of</strong> the GBE, full details <strong>of</strong> their legislative obligations,<br />
their public sector accountability obligations and directors’ responsibilities, and<br />
outlining the circumstances in which the GBE will bear the cost <strong>of</strong> directors obtaining<br />
independent pr<strong>of</strong>essional advice in carrying out their duties;<br />
• the term <strong>of</strong> appointment and remuneration arrangements (with particular reference to<br />
Remuneration Tribunal arrangements); and<br />
• reference to Directors and Offcers insurance arrangements, confdentiality <strong>of</strong> information<br />
and board decisions, confict <strong>of</strong> interest matters, and induction arrangements.<br />
b. Directors are to formally respond to the letter <strong>of</strong> appointment within 30 days <strong>of</strong> receipt<br />
and provide an undertaking to advise the Shareholder Minister(s) if there is any change in<br />
circumstances that might impact on their ability to be a director.<br />
2.2 Ethical Standards<br />
2.2.1 The current GBE Guidelines require that the GBE directors ensure that GBEs and GBE<br />
<strong>of</strong>fcers maintain “the highest standards <strong>of</strong> integrity, accountability and responsibility.’’ 4<br />
This is particularly important in retaining public confdence in how resources are being<br />
used and to recognise Ministerial accountabilities to the Parliament.<br />
2.2.2 It is therefore important that directors, staff and contractors understand their ethical<br />
obligations and that the board actively promotes an ethical culture within each GBE.<br />
One way <strong>of</strong> promoting an ethical culture is to create and maintain a code <strong>of</strong> conduct.<br />
In practice, GBEs already have a code <strong>of</strong> conduct and outline it in their Statement <strong>of</strong><br />
Corporate Intent, which is tabled in the Parliament 5 and in many instances published as<br />
a stand-alone document. However, it may be appropriate to adopt the code <strong>of</strong> conduct<br />
as a formal requirement under the GBE Guidelines so that GBEs are clear as to their<br />
responsibilities in this area.<br />
2.2.3 Clause 15 <strong>of</strong> the <strong>Commonwealth</strong> Authorities and Companies Act (Report <strong>of</strong> Operations)<br />
Orders 2008 (the Orders) requires <strong>Commonwealth</strong> authorities to outline their ‘policy on<br />
the establishment and maintenance <strong>of</strong> appropriate ethical standards’ in the Statement <strong>of</strong><br />
Governance. There is no similar requirement under the Orders for <strong>Commonwealth</strong> companies.<br />
• Further, employees <strong>of</strong> Statutory Agencies under the Public Service Act 1999 are<br />
subject to the ‘APS Values and Code <strong>of</strong> Conduct’. This applies to Defence Housing<br />
Australia being the only GBE that is a Statutory Agency.<br />
4<br />
Exposure Draft<br />
Current GBE Governance Arrangements, paragraph 1.3d (iii) http://www.fnance.gov.au/publications/governance-arrangements/index.html<br />
5 Current GBE Governance Arrangements, paragraphs 2.5 to 2.7.<br />
7
8<br />
2.2.4 The Australian Institute <strong>of</strong> Company Directors (AICD) has a code <strong>of</strong> conduct for directors <strong>of</strong><br />
corporations. 6 However, this does not apply to employees and contractors.<br />
2.2.5 Further, Finance considers it important that GBEs should avoid activities that could give<br />
rise to questions about their political impartiality. In particular, GBEs should not make<br />
direct or indirect political donations or participate in activities sponsored or in support <strong>of</strong><br />
partisan political causes. This is refected in the revised Guidelines.<br />
2.2.6 As a general guide, Finance considers that a code <strong>of</strong> conduct for GBEs should cover the<br />
following areas: being pr<strong>of</strong>essional and apolitical; customer service; work practices and<br />
performance; confict <strong>of</strong> interest; relationship with suppliers; gifts and benefts; outside<br />
employment; appropriate use <strong>of</strong> assets and resources; and confdentiality <strong>of</strong> information.<br />
Proposed Change: (New)<br />
2.4 Boards should continue to regularly monitor the ongoing independence <strong>of</strong> each director<br />
and the board generally to ensure that they continue to exercise unfettered and<br />
independent judgement.<br />
2.5 In particular, the government expects GBE boards to establish and maintain a code <strong>of</strong><br />
conduct for directors, employees and contractors and to ensure that GBEs, in undertaking<br />
their business, avoid activities that could give rise to questions about their political<br />
impartiality. For example, GBEs should not make direct or indirect political donations or<br />
participate in activities sponsored or in support <strong>of</strong> partisan political causes.<br />
2.6 The code <strong>of</strong> conduct may cover the following matters: being pr<strong>of</strong>essional and apolitical;<br />
customer service; work practices and performance; confict <strong>of</strong> interest; relationship<br />
with suppliers; gifts and benefts; outside employment; appropriate use <strong>of</strong> assets and<br />
resources; and confdentiality <strong>of</strong> information, including in electronic form.<br />
2.3 Board Appointment and Performance<br />
2.3.1 The selection <strong>of</strong> suitably qualifed people to the governing board <strong>of</strong> a GBE is an important<br />
responsibility <strong>of</strong> the Shareholder Minister(s) and the government. Board appointments are<br />
the most direct way that the Shareholder Minister(s) can infuence the performance <strong>of</strong> a<br />
GBE. Equally, board planning is an important component <strong>of</strong> the overall risk management<br />
strategy <strong>of</strong> a GBE and should form part <strong>of</strong> the board’s regular activities.<br />
2.3.2 Finance considers that the process proposed will increase transparency, accountability,<br />
and importantly, ensure the calibre and diversity <strong>of</strong> candidates appointed to GBE boards<br />
continues to be appropriate to the importance and scale <strong>of</strong> these signifcant Australian<br />
public sector entities.<br />
2.3.3 The proposed changes are consistent with the government’s policy principles on<br />
transparent and accountable public administration and draw on government appointment<br />
processes used internationally. They also refect developments in the private sector, the<br />
revised ASX guidelines, 7 and the work <strong>of</strong> the <strong>Commonwealth</strong> <strong>Government</strong>’s Corporations<br />
and Markets Advisory Committee (CAMAC), 8 whose recent publications focus on the need<br />
to enhance board diversity and quality.<br />
Exposure Draft<br />
6 Australian Institute <strong>of</strong> Company Directors. “Code <strong>of</strong> Conduct”, page 1 (September 2005). Refer to<br />
http://www.companydirectors.com.au/General/Search?q=Code%20<strong>of</strong>%20Conduct<br />
7 ASX Corporate Governance Principles and Recommendations Second Edition August 2007,<br />
http://asx.ice4.interactiveinvestor.com.au/ASX0701/Corporate%20Governance%20Principles/EN/body.aspx?z=1&p=-1&v=1&uid=<br />
8 Australian <strong>Government</strong> Corporations and Markets Advisory Committee (CAMAC): March 2009 report, Diversity on Boards <strong>of</strong> Directors<br />
(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<br />
open, and to keep the ongoing composition <strong>of</strong> the board under review. This approach has<br />
been used successfully in other jurisdictions including New Zealand where the Crown<br />
Ownership Monitoring Unit (COMU) has the objective <strong>of</strong> developing an active and open<br />
approach to board composition and renewal with a view to maintaining the best balance<br />
<strong>of</strong> skills and experiences that match the strategic direction and needs <strong>of</strong> the GBE. 9 In<br />
addition, the changes refect developments in appointment processes in the private<br />
sector and international governments. Principally the recommended changes incorporate<br />
current <strong>Government</strong> policy (in respect <strong>of</strong> merit and transparency in senior <strong>Government</strong><br />
appointments, and gender and diversity targets). The changes also aim to improve board<br />
planning and ensure that recommended candidates represent the best possible feld.<br />
2.3.5 The proposed changes also refect the importance <strong>of</strong> the cost and timeliness associated<br />
with any board appointment process. Consideration has been given to the need to<br />
balance the requirement for greater accountability, independence and rigor against the<br />
need for effciency and cost-effectiveness. The New Zealand COMU has quite a mature<br />
recruitment model which also includes an on-line application system for members <strong>of</strong> the<br />
public. However, given the broad range <strong>of</strong> activities undertaken by Australia’s GBEs, we<br />
consider that allocating greater responsibility to GBE boards for the sourcing <strong>of</strong> suitably<br />
qualifed candidates for director positions will result in the generation <strong>of</strong> a stronger feld <strong>of</strong><br />
appropriate candidates in a more effcient manner. For each vacancy, boards will need to<br />
determine whether to arrange to publically advertise upcoming vacancies and/or to identify<br />
candidates via executive search processes.<br />
2.3.6 There have been a number <strong>of</strong> studies over recent years that have concluded that<br />
organisations with gender diverse boards have a higher level <strong>of</strong> organisational<br />
effectiveness and fnancial performance than their more male dominated counterparts.<br />
For example, the CAMAC report on ‘Diversity on Board <strong>of</strong> Directors’ 10 examined the issue<br />
<strong>of</strong> diversity on boards, including the participation <strong>of</strong> women. It concluded that a focus on<br />
a more robust and open approach to board appointments will foster a governance culture<br />
that embraces diversity in the composition <strong>of</strong> corporate boards.<br />
2.3.7 Gender diverse boards show greater evidence <strong>of</strong> diversity <strong>of</strong> thought and perspective and<br />
at the same time, greater unity and collegiality. Unity is a fundamental strength <strong>of</strong> an active<br />
and independent board and implies a focus on the importance <strong>of</strong> the board as a whole,<br />
active support by all directors for decisions made, an atmosphere <strong>of</strong> trust, respect and<br />
confdence amongst members and a combination <strong>of</strong> internal dissent and external solidarity.<br />
Exposure Draft<br />
9 New Zealand Crown Ownership Monitoring Unit, ‘Selection Criteria’ http://www.comu.govt.nz/board-appointments/what-we-look-for/<br />
10 Australian <strong>Government</strong> Corporations and Markets Advisory Committee (CAMAC): March 2009 report,<br />
Diversity on Boards <strong>of</strong> Directors (www.camac.gov.au)<br />
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2.3.8 The proportion <strong>of</strong> women on GBE boards is currently around 25% and compares<br />
favourably to both the 9.2% female representation on ASX top 200 companies (2010) 11 and<br />
international results. 12 The proposed amendments to the ASX Guidelines13 recommend<br />
the development <strong>of</strong> measurable objectives for achieving gender diversity, and the CAMAC<br />
report suggests that greater gender equity can be achieved by ensuring appointment<br />
processes are more transparent, and by formalising processes for keeping board<br />
composition under review in response to both performance and changing needs. In<br />
keeping with the introduction <strong>of</strong> measurable objectives for achieving gender diversity,<br />
the revised GBE Guidelines have incorporated the government’s policy in the updated<br />
document, requiring GBEs to develop Board plans that incorporate strategies for achieving<br />
the government’s policy with respect to a target <strong>of</strong> 40% representation by women on<br />
government boards by 2015.<br />
2.3.9 Where departmental <strong>of</strong>fcers are appointed to GBE boards, they are expected to act in the<br />
best interest <strong>of</strong> the GBE and not be there to represent the interests <strong>of</strong> the government,<br />
which may be at variance with those <strong>of</strong> the GBE. It is envisaged that such appointments<br />
would only occur in exceptional circumstances, such as for GBEs that are to be wound<br />
down, and where it is not practical to appoint a director through the normal processes.<br />
2.3.10 It should be noted that the fnal decision on appointment <strong>of</strong> directors remains with the<br />
Shareholder Minister(s) and the Prime Minister, or at his/her discretion, the Cabinet, and it<br />
is expected that any appointments made will be in line with agreed selection criteria.<br />
Proposed change:<br />
3.4c 2.7c The appointment <strong>of</strong> departmental <strong>of</strong>fcers to GBE boards will may only be considered<br />
in exceptional circumstances, having regard to their ability to represent the interests<br />
<strong>of</strong> the <strong>Government</strong>, their possession <strong>of</strong> the business skills referred to above, and to<br />
any potential conficts <strong>of</strong> interest that might arise. , and the particular circumstances<br />
<strong>of</strong> the GBE (such as GBEs in winding-down mode). In such cases, the appointed<br />
departmental <strong>of</strong>fcers are expected to act in the best interests <strong>of</strong> the GBE when there<br />
is a divergence between the interests <strong>of</strong> the GBE and those <strong>of</strong> the <strong>Government</strong>.<br />
Board Appointment and Performance<br />
3.5 2.8 The Board Chairperson Chair shall head a board Board Nomination and Remuneration<br />
committee, which shall, provide the Shareholder Minister(s), through the board, with<br />
a list <strong>of</strong> suitable candidates for Board membership with recommendations on board<br />
composition and membership.<br />
a. The Chair shall, following consultation with the Shareholder Minister(s), develop a board<br />
plan which includes:<br />
• The medium term aims in relation to board composition, taking into account the<br />
strategic objectives <strong>of</strong> the GBE;<br />
• A forecast <strong>of</strong> likely board vacancies; and<br />
• An assessment <strong>of</strong> the skill requirements for the board in the context <strong>of</strong> the strategic<br />
requirements <strong>of</strong> the GBE.<br />
Exposure Draft<br />
11 Australian <strong>Government</strong>, Equal Opportunity for Women in the Workplace Agency, 2010 Census Key Findings Report;<br />
http://www.eowa.gov.au/Information_Centres/Resource_Centre/Statistics/GenderWorkplaceStats_3_11-Onlineversion.pdf<br />
12 CAMAC report, page 55, http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFFinal+Reports+2009/$fle/Board_Diversity_B5.pdf<br />
13 Proposed amendments to the ASC Corporate Governance Council Corporate Governance Principles and Recommendations’ 22 April 2010<br />
(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<br />
vacancy arising on the board or in the role <strong>of</strong> CEO<br />
• Through the Chair, the board should advise the Shareholder Minister(s) about its preferred<br />
candidate for the position <strong>of</strong> CEO. The CEO is directly accountable to the board.<br />
• Following consultation with the Shareholder Minister(s), the board may provide,<br />
through the Chair, a shortlist <strong>of</strong> candidates for board vacancies.<br />
• Additional processes for identifying candidates such as public advertising or the use<br />
<strong>of</strong> executive search processes may be undertaken by agreement with the<br />
Shareholder Minister(s).<br />
• Chairs may recommend the reappointment <strong>of</strong> an existing director where this is sought<br />
by the director and where appropriate (i.e. based on evidence <strong>of</strong> good performance,<br />
where the tenure falls within the requirements set out in legislation applying to the<br />
GBE and where the term has not been excessive).<br />
• All recommendations for appointment should have regard to government policy on<br />
fostering a governance culture that embraces diversity in the composition <strong>of</strong> boards<br />
with the objective <strong>of</strong> achieving the <strong>Government</strong>’s target <strong>of</strong> 40% <strong>of</strong> <strong>Government</strong> board<br />
members to be women, 40% <strong>of</strong> board members to be men, and the remaining 20% <strong>of</strong><br />
positions to be held by either women or men, with this target to be achieved by 2015.<br />
3.5(a) 2.9 The Shareholder Minister(s) may elect to appoint a candidate not proposed by the<br />
Committee Chair.<br />
3.5(b) Shareholder Ministers shall consult with the Prime Minister and theTreasurer on all<br />
Board appointments.<br />
2.4 CEO Succession Planning<br />
2.4.1 The selection <strong>of</strong> a CEO is an important governance function for the board. As part <strong>of</strong><br />
this responsibility, the board should also have in place a plan for the eventual or sudden<br />
replacement (e.g. through an unanticipated departure, health reasons etc) <strong>of</strong> the existing<br />
CEO to ensure business continuity and stability.<br />
2.4.2 Ideally, succession planning should start well in advance <strong>of</strong> the time at which a CEO is to<br />
be replaced. This is the strongest case for succession planning – to increase the time to<br />
react and to broaden the portfolio <strong>of</strong> alternatives.<br />
2.4.3 A study published in the Harvard <strong>Business</strong> <strong>Review</strong> found that almost 40% <strong>of</strong> new CEOs<br />
fail in their frst 18 months and this is attributed to selecting the wrong individual by having<br />
no or poor succession planning in place. 14<br />
2.4.4 Succession planning is therefore an important component <strong>of</strong> the overall risk management<br />
strategy <strong>of</strong> a business and should therefore form part <strong>of</strong> the board’s regular activities.<br />
Accordingly, Finance proposes that the GBE Guidelines be amended requiring that boards<br />
have a succession plan in place for the CEO and to provide an annual assurance to<br />
Shareholder Minister(s).<br />
• While the CEO is normally appointed by the board <strong>of</strong> the GBE, appointments are<br />
required to be referred to the Prime Minister or Cabinet for agreement.<br />
Exposure Draft<br />
14 Charan, R. ‘Ending the CEO Succession Crisis’, Harvard <strong>Business</strong> <strong>Review</strong>, 1 Feb 2005 http://hbr.org/products/8851/8851p4.pdf<br />
11
12<br />
2.4.5 The independence <strong>of</strong> the board from executive management is an important element<br />
<strong>of</strong> an appropriate governance framework. The appointment <strong>of</strong> CEOs to the boards <strong>of</strong><br />
GBEs, via the creation <strong>of</strong> a Managing Director (MD) position, departs from better practice<br />
governance approaches. The New Zealand approach is to have no MDs overseeing the<br />
daily operations <strong>of</strong> the state owned enterprises, which ensures a distinct separation<br />
between shareholders, board and management. Finance notes that any decision to<br />
appoint a CEO to the board remains at the discretion <strong>of</strong> the Shareholder Minister(s).<br />
While the CEO (and <strong>of</strong>ten the senior management team) attends all board meetings, the<br />
fnal decision about any matter on the agenda rests with the board. In addition to this,<br />
and depending on the Chair, the board may schedule some ‘board-only’ time to deal with<br />
confdential matters; without the CEO present.<br />
Proposed change: (New)<br />
2.10 Any decision to appoint the CEO as a director, is at the discretion <strong>of</strong> the Shareholder<br />
Minister(s) and the CEO recruitment and succession arrangements undertaken by the<br />
board should refect this.<br />
2.11 Boards are to implement and maintain a succession plan for CEO positions and to<br />
provide an annual assurance to Shareholder Minister(s) that this is the case.<br />
2.5 Board Tenure<br />
2.5.1 The renewal <strong>of</strong> directors is a key aspect to the performance <strong>of</strong> a GBE. Accordingly,<br />
when considering non-executive director appointments, the <strong>Commonwealth</strong> needs to<br />
be conscious <strong>of</strong> balancing the competing objectives <strong>of</strong> maintaining continuity, skills and<br />
experience on GBE boards, with board planning and the introduction <strong>of</strong> fresh thinking. 15<br />
2.5.2 In seeking to achieve this balance, most GBE boards are suffciently large to retain a core<br />
level <strong>of</strong> corporate knowledge and at the same time cope with the introduction <strong>of</strong> new<br />
directors contributing different perspectives and skills to issues facing the GBE. While<br />
terms are generally for three years, 16 and reappointment may be considered at the end <strong>of</strong><br />
that period, Finance considers that setting an indicative maximum board service period<br />
<strong>of</strong> two three-year periods for directors (i.e. a maximum <strong>of</strong> six years), and three three-year<br />
periods for Chairs (i.e. a maximum <strong>of</strong> nine years, inclusive <strong>of</strong> any time where the Chair<br />
served as a director) may assist in ensuring that GBE boards are periodically refreshed. 17<br />
2.5.3 This principle is favoured in Canada, where the Board Resourcing and Development Offce<br />
(BRDO) suggests that appointments to boards <strong>of</strong> government-owned businesses should<br />
be staggered and, under normal circumstances, directors should be appointed for a<br />
maximum <strong>of</strong> six years. 18<br />
Exposure Draft<br />
15 The Uhrig <strong>Review</strong> (p110-101) considers the issue <strong>of</strong> board tenure and notes that in all appointments there is a balance to be made between the benefts<br />
<strong>of</strong> continuity, and the opportunity to enhance performance from board renewal.<br />
16 GBE Governance Arrangements, paragraph 3.7(http://www.fnance.gov.au/publications/governance-arrangements/index.html)<br />
17 These terms are consistent with the fndings <strong>of</strong> the Uhrig <strong>Review</strong> (p101). Further, it is consistent with the advice <strong>of</strong> the ASX Principles (p18) that board<br />
renewal is critical to performance and that entities be conscious <strong>of</strong> the duration <strong>of</strong> each director’s tenure.<br />
18 Board Resourcing and Development Offce (BRDO) 2005, Appointment Guidelines – Governing Boards and Other Public Sector Organizations, British<br />
Columbia, Canada, 14 July 2005. p20. (http://www.fn.gov.bc.ca/brdo/appoint/AppointmentGuidelines_PublicAgencies.pdf). It was also favoured by the<br />
Uhrig <strong>Review</strong> (p101).
2.5.4 A similar principle operates in New Zealand where terms <strong>of</strong> up to three years are favoured.<br />
A director may be reappointed for a second term <strong>of</strong> three years depending on the<br />
director’s performance and their skills continuing to be relevant to the business.<br />
However, a director may only be appointed for a third term <strong>of</strong> three years under<br />
‘exceptional circumstances’. 19<br />
2.5.5 There may be limited circumstances where this may not be appropriate. For example:<br />
• The BRDO suggests that where a GBE requires a director with a highly specialised<br />
skill set, it may be appropriate that the director serve for more than six years. In<br />
general, Finance does not consider that this is relevant to the Australian context as<br />
current GBEs operate in market sectors that are not so highly specialised that there<br />
is great diffculty in attracting suitably qualifed candidates. Further, GBEs should<br />
maintain a balance <strong>of</strong> skills on the board and retain the capacity to obtain specialist<br />
advice on specifc issues to augment the board’s skills.<br />
• Alternatively, there may be circumstances in which a GBE could beneft from<br />
continuity through a period <strong>of</strong> major change or while the GBE is managing a<br />
signifcant risk (such as a signifcant divestment or acquisition). In these cases, a<br />
shorter reappointment period <strong>of</strong> one or two years might be appropriate. 20 Finance<br />
considers that such exemptions might be relevant in the case <strong>of</strong> GBEs that are being<br />
restructured, sold or wound-up or, where other exceptional circumstances exist,<br />
which may necessitate such a reappointment.<br />
2.5.6 Another relevant situation is the case <strong>of</strong> an existing director being appointed Chair <strong>of</strong> the<br />
same GBE. In this case, extending the service period by up to three terms (making a total<br />
<strong>of</strong> nine years) may be warranted to allow for an adequate period to make a contribution at<br />
this level and to assist in providing continuity <strong>of</strong> direction for the GBE.<br />
• The appointment <strong>of</strong> a Chair is a special case given the infuence that the position<br />
holds over the GBE’s governance and strategic direction and an extended term<br />
may therefore be appropriate. However, there is also a need for planning when<br />
appointing new directors such that the transition to a new leadership team is as<br />
seamless as possible.<br />
2.5.7 Accordingly, Finance proposes that the GBE Guidelines be amended to introduce an<br />
indicative total service period for non-executive directors <strong>of</strong> two terms (or a total <strong>of</strong><br />
six years), and in the case <strong>of</strong> the Chair three terms (or a total <strong>of</strong> nine years). Further<br />
reappointments should be considered on a case-by-case basis, taking into account any<br />
exceptional circumstances. Formalising this requirement should assist with periodically<br />
updating board composition and addressing any potential perceptions that a decision to<br />
not reappoint after two terms may be attributed to poor performance.<br />
2.5.8 Finance also considers it appropriate to provide additional guidance on the criteria under<br />
which the Chairs and the Shareholder Minister(s) may review a director’s position on a<br />
board, to provide greater clarity in relation to expectations for performance and tenure, and<br />
to minimise misunderstandings.<br />
Exposure Draft<br />
19 Crown Company Monitoring Agency Unit (CMCAU) 2007, Owner’s Expectation Manual, New Zealand, March 2002. p 43.<br />
http://www.comu.govt.nz/resources/pdfs/oem-soe-07.pdf (This is also supported by the Uhrig <strong>Review</strong> (page 101).<br />
20 Uhrig <strong>Review</strong>, page 101.<br />
13
14<br />
Proposed Change:<br />
3.7 2.13 Board appointments should normally be for terms <strong>of</strong> three years. The Board<br />
Nomination and Remuneration Committee is free to include retiring Directors in its list <strong>of</strong><br />
candidates.<br />
a. The term for non-executive directors should not normally exceed two terms (i.e. six<br />
years) and for the Chair three terms (i.e. nine years). Appointment terms may be<br />
staggered or varied in duration to maintain board continuity.<br />
b. Appointments exceeding two terms will be considered on a case-by-case basis taking<br />
into account exceptional circumstances.<br />
3.6 2.14 The Remuneration Tribunal determines remuneration for directors that is compatible<br />
with their roles and responsibilities, and having regard to, amongst other things,<br />
rates paid by the private sector, and federal public <strong>of</strong>fces.<br />
3.8 2.15 The Shareholder Ministers may, at their discretion, remove directors at any time prior<br />
to the completion <strong>of</strong> their term <strong>of</strong> appointment.<br />
a. In the event that a GBE is not performing satisfactorily, the Shareholder Ministers<br />
will initiate prompt remedial action. Dismissal <strong>of</strong> the directors would be considered,<br />
particularly in any case <strong>of</strong> failure to keep Ministers adequately informed, and in<br />
situations <strong>of</strong> ongoing under-performance in respect <strong>of</strong> fnancial or other aspects <strong>of</strong> the<br />
operations <strong>of</strong> the business.<br />
b. A director may be placed in a situation where continuing to be a GBE director could<br />
embarrass the GBE or the Shareholder Minister(s). In such situations, the director<br />
should raise the issue with their Chair immediately. The Chair in turn will decide<br />
whether it is necessary to raise the issue with the Shareholder Minister(s). In a worst<br />
case situation, the director may be asked to resign, or failing that, be removed.<br />
2.6 Board Induction, Training and Performance Evaluation<br />
2.6.1 As is the case in the private sector, board knowledge, skills and performance can be<br />
strengthened through effective induction programs for new directors and ongoing training,<br />
and regular performance reviews <strong>of</strong> all directors. 21 Better practice would also indicate that<br />
senior managers could beneft from induction and training programs. 22<br />
2.6.2 Training enables directors to build on their existing skills, and become more effective<br />
participants in board discussions and in the execution <strong>of</strong> their directors’ duties. In addition,<br />
regular board reviews provide an assessment <strong>of</strong> how a board is performing. Performance<br />
reviews therefore serve as a guide to the effectiveness <strong>of</strong> directors and can improve<br />
performance through feedback.<br />
2.6.3 The ASX Corporate Governance Council’s revised ‘Corporate Governance Principles and<br />
Recommendations – 2 nd Edition’ (the ASX Principles) recommends that the performance <strong>of</strong><br />
the board be reviewed regularly and that induction procedures include elements designed<br />
to allow new board appointees to participate fully and actively in board decision-making. 23<br />
Exposure Draft<br />
21 ASX Corporate Governance Council, Corporate Governance Principles and Recommendations – 2nd Edition (ASX Principles), pp15 and 19 (August 2007).<br />
http://www.asx.com.au/governance/corporate-governance.htm<br />
22 ASX Principles, page 15.<br />
23 ASX Principles, page 19.
2.6.4 These issues have also previously been considered by the Joint Committee <strong>of</strong> Public<br />
Accounts and Audit (JCPAA) in Report No. 372 Corporate Governance and Accountability<br />
Arrangements for <strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong>. (December 1999),<br />
which recommended that the GBE Guidelines be amended to include a requirement<br />
that GBE boards ensure that there are appropriate and effective induction, education and<br />
training programs <strong>of</strong>fered to new and existing directors. 24 More recently, the CAMAC<br />
report expresses a similar position. 25 Finance considers that the GBE Guidelines should<br />
also be amended to refect this position.<br />
2.6.5 Finance continues to support the spirit <strong>of</strong> the recommendation and considers that the<br />
GBE Guidelines should not be too prescriptive in mandating specifc program elements. In<br />
this regard, GBE boards will have varying levels <strong>of</strong> experience and therefore should retain<br />
some fexibility in determining the precise nature <strong>of</strong> their development needs.<br />
2.6.6 However, as a general principle, Finance considers that directors should be encouraged to<br />
attend training to build on their previous experience and skills and develop the additional<br />
skills needed to enhance their contribution. Finance considers it appropriate to include<br />
a general requirement in the GBE Guidelines for GBE boards to ensure that director<br />
orientation and development mechanisms are in place and that senior managers also have<br />
these opportunities.<br />
2.6.7 A similar argument can be made in relation to board performance reviews. In that case,<br />
the JCPAA also recommended that the GBE Guidelines be amended to include a section<br />
requiring confdential board and director performance appraisal. 26 The responsibility for<br />
assessing board performance rests with the GBE Chairs. Chairs are to conduct an<br />
annual assessment <strong>of</strong> the performance <strong>of</strong> each director individually; the board as a whole<br />
will assess the performance <strong>of</strong> itself; and the board will then assess the performance<br />
<strong>of</strong> the Chair.<br />
2.6.8 To enhance transparency and accountability, Finance recommends that GBE Chairs then<br />
provide written confrmation to the Shareholder Minister(s) that this process has been<br />
followed. There is no requirement for the Shareholder Minister(s) to be provided with<br />
details <strong>of</strong> individual assessments.<br />
2.6.9 Good governance requires that the respective powers and responsibilities <strong>of</strong> boards and<br />
management are clearly defned. Finance recommends that boards establish and maintain<br />
clear terms <strong>of</strong> reference for their sub-committees to defne their functions and powers<br />
and to ensure that directors and management each have a clear understanding <strong>of</strong> their<br />
respective responsibilities and roles.<br />
2.6.10 The current GBE Guidelines are silent about expectations around board attendance. The<br />
absence <strong>of</strong> a director can have an adverse impact on the board’s deliberations and may<br />
bring into question their motivation and commitment to being on the board. Finance<br />
considers that guidance around explicit expectations for board attendance, and the<br />
sanctions for non-attendance, be included in the GBE Guidelines.<br />
Exposure Draft<br />
24 JCPAA Report No. 372 Corporate Governance and Accountability Arrangements for <strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong><br />
(JCPAA Report 372), page 68 (December 1999) at http://www.aph.gov.au/house/committee/jcpaa/GBE/contents.pdf<br />
25 Australian <strong>Government</strong> Corporations and Markets Advisory Committee, Guidance for Directors April 2010.<br />
http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFFinal+Reports+2010/$fle/Guidance_for_directors_Report_April2010.pdf<br />
26 JCPAA Report 372, page 68, at http://www.aph.gov.au/house/committee/jcpaa/GBE/contents.pdf<br />
15
16<br />
Proposed Change: (New)<br />
2.16 Boards are to work with departmental <strong>of</strong>fcials, as representatives <strong>of</strong> the Shareholder<br />
Minister(s) to develop and implement an appropriate induction and development<br />
program for directors. Induction programs should incorporate information on general<br />
public sector, legal, attendance, performance and accountability obligations.<br />
2.17 On an annual basis, the GBE board as a whole will assess its performance; and the<br />
board will assess the performance <strong>of</strong> the Chair. Chairs are expected to provide written<br />
confrmation to the Shareholder Minister(s) that this process has been followed, and<br />
raise any areas <strong>of</strong> concern with the Shareholder Minister(s) as required.<br />
a. Part <strong>of</strong> the performance assessment will include a review <strong>of</strong> the level <strong>of</strong> director<br />
attendance at board meetings. Directors are expected to attend all scheduled board<br />
meetings, and attendance is to be reported in the annual report. Chairs are to raise<br />
on-going non-attendance issues with the Shareholder Minister(s) for consideration<br />
and possible further action.<br />
2.18 Boards are to ensure that board committees do not duplicate work performed by the<br />
CEO and management. The composition and charter <strong>of</strong> each board committee should<br />
be reviewed annually by 1 December each year to ensure that they remain appropriate in<br />
the context <strong>of</strong> the governance needs <strong>of</strong> the GBE.<br />
Exposure Draft
Part 3 - Planning and Reporting<br />
(Previously Part 2, Reporting)<br />
3.1 Requirements<br />
3.1.1 Since the publication <strong>of</strong> the GBE Guidelines in 1997, there have been a number <strong>of</strong><br />
legislative developments which prescribe the reporting requirements and obligations to be<br />
met by GBEs.<br />
3.1.2 The CAC Act for <strong>Commonwealth</strong> authorities and the Corporations Act for <strong>Commonwealth</strong><br />
companies comprehensively describe the main requirements and rules for the effcient<br />
and timely fow <strong>of</strong> information between the government and the GBEs in line with their<br />
accountability to the Parliament and the public. Accordingly, Finance proposes to update<br />
the GBE Guidelines to refect these subsequent legislative changes.<br />
Proposed change: (New)<br />
3.1 The planning and reporting requirements for GBEs are contained in the CAC Act and<br />
Orders, with additional requirements for <strong>Commonwealth</strong> companies contained in the<br />
Corporations Act. The reporting requirements outlined in these Guidelines can be<br />
summarised as follows:<br />
Requirement <strong>Commonwealth</strong> <strong>Commonwealth</strong><br />
Authorities Companies<br />
Corporate Plan content CAC Act Section 17 CAC Act Section 42<br />
Annual Reports CAC Act Section 9 CAC Act Section 36<br />
Statement <strong>of</strong> Clause 15 <strong>of</strong> the CAC Recommended to<br />
Governance Act Orders 2.2 follow Clause 15 <strong>of</strong> the<br />
CAC Act Orders<br />
Report on Operations CAC Act Schedule 1 CAC Act Division 2<br />
and Financial Corporations Act 2001<br />
Statements (Chapter 2M);<br />
Additional Notifcation CAC Act Sections 15 CAC Act Sections 40<br />
Requirements and 16 and 41<br />
Supplementary Interim<br />
Reports<br />
CAC Act Section 13 CAC Act Section 38<br />
Performance Audit Auditor-General Act Auditor-General Act<br />
1997 section 16 and 17 1997 section 16 and 17<br />
Exposure Draft<br />
17
18<br />
3.1.3 This information fow also enables the Shareholder Minister(s) to exercise oversight <strong>of</strong><br />
GBEs with particular focus on strategic direction and meeting performance objectives.<br />
From the <strong>Commonwealth</strong>’s perspective, the two principal objectives for GBEs are: to<br />
maintain and enhance shareholder value and to manage risk.<br />
3.1.4 To assist GBEs in meeting these objectives, and to assist the Shareholder Minister(s) in<br />
monitoring GBE performance against these objectives, we propose to align GBE planning<br />
and reporting requirements with the private sector and expand on the requirements<br />
<strong>of</strong> the CAC Act and the Corporations Act. The requirements also align with practices<br />
recommended by the OECD and practices outlined by other jurisdictions, such as the<br />
Victorian Department <strong>of</strong> Treasury and Finance, and the New Zealand Treasury.<br />
3.1.5 The timing <strong>of</strong> GBE planning, reporting and distribution requirements outlined in the<br />
legislation can be simplifed using a visual framework. Meeting the key dates outlined in<br />
the framework is an important feature <strong>of</strong> an open, accountable and transparent relationship<br />
between GBEs and the Shareholder Minister(s).<br />
3.1.6 In particular, the revised GBE Guidelines recommend that the timeframe for receipt <strong>of</strong><br />
quarterly reports should be one month after the period end (previously six weeks) and the<br />
timeframe for the Shareholder Minister(s) to comment or provide feedback on progress<br />
reports should be shortened to one month from receipt. This shorter timeframe will allow<br />
for a more timely reporting and responding cycle.<br />
Proposed Change: (New)<br />
3.2 GBEs are to provide the Shareholder Minister(s) with a series <strong>of</strong> annual corporate<br />
planning and reporting documents for comment and review by the key dates shown in<br />
Table 2. GBEs are to engage with the Shareholder Minister(s) early in the reporting and<br />
planning processes to allow suffcient time for GBEs to build <strong>Government</strong> priorities into<br />
the processes.<br />
a. In reviewing the documents, the Shareholder Minister(s) may seek clarifcation <strong>of</strong> the<br />
information provided, or request certain amendments.<br />
Exposure Draft
Table 2: Best Practice Timetable for GBE Reports and Dividends<br />
Exposure Exposure Draft Draft<br />
19
20<br />
3.2 Corporate Plans<br />
3.2.1 GBEs are required to prepare a corporate plan at least once a year and provide it to the<br />
Shareholder Minister(s) under sections 17 and 42 <strong>of</strong> the CAC Act (for <strong>Commonwealth</strong><br />
authorities and companies respectively).<br />
3.2.2 Subsections 17(6) and 42(6) <strong>of</strong> the CAC Act specify what information GBEs are to include<br />
in corporate plans (so far as they are applicable). Finance considers that this specifc<br />
information should be outlined in a subsidiary instrument to the CAC Act and in a form<br />
that would facilitate periodic amendment. As such, Finance considers that the information<br />
contained in these subsections should be removed from the CAC Act and instead<br />
prescribed under the CAC Regulations.<br />
3.2.3 In making reference to the GBE’s mandate in the corporate plan, GBEs are to distinguish<br />
between core business (activities that are in line with existing core competencies) and<br />
non-core business (activities that require new competencies to be developed). The<br />
distinction between core and non-core business relates to the threshold for the<br />
Shareholder Minister(s) consultation requirements (refer also to 3.6.5).<br />
3.2.4 GBEs are also required to provide a number <strong>of</strong> key fnancial and non-fnancial performance<br />
indicators in corporate plans. As a minimum, Finance would expect GBEs to ensure<br />
that the KPI information contained in the corporate plan refects the GBE’s performance<br />
across a fve-year period (two prior years and three forward years) to facilitate the analysis<br />
<strong>of</strong> trends and longer term performance. The Victorian <strong>Government</strong> has published a<br />
comprehensive guide to the information required to allow for comparison and analysis <strong>of</strong><br />
their state-owned enterprises 27 with other like businesses and Finance considers that the<br />
provision <strong>of</strong> similar fnancial information would be appropriate.<br />
3.2.5 It should be noted that Finance considers the list <strong>of</strong> KPIs to be a minimum for measuring a<br />
GBE’s fnancial and non-fnancial performance. Boards and/or the Shareholder Minister(s)<br />
may propose and agree other indicators that are relevant to measuring the performance <strong>of</strong><br />
the GBE. In recognising that it may not be valuable to report against each KPI in quarterly<br />
progress reports, some KPIs will only be measured on an annual basis. This recognises<br />
that for some KPIs, quarterly measurement will not contribute anything useful to the<br />
assessment <strong>of</strong> performance.<br />
3.2.6 To strengthen the reporting <strong>of</strong> annual performance by each GBE, the Corporate Plan is to<br />
include an estimate <strong>of</strong> the current shareholder (commercial) value <strong>of</strong> the <strong>Commonwealth</strong>’s<br />
investment in the GBE and how that value was assessed. This will enable the Shareholder<br />
Minister(s) to determine whether GBE boards are increasing shareholder value over time.<br />
While the preference is for such valuations to be determined using a discounted cash fow<br />
methodology, other methodologies which may be more appropriate for individual (smaller)<br />
GBEs can be used.<br />
Exposure Draft<br />
27 http://www.dtf.vic.gov.au/CA25713E0002EF43/pages/publications-regulation-guidelines#corporateplanningrequirements, Victorian <strong>Government</strong>,<br />
Corporate Planning & Performance Reporting Requirements for <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong> October 2009, page 18 outlines a comprehensive<br />
table <strong>of</strong> both fnancial and non-fnancial Key Performance Indicators and the information required to develop the measures.
Proposed Change: (Replaces entire 2.1)<br />
2.1 3.3 Corporate plans are to be prepared in accordance with the appropriate section <strong>of</strong> the<br />
CAC Act and Corporations Act (refer summary at paragraph 3.1).<br />
a. To supplement the information required to be provided in GBE corporate plans under<br />
the CAC Act and the Corporations Act, the plans should include details <strong>of</strong> the following<br />
matters (so far as they are applicable):<br />
i. details <strong>of</strong> the broad mandate <strong>of</strong> the GBE, (including a summary <strong>of</strong> core activities<br />
that are in line with existing core competencies, and proposed non-core activities<br />
that require new competencies to be developed), together with a summary <strong>of</strong><br />
those functions that may require its retention as a government owned GBE;<br />
ii. an estimate <strong>of</strong> the current commercial value <strong>of</strong> the <strong>Commonwealth</strong>’s investment in<br />
the GBE and how that value was assessed, with the expectation that a discounted<br />
cash fow methodology would be used as the valuation basis, unless otherwise<br />
agreed by the Finance Minister;<br />
iii. fnancial projections, to be prepared in the same format as the progress and<br />
fnal report and consisting <strong>of</strong> pr<strong>of</strong>t and loss statement, balance sheet and cash<br />
fow statement;<br />
iv. capital expenditure projections linked to the physical assets <strong>of</strong> the GBE (where<br />
material), its business objectives and acquisition, maintenance and disposal plans;<br />
v. cash fow (liquidity) projections;<br />
vi. a summary <strong>of</strong> the GBE’s risk management policies, material risks and strategies<br />
for managing these risks. This is in addition to the requirements set out in<br />
paragraph 4.15 (refer guidance in Part 4 Financial Governance); and<br />
vii.proposed borrowing(s) (refer guidance in Part 4 Financial Governance).<br />
b. If the GBE has a subsidiary (or subsidiaries), the reporting is to cover both the GBE<br />
and its subsidiaries.<br />
c. GBEs are to incorporate targets for the following minimum key performance indicators<br />
(KPIs) across a fve-year period (two prior years and three forward years) in corporate<br />
plans, and if appropriate results are to be reported in quarterly progress reports as<br />
outlined in the table below:<br />
Exposure Draft<br />
21
22<br />
Measure Key Performance<br />
indicator<br />
Defnition<br />
Financial Total shareholder (Commercial value at end, less commercial<br />
Performance return<br />
value at start plus dividends paid less equity<br />
injected)/commercial value at start<br />
Dividend yield Dividends paid/average commercial value<br />
Dividend payout Dividends paid/net cash fow from operating<br />
ratio<br />
activities less depreciation expense<br />
EBIT Earnings before net interest and tax<br />
EBITDA Earnings before net interest, tax, depreciation,<br />
amortisation and fair value adjustments for<br />
fnancial instruments<br />
Return on equity<br />
(RoE)<br />
Net pr<strong>of</strong>t after tax/average equity<br />
Net pr<strong>of</strong>t after tax<br />
(NPAT)<br />
The bottom line <strong>of</strong> the Income Statement<br />
Underlying net pr<strong>of</strong>t The bottom line <strong>of</strong> the Income Statement<br />
after tax<br />
adjusted for one-<strong>of</strong>f items and AASB fair value<br />
movements<br />
<strong>Business</strong> Operating margin EBITDA/operating revenue<br />
Effciency Return on capital EBIT adjusted for AASB fair value movements<br />
employed<br />
(net <strong>of</strong> tax)/average capital employed. Capital<br />
employed is defned as total assets less current<br />
liabilities<br />
Debtors age (days) (Debtors/revenue) x 365<br />
Leverage/ Gearing Ratio Net interest bearing debt/net interest bearing<br />
Solvency<br />
debt plus equity<br />
Interest Cover EBITDA/interest paid<br />
Current ratio Current assets/current liabilities<br />
Liquidity Ratio Cash and equivalents/current liabilities<br />
Customers Customer<br />
Percentage <strong>of</strong> customers rating the GBE very<br />
and<br />
Satisfaction<br />
good or excellent as determined by survey<br />
Stakeholders Meeting Community<br />
Service obligations<br />
Staff Staff Retention and Number <strong>of</strong> staff replaced/average number <strong>of</strong><br />
turnover rates staff for the period<br />
Staff Satisfaction Percentage <strong>of</strong> staff very/extremely satisfed as<br />
determined by survey<br />
Lost time injury<br />
frequency rates and<br />
OHS incident rate<br />
Lost time injuries per million hours worked<br />
Wages expense<br />
ratio<br />
Cost <strong>of</strong> wages and salaries/operating revenue<br />
Exposure Exposure Draft Draft<br />
d. The Shareholder Minister(s) may propose and agree other indicators that are relevant to the<br />
measuring <strong>of</strong> the performance <strong>of</strong> the GBE, to be included in the corporate plan prior to the<br />
Shareholder Minister(s) responding to the plan.
3.3 Statement <strong>of</strong> Corporate Intent (SCI)<br />
3.3.1 A SCI is prepared in conjunction with a GBE’s corporate plan each year and tabled in the<br />
Parliament. The SCI is a forward looking document, which is designed to provide the<br />
Parliament with a high level summary <strong>of</strong> the GBE’s objectives, accountability regime and<br />
broad performance expectations for the period covered by the SCI.<br />
3.3.2 While the SCI is necessarily prepared at a high level to prevent the disclosure <strong>of</strong><br />
commercially sensitive information that might damage the GBE’s competitive position,<br />
the SCI plays an important role in providing the Parliament and the public with information<br />
about the GBE’s prospective activities.<br />
3.3.3 When read alongside the GBE’s annual report, the SCI provides a more complete picture <strong>of</strong><br />
the GBE’s objectives and achievements during the year. However, given its forward-looking<br />
nature, the SCI is not designed to be the primary document upon which the Parliament<br />
assesses GBE performance, rather the annual report fulfls this function.<br />
3.3.4 Finance proposes that the SCI’s role could be further enhanced through two<br />
additional measures.<br />
3.3.5 Firstly, while SCI’s are tabled in the Parliament, their accessibility to the public could be<br />
enhanced by requiring publication on GBE websites. Websites have, in recent years,<br />
become a major point through which the public accesses information (such as annual<br />
reports) on private sector and government entities. Most GBEs already publish their SCI<br />
on their website, and Finance considers it is appropriate to formalise this as a requirement<br />
in the GBE Guidelines. 28<br />
3.3.6 Secondly, accountability to the Parliament could be enhanced through GBE annual reports<br />
including reporting <strong>of</strong> achievements against SCI expectations <strong>of</strong> performance.<br />
3.3.7 While some level <strong>of</strong> reporting <strong>of</strong> performance against corporate plan objectives is currently<br />
required <strong>of</strong> <strong>Commonwealth</strong> authority GBEs in their Report <strong>of</strong> Operations, 29 no equivalent<br />
reporting requirements currently exist for <strong>Commonwealth</strong> companies through the director’s<br />
report required by the Corporations Act. 30<br />
3.3.8 Reporting against SCI objectives would assist interested stakeholders in following the<br />
achievements <strong>of</strong> specifc GBE objectives from the time they are set, through to when<br />
outcomes are achieved. This change was also recommended by the OECD in its Corporate<br />
Governance Guidelines 31 and the Australian National Audit Offce in its report Agencies’<br />
Performance Monitoring <strong>of</strong> <strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong>. 32<br />
Exposure Draft<br />
28 http://www.comu.govt.nz/resources/pdfs/oem-soe-07.pdf<br />
29 Clause 10(1) <strong>of</strong> the <strong>Commonwealth</strong> Authorities and Companies (Report <strong>of</strong> Operations) Orders 2005.<br />
http://www.comlaw.gov.au/comlaw/Legislation/ActCompilation1.nsf/0/D01E012B7D5A01A3CA256FC3007EE1EF/$fle/CwlthAuthCompanies1997_WD02.pdf<br />
Note that these Orders do not currently apply to companies registered under the Corporations Act 2001.<br />
30<br />
Annual reporting by companies registered under the Corporations Act 2001, including <strong>Commonwealth</strong> companies, is covered by Part 2M.3 <strong>of</strong> the<br />
Corporations Act 2001.<br />
31 OECD Guidelines on Corporate Governance <strong>of</strong> State-Owned <strong>Enterprises</strong> 2005, page 42 www.oecd.org/daf/corporateaffairs/soe/guidelines<br />
32 http://www.anao.gov.au/director/publications/auditreports/2000-2001.cfm?pageNumber=4 Australian National Audit Offce, Report No. 15, 2000-2001,<br />
Agencies’ Performance Monitoring <strong>of</strong> <strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong> p69.<br />
23
24<br />
Proposed Change:<br />
2.6 3.8 The SCI is a brief (no more than fve pages), high level, plain English document that is<br />
to be no more than fve pages expressed in terms <strong>of</strong> outputs programs or outcomes. It<br />
is an integral part <strong>of</strong> the corporate plan, but does not include commercial-in-confdence<br />
commercially sensitive information. An SCI would normally contain a business<br />
description and mission statement, corporate vision, objectives, code <strong>of</strong> ethics, values<br />
<strong>of</strong> the GBE, statement <strong>of</strong> accountability (including reporting obligations) and broad<br />
expectations on fnancial and non-fnancial performance selected key indicators <strong>of</strong><br />
fnancial and non-fnancial performance as outlined in paragraph 3.3(c) above.<br />
2.7 3.9 The SCI is GBEs are to arrange for the SCI to be tabled in the Parliament within ffteen<br />
sitting days <strong>of</strong> the Parliament, following the start <strong>of</strong> the new fnancial year and then be<br />
published as soon as practicable on the GBE’s website.<br />
3.4 Progress Reports<br />
3.4.1 Periodic progress reports are an important mechanism in ensuring that GBEs are<br />
accountable for their performance to the government. The reports play an important role<br />
in enhancing the Shareholder Minister(s)’ understanding <strong>of</strong> the operations and fnancial<br />
performance <strong>of</strong> GBEs, the risks <strong>of</strong> their operations and factors infuencing their operating<br />
environment. Performance reports also assist <strong>of</strong>fcials in providing high quality advice and<br />
assurance to the Shareholder Minister(s) on the performance and risks <strong>of</strong> the GBE.<br />
3.4.2 The current GBE Guidelines provide for the preparation <strong>of</strong> six-monthly progress reports by<br />
GBEs, or by agreement with the Shareholder Minister(s), quarterly reports. 33 In practice,<br />
quarterly reporting has been adopted for all GBEs and the framework is working well for<br />
all entities.<br />
3.4.3 Finance considers that quarterly performance reports should be formally adopted by all<br />
GBEs as the default reporting arrangement, with alternative arrangements agreed by<br />
the Shareholder Minister(s) on an exceptions basis. In general, there is a reasonable<br />
expectation that quarterly reporting would not be a signifcant imposition on GBEs given<br />
that the management <strong>of</strong> each GBE will already be preparing some form <strong>of</strong> regular reporting<br />
for its board in order to assist it in executing its fduciary duties.<br />
3.4.4 GBE progress reports are evolving documents that have been tailored to meet the<br />
government’s requirements over time. In each case, they provide analysis <strong>of</strong> performance<br />
against the corporate plan, including a mix <strong>of</strong> fnancial information, trends, major<br />
milestones and operational information. The reports serve both to update the Shareholder<br />
Minister(s) on the GBE’s achievements and emerging risk factors and to facilitate analysis<br />
by departments advising Minister(s).<br />
3.4.5 Finance considers that there is merit in the GBE Guidelines outlining those aspects <strong>of</strong><br />
quarterly progress reports that are central to adequately understanding GBE performance<br />
and fulflling the oversight function. There is currently little guidance on this in the GBE<br />
Guidelines and some general principles could assist GBEs in preparing these reports.<br />
3.4.6 In particular, we suggest that the GBE Guidelines require a reporting format that compares<br />
quarterly and year-to-date performance information against the forecasts outlined in the<br />
corporate plan for that fnancial year. This would include detailed analysis <strong>of</strong> revenue and<br />
expense performance for the period and explanations <strong>of</strong> deviations from budgeted and<br />
corporate plan forecasts. 34<br />
Exposure Draft<br />
33 GBE Governance Arrangements, paragraph 2.8.<br />
34 Refer to New Zealand Crown Company Monitoring Advisory Unit Owner’s Expectations Manual for State Owned <strong>Enterprises</strong>, October 2007 (page 17);<br />
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<br />
would not only allow the Shareholder Minister(s) to understand how the performance <strong>of</strong><br />
the GBE has compared with its intentions at the start <strong>of</strong> the planning period, but would<br />
also provide a general indication <strong>of</strong> its accuracy in forecasting. Notwithstanding this focus,<br />
and consistent with current practice, those GBEs providing revised forecasts for the full<br />
year could continue to provide this information to indicate how their evolving business<br />
environment will impact on full year results.<br />
3.4.8 Finance understands that GBEs periodically re-forecast their year-end outturn, depending <strong>of</strong><br />
performance against budget during the year. Accordingly, Finance is seeking to strengthen<br />
the GBE Guidelines to refect the reporting <strong>of</strong> these re-forecasts to ensure the changes are<br />
captured and explained in the quarterly reports.<br />
3.4.9 Finance considers that reports should at a minimum include analysis <strong>of</strong> the GBE’s<br />
performance against its broader corporate plan objectives (including its KPIs and<br />
operational performance targets/forecasts) during the period, along with explanations for<br />
any changes to corporate plan objectives. 35<br />
3.4.10 In addition, Finance considers that reports should include commentary on any emerging<br />
issues or changes to risk factors that might have a material impact on the GBE’s<br />
performance for the rest <strong>of</strong> the fnancial year and/or into the future.<br />
Proposed Change:<br />
2.8 3.10 Confdential six monthly reports (or quarterly reports, as agreed from time to time<br />
by the Shareholder Ministers) quarterly progress reports are to be provided by the<br />
Chair directors <strong>of</strong> a wholly owned GBE to the Shareholder Minister(s) on progress<br />
against, and any changes to, the corporate plan. one month after the period end. The<br />
minimum requirement for progress reports is that they should include:<br />
a. analysis <strong>of</strong> the GBE’s quarterly and year-to-date performance against corporate plan<br />
forecasts for the corresponding period, including detailed analysis <strong>of</strong> revenue and<br />
expense (including capital expenditure) performance for the period and explanations<br />
for deviations from corporate plan forecasts;<br />
a b. progress reports include fnancial statements, the format <strong>of</strong> which is approved by the<br />
Finance Minister;<br />
c. analysis <strong>of</strong> the GBE’s performance against its broader corporate plan objectives<br />
(such as its KPIs and operational performance targets/forecasts where relevant)<br />
including any major achievements during the period along with explanations for any<br />
changes to strategies;<br />
d. commentary on any emerging issues and risks or changes to risk factors that might<br />
have a material impact on performance. Details <strong>of</strong> strategies for managing any<br />
material risks that were not identifed in the corporate plan should also be provided.<br />
This is in addition to the requirements set out in paragraph 4.15 below;<br />
e. a clear statement <strong>of</strong> the GBE’s outlook for the rest <strong>of</strong> the fnancial year in terms<br />
<strong>of</strong> meeting its full year re-forecast outturn, key risks and opportunities arising and<br />
management plans; and<br />
Exposure Draft<br />
f. commentary on progress in meeting CSOs (where relevant).<br />
35 Refer also to the New Zealand COMU State Owned Enterprise Guidelines (SOE Reporting and Accountability);<br />
http://www.comu.govt.nz/about-comu/accountability/<br />
25
26<br />
3.5 Annual Reports<br />
3.5.1 The annual reporting process is an important element <strong>of</strong> the GBE governance framework<br />
via which GBEs are required to review and report on their on-going performance against<br />
publically stated performance measures. To facilitate this on-going monitoring and<br />
scrutiny <strong>of</strong> performance, annual reports are to contain the information necessary to<br />
enable an informed assessment <strong>of</strong> the GBEs performance against the broad performance<br />
36, 37<br />
expectations that have been included in the previous year’s SCI.<br />
3.5.2 The development and maintenance <strong>of</strong> frameworks and practices which facilitate<br />
transparency, accountability and disclosure are at the core <strong>of</strong> strong corporate governance.<br />
Although strong corporate governance is not a guarantee <strong>of</strong> future performance, many<br />
experts agree that there is a strong correlation between sound corporate governance and<br />
sound corporate outcomes in both the private and public sectors. A well governed GBE<br />
will be more likely to be effcient and to produce effective outcomes.<br />
3.5.3 Accordingly, Finance considers that the quality <strong>of</strong> the reporting would be enhanced by<br />
requiring GBEs to include a statement summarising the corporate governance practices<br />
<strong>of</strong> the GBE in their annual reports. To ensure consistency in reporting across the various<br />
GBEs, the report is to refer to the governance reporting guidelines set out in the CAC Act.<br />
3.5.4 The Auditor-General may conduct a performance audit <strong>of</strong> a <strong>Commonwealth</strong> authority or<br />
a <strong>Commonwealth</strong> company that is a GBE, or <strong>of</strong> any <strong>of</strong> its subsidiaries, if the Shareholder<br />
Minister(s) or the Joint Committee <strong>of</strong> Public Accounts and Audit request the audit.<br />
Following completion, the report <strong>of</strong> the audit is to be tabled in both Houses <strong>of</strong> Parliament<br />
as soon as possible. Finance proposes to update the GBE Guidelines to refect these<br />
aspects <strong>of</strong> the accountability framework.<br />
Proposed Change:<br />
2.11 3.13 The directors <strong>of</strong> GBEs are required to provide an annual report or the annual general<br />
meeting documents, to the Shareholder Minister(s). The portfolio Minister tables<br />
the report or documents in each House <strong>of</strong> the Parliament. in accordance with the<br />
requirements <strong>of</strong> the CAC Act.<br />
a. Where a GBE is a statutory <strong>Commonwealth</strong> authority the annual report or the fnancial<br />
statements included therein, is prepared in accordance with guidance promulgated by<br />
the Finance Minister. the CAC Act, the authority’s enabling legislation and any other<br />
applicable legislation and guidance issued by the Finance Minister or portfolio.<br />
b. Where a GBE is a company, the annual report is prepared in accordance with the CAC<br />
Act and the Corporations Act.<br />
(i) The annual report <strong>of</strong> a company GBE should include a statement <strong>of</strong> the main<br />
corporate governance practices that the GBE had in place during the reporting<br />
period, similar to that required by the Australian Stock Exchange (ASX) listing rules.<br />
An indicative list <strong>of</strong> matters that a GBE may include when making the statement is<br />
included at Attachment A.<br />
Exposure Draft<br />
c. GBEs should include comments on performance against the fnancial and non-fnancial<br />
expectations outlined in the SCI relating to that fnancial year.<br />
36 Australian National Audit Offce Audit Report 15 2000-2001 Agencies’ Performance Monitoring <strong>of</strong> <strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong>,<br />
Recommendation No 3 (page 70) http://www.anao.gov.au/director/publications/auditreports/2000-2001.cfm?pageNumber=4<br />
37 Refer Paragraphs 3.3.2 and 3.3.7 <strong>of</strong> this discussion paper.
2.11b(i) 3.14 The current disclosure requirements for the Statement on Governance<br />
are outlined in the <strong>Commonwealth</strong> Authorities and Companies (Report <strong>of</strong><br />
Operations) Orders (the Orders). While the Orders only apply to <strong>Commonwealth</strong><br />
authorities, <strong>Commonwealth</strong> companies should, as a matter <strong>of</strong> better practice,<br />
also include a Statement on Governance in their report on operations covering<br />
the matters outlined in the Orders.<br />
2.13 3.16 GBEs are to note that the Auditor-General may is able to conduct a performance<br />
audit <strong>of</strong> a wholly owned GBE <strong>Commonwealth</strong> Authority GBE or a wholly-owned<br />
<strong>Commonwealth</strong> Company GBE, or any <strong>of</strong> its subsidiaries in certain circumstances<br />
in the circumstances outlined in the Auditor-General Act 1997.<br />
3.5.5 The requirements for the preparation <strong>of</strong> Interim Reports are now detailed in the CAC Act<br />
for both GBEs that are <strong>Commonwealth</strong> authorities and GBEs that are <strong>Commonwealth</strong> companies.<br />
Finance proposes to update the GBE Guidelines to refect the requirements <strong>of</strong> the CAC Act.<br />
Proposed Change:<br />
2.14 The Finance Minister may require:<br />
(a) the directors <strong>of</strong> a wholly owned GBE to prepare an interim report covering operations<br />
for the frst six months, or for the frst three, six and nine months <strong>of</strong> each fnancial<br />
year; and<br />
(b) to provide it to the portfolio Minister within 2 months after the end <strong>of</strong> the period to<br />
which the report relates.<br />
3.17 The Finance Minister may require the directors <strong>of</strong> a wholly-owned GBE to prepare an<br />
interim report in accordance with the requirements <strong>of</strong> the CAC Act.<br />
3.6 Keeping Shareholder Minister(s) Informed<br />
3.6.1 Shareholder Minister(s) are ultimately accountable to the taxpayers <strong>of</strong> the <strong>Commonwealth</strong><br />
for the performance <strong>of</strong> the GBEs. The transparency <strong>of</strong> GBE performance is important to<br />
Shareholder Minister(s), and the principle <strong>of</strong> ‘no surprises’ is critical to the relationship<br />
between the Shareholder Minister(s) and GBE boards. The relationship between <strong>of</strong>fcials<br />
and the senior management <strong>of</strong> GBEs is also critical to the free fow <strong>of</strong> information required<br />
to keep the Shareholder Minister(s) informed and for any business initiatives the GBEs may<br />
wish to undertake.<br />
3.6.2 Paragraph 2.17 <strong>of</strong> the current GBE Guidelines provides that GBEs follow a disclosure principle<br />
that is similar to the continuous disclosure requirements <strong>of</strong> the ASX Listing Rules. 38<br />
3.6.3 However, the ASX listing rules are designed for publicly-listed entities whose shares are<br />
traded daily on the ASX. As government-owned entities, GBEs are subject to a different<br />
governance and accountability framework compared to ASX listed entities, including the<br />
CAC Act and associated instruments. For example, sections 15 and 16, 40 and 41 <strong>of</strong> the<br />
CAC Act, for <strong>Commonwealth</strong> authorities and companies respectively, require entities to<br />
notify the Responsible Minister(s) <strong>of</strong> signifcant events.<br />
Exposure Draft<br />
3.6.4 Accordingly, Finance proposes to supplement any reference to the disclosure requirements<br />
<strong>of</strong> the ASX Listing Rules with the requirements with the CAC Act.<br />
38 The continuous disclosure requirements for ASX listed entities are covered under Chapter 3 ‘Continuous Disclosure’ <strong>of</strong> the ASX Listing Rules<br />
http://www.asxgroup.com.au/asx-listing-rules-guidance-notes-and-waivers.htm<br />
27
28<br />
Proposed change: (replaces 2.17, 2.18 and 2.10 entirely)<br />
2.17 and 2.19 3.19 The directors <strong>of</strong> a <strong>Commonwealth</strong> authority GBE or a wholly owned<br />
<strong>Commonwealth</strong> company GBE are required to keep the Shareholder Minister(s) informed <strong>of</strong><br />
the operations <strong>of</strong> the GBE and its subsidiaries and should follow a disclosure principle which is<br />
similar to the continuous disclosure requirements <strong>of</strong> the Australian Stock Exchange listing rules.<br />
a. Should a GBE become aware <strong>of</strong> any information that may have a material effect on<br />
its value and/or performance 39 , that information must be immediately provided to the<br />
Shareholder Minister(s).<br />
b. Directors are required to give the Shareholder Minister(s) such other information in<br />
relation to the GBE’s operations as the Shareholder Minister(s) require(s), within the<br />
time limits set by the Minister(s).<br />
c. Where there are two Shareholder Minister(s), all correspondence and reports from GBEs<br />
should be sent to both Ministers simultaneously. Whilst the Shareholder Minister(s)<br />
will consult in relation to all correspondence, they may decide that, in relation to some<br />
matters, one <strong>of</strong> the Ministers will correspond on behalf <strong>of</strong> both Ministers.<br />
d. The Shareholder Minister(s) may consult with the Prime Minister and/or Treasurer<br />
about any material matter (as defned above) affecting the value <strong>of</strong> the GBE, and<br />
provide copies <strong>of</strong> corporate plans, progress reports and correspondence on other<br />
major matters to the Prime Minister and/or the Treasurer for possible comment.<br />
3.20 Additional notifcation requirements are contained in the CAC Act for both GBEs that are<br />
<strong>Commonwealth</strong> authorities, and for GBEs that are <strong>Commonwealth</strong> companies.<br />
3.6.5 Signifcant business opportunities and other matters arising outside the corporate planning<br />
and approval process require separate consideration by the Shareholder Minister(s). As<br />
these matters may include changes to the strategic direction agreed in the corporate<br />
planning process, GBEs will need to prepare a separate proposal for Shareholder Ministerial<br />
consideration prior to entering into new agreements or altering agreed strategic direction.<br />
3.6.6 Finance is proposing that GBEs be required to prepare and submit a business case to the<br />
Shareholder Minister(s) outlining the background and rationale for each proposal.<br />
3.6.7 To facilitate prompt consideration <strong>of</strong> business cases by the Shareholder Minister(s), GBEs<br />
are to provide the necessary information in a comprehensive and timely manner. The<br />
proposal is to contain information outlined in the appropriate CAC Act sections for both<br />
GBE authorities and for GBE companies. The Victorian government’s guidelines set out<br />
similar requirements to those outlined in the CAC Act. 40<br />
3.6.8 In addition, Finance considers that some indication be provided to GBEs to assist in<br />
determining when to advise the Shareholder Minister(s) <strong>of</strong> information that may impact<br />
GBE performance and results. Finance considers that the provision <strong>of</strong> a threshold<br />
percentage <strong>of</strong> the GBE’s shareholder value will be <strong>of</strong> assistance to GBEs in determining<br />
the materiality <strong>of</strong> information to be provided.<br />
3.6.9 Finance also considers that the provision <strong>of</strong> an appropriate threshold value will assist<br />
GBEs in determining the threshold value for notifcation <strong>of</strong> business cases. The threshold<br />
dollar value for consultation is to be agreed between the GBE board and the Shareholder<br />
Minister(s) as part <strong>of</strong> the annual planning process.<br />
Exposure Draft<br />
39 Finance considers 5% <strong>of</strong> the GBE’s commercial value is an appropriate threshold.<br />
40 Victorian <strong>Government</strong>, ‘Corporate Planning & Performance Reporting Requirements’ for <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong> October 2009, page 8;<br />
http://www.dtf.vic.gov.au/CA25713E0002EF43/pages/publications-regulation-guidelines#corporateplanningrequirements
Proposed change: (New)<br />
3.21 Proposals for signifcant business initiatives 41 should be developed for inclusion in the<br />
normal corporate planning cycle. Should an urgent initiative arise which is unable to<br />
wait for inclusion in the planning cycle, it is to be treated as a notifable signifcant event,<br />
pursuant to the CAC Act. GBEs are required to notify and consult with the Shareholder<br />
Minister(s) prior to entering into any identifed major business opportunities. These<br />
should include, but not be limited to, new business ventures, major contracts and capital<br />
raising proposals.<br />
3.22 Unless otherwise agreed, GBE boards are required to submit business cases outlining<br />
new proposals to the Shareholder Minister(s) for consideration. GBEs should<br />
distinguish between business cases that relate to core business and those that relate<br />
to non-core business. The threshold dollar value for consultation for proposed non-core<br />
business opportunities will be lower than that for core business opportunities and is to<br />
be agreed in consultation between the board and the Shareholder Minister(s) as part <strong>of</strong><br />
the annual corporate planning process. As a minimum, business cases should address<br />
the following:<br />
a. the rationale for the project and an explanation <strong>of</strong> how it fts into the GBE’s<br />
corporate strategy;<br />
b. cost, anticipated return (net present value), the effect on shareholder value and some<br />
measure <strong>of</strong> the project’s risk;<br />
c. key assumptions around revenue and costs (including base case, scenarios and<br />
sensitivity analysis), plus key risks and mitigation strategies;<br />
d. proposed funding strategy;<br />
e. the impact on the GBE’s capital structure and credit rating (if applicable); and<br />
f. expected outcome and impact on future dividends.<br />
3.23 GBEs should allow a reasonable amount <strong>of</strong> time (not less than 10 working days) for the<br />
Shareholder Minister(s) and their department(s) to respond to any business case, and<br />
factor that into the decision making timeframe.<br />
3.24 All business case proposals, subsequent updates and supplementary information are<br />
confdential to the Shareholder Minister(s), their advisers and departments.<br />
3.7 Commercial Freedoms<br />
3.7.1 Given the different commercial environments, business activities and risk pr<strong>of</strong>les <strong>of</strong> each<br />
GBE, it has been necessary to develop additional GBE-specifc guidance and limitations on<br />
the business activities <strong>of</strong> some GBEs, on a case-by-case basis.<br />
3.7.2 Currently Medibank Private Limited, Australia Post and ASC Pty Limited have these<br />
frameworks in place, variously termed ‘Commercial Freedoms Frameworks’ or ‘Tasks and<br />
Responsibilities’ documents. Finance proposes to formalise this element <strong>of</strong> the existing<br />
governance framework by linking GBE-specifc Commercial Freedoms Frameworks to<br />
the GBE Guidelines to ensure clarity exists in relation to the context within which such<br />
Commercial Freedoms Frameworks are developed and maintained.<br />
Exposure Draft<br />
41 Finance considers a threshold value <strong>of</strong> 5% <strong>of</strong> total shareholder equity for larger GBEs and 10% <strong>of</strong> total shareholder value for small GBEs.<br />
29
30<br />
Proposed Change: (New)<br />
3.25 The Shareholder Minister(s) may, in consultation with the board, establish further guidance<br />
and limits on the activities <strong>of</strong> a GBE. This will be documented in the form <strong>of</strong> a Commercial<br />
Freedoms Framework appropriate to the commercial activities, environment and risk<br />
pr<strong>of</strong>le <strong>of</strong> the GBE, having regard to the GBE’s mandate as agreed by the <strong>Government</strong>.<br />
3.8 Annual General Meetings<br />
3.8.1 The current GBE Guidelines are silent on requirements for GBEs relating to the conduct<br />
<strong>of</strong> annual general meetings (AGMs). As some GBEs are able to seek written shareholder<br />
resolution in lieu <strong>of</strong> holding a physical meeting, many GBEs do not currently conduct<br />
AGMs. Finance considers the conduct <strong>of</strong> a physical AGM to be a sound opportunity to<br />
provide feedback to the board (and not just the Chair) on the GBE’s performance and also<br />
to engage with the board on GBE strategy.<br />
Proposed Change: (New)<br />
3.26 GBEs are to conduct Annual General Meetings, to which the Shareholder Minister(s)<br />
or their delegate(s) are invited to attend. The focus <strong>of</strong> the meetings will be to discuss<br />
both the board’s and the GBE’s performance over the past year and to engage on the<br />
development <strong>of</strong> strategy going forward.<br />
Exposure Draft
Part 4 - Financial Governance<br />
4.1 Capital Structure and Dividend Policy<br />
4.1.1 As is the practice in the private sector, it is important for GBEs to maintain an appropriate<br />
capital structure, as this imposes a discipline on GBEs to both optimise effciency and to<br />
maximise returns to the shareholder. The appropriate capital structure for each GBE is to<br />
be determined by the board in consultation with the Shareholder Minister(s) as part <strong>of</strong> the<br />
annual planning and reporting cycle. It is important that the capital structure <strong>of</strong> each GBE<br />
incorporates an appropriate mix <strong>of</strong> debt and equity, as this supports shareholder objectives <strong>of</strong><br />
maximising the value <strong>of</strong> each GBE 42 and reduces opportunities for inappropriate goal setting.<br />
4.1.2 Finance would like to strengthen the processes for establishing and monitoring progress<br />
towards an appropriate capital structure in the context <strong>of</strong> the annual corporate planning<br />
process. The proposed changes provide for increased scrutiny <strong>of</strong> capital expenditure<br />
proposals and dividend forecasts in the corporate plan consultation process. Specifc<br />
guidance for a suitable credit rating is also provided as an appropriate target for GBEs.<br />
4.1.3 Please note that some <strong>of</strong> the changes proposed below in respect <strong>of</strong> fnancial governance<br />
are taken up as proposed changes to earlier parts, particularly Part 1.8c.<br />
Proposed Change:<br />
1.6 1.8 A principal objective for each GBE is that it adds to its shareholder value. To<br />
achieve this it is required to:<br />
c. earn at least a commercial rate <strong>of</strong> return;<br />
i. This means recovering the full cost <strong>of</strong> resources employed, including the<br />
cost <strong>of</strong> capital; and<br />
ii. Each GBE is to work towards a principal fnancial target and a dividend<br />
policy, agreed in advance with the Shareholder Minister(s), with the principal<br />
fnancial target to be set on the basis that each GBE should be required to<br />
earn commercial returns at least suffcient to justify the long-term retention <strong>of</strong><br />
assets in the business, and to pay commercial dividends from those returns.<br />
1.7 1.9 In addition to setting a commercial rate <strong>of</strong> return principal fnancial target, the<br />
Shareholder Minister(s) may set other fnancial targets and non-fnancial targets,<br />
for particular GBEs, on a case-by-case basis in consultation with the GBE (refer<br />
also to paragraphs 2.2 and 3.3c).<br />
Exposure Draft<br />
42 <strong>Review</strong> <strong>of</strong> GBE Governance Arrangements, Richard Humphry AO March 1997, page 48.<br />
31
32<br />
Proposed Change:<br />
4.1 Each GBE should have a target an optimal capital structure (the combination <strong>of</strong> fnancial<br />
liabilities and equity used to fund the assets <strong>of</strong> the GBE) that is agreed annually between<br />
the board directors and Shareholder Minister(s) in the corporate plan consultation process.<br />
a. An optimal capital structure is one that, in light <strong>of</strong> economic, industry and frm<br />
GBE specifc factors, would provide for an investment grade credit rating, whilst<br />
at the same time imposing a discipline on the GBE to optimise effciency. Finance<br />
recommends a target minimum credit rating <strong>of</strong> BBB.<br />
b. As part <strong>of</strong> developing a target optimal capital structure, consideration will be given<br />
to the forecast level <strong>of</strong> capital expenditure in the GBE’s annual corporate plan, and<br />
appropriate options for funding capital expenditure (including via retained earnings or<br />
debt). Consideration will also be given to longer term objectives outlined in a GBE’s<br />
annual corporate plan.<br />
c. 4.3 In providing for a GBE to expand its capital base through retained earnings,<br />
any proposed future capital expenditure should add shareholder value. That is, as<br />
a minimum, capital expenditure plans should must meet a hurdle rate <strong>of</strong> return<br />
that is consistent with the GBE’s principal fnancial target (as discussed under the<br />
subheading) (refer paragraphs 1.8 and 4.7, ‘Financial Targets for GBEs’).<br />
4.2 A GBE’s level <strong>of</strong> estimated dividends (and forecast payout ratio) is to be agreed<br />
annually between the board and the Shareholder Minister(s) through the corporate plan<br />
consultation process and should have regard to the maintenance <strong>of</strong>, or progress toward,<br />
its optimal capital structure.<br />
a. In that context the The level <strong>of</strong> estimated dividends shall be driven by the desired<br />
capital structure, the pr<strong>of</strong>tability <strong>of</strong> the enterprise, and the level <strong>of</strong> agreed future<br />
capital expenditure.<br />
b. The proposed dividend payout ratio and estimated dividend payment should be<br />
included in the corporate plan for each year covered by the plan.<br />
c. 4.4 The agreed dividend payout ratio should take account <strong>of</strong> the <strong>Government</strong>’s<br />
preference for dividends over capital gains. (a payout ratio greater than 60% <strong>of</strong><br />
pr<strong>of</strong>ts after tax and abnormals would refect that preference), but the payout for each<br />
year and for each GBE should relate principally to the considerations described in<br />
paragraph 4.2 above.<br />
d. Pr<strong>of</strong>ts generated by subsidiaries are to be taken into account in agreeing the level <strong>of</strong><br />
estimated dividends and forecast payout ratio.<br />
4.2 Financial Targets for GBEs<br />
4.2.1 Finance considers that the use <strong>of</strong> a target-setting and performance measurement approach<br />
to fnancial governance and reporting supports and promotes a value-adding perspective<br />
by both the <strong>Commonwealth</strong> and the GBEs which will drive both improved decision making<br />
and effcient and effective performance.<br />
Exposure Draft
4.2A Weighted Average Cost <strong>of</strong> Capital<br />
4.2.2 Paragraphs 4.9 and 4.10 <strong>of</strong> the current GBE Guidelines require that GBEs classifed as<br />
trading GBEs should use the Weighted Average Cost <strong>of</strong> Capital (WACC) as their principal<br />
fnancial target as recommended by the ANAO 43 and accepted by government. The WACC<br />
target is designed to encourage businesses to target returns suffcient to justify the assets<br />
used in the business and cover the cost <strong>of</strong> capital employed.<br />
4.2.3 More specifcally, the WACC requires that returns are suffcient to cover the cost <strong>of</strong> debt and<br />
the cost <strong>of</strong> equity, which is generally estimated via the capital asset pricing model (CAPM).<br />
4.2.4 Finance considers that the WACC remains a useful fnancial target for most GBEs.<br />
However, for GBEs that are service-based and carry little or no debt as part <strong>of</strong> their optimal<br />
capital structure (such as the Australian <strong>Government</strong> Solicitor), the WACC will essentially<br />
be the cost <strong>of</strong> equity calculation. This is because the cost <strong>of</strong> debt calculation will be zero<br />
where there are no borrowings or very low where the GBE has limited borrowings.<br />
4.2.5 For newly established GBEs and for GBEs that are in the process <strong>of</strong> being wound up,<br />
it may be appropriate to target the achievement <strong>of</strong> relevant principal and other fnancial<br />
targets over the medium term. Nevertheless, establishing appropriate fnancial targets in<br />
consultation with the Shareholder Minister(s) on an annual basis is required to drive the<br />
decisions <strong>of</strong> the GBE.<br />
4.2.6 The current GBE Guidelines defne adding to shareholder value as where the return on<br />
assets (ROA) is increased. However, the ROA does not necessarily refect shareholder<br />
value. Rather, the ROA is used to determine the effciency <strong>of</strong> the business i.e. the return<br />
generated from the assets held.<br />
4.2.7 Finance therefore proposes that reference to the ROA be removed and that the revised<br />
GBE Guidelines defne adding to shareholder value in the context <strong>of</strong> meeting or exceeding<br />
the fnancial targets agreed with the Shareholder Minister(s) including the principal fnancial<br />
target related to WACC.<br />
4.2.8 Other performance measures remain important and the revised GBE Guidelines will<br />
continue to provide scope for GBEs and the Shareholder Minister(s) to discuss additional<br />
fnancial targets and measures. This will continue to promote a more robust and holistic<br />
approach to determining GBE performance.<br />
Proposed Change:<br />
Financial Targets for GBEs<br />
4.13 4.7 All GBEs are required to add to shareholder value in their operations with a view to<br />
at least meeting the fnancial targets agreed by the Shareholder Minister(s) in the<br />
annual corporate plan.<br />
a. Increases in shareholder value are achieved when the return on assists is increased<br />
GBE’s weighted average cost <strong>of</strong> capital (WACC) is exceeded, regardless <strong>of</strong> whether<br />
or not the target return is reached. However where a GBE achieves a return which is<br />
less than its fnancial target, it has not achieved the minimum return acceptable to the<br />
shareholder, and the shareholder would expect the adoption <strong>of</strong> strategies aimed at<br />
achieving the target.<br />
Exposure Draft<br />
43 Australian National Audit Offce in Report No. 15, 2000-2001, Agencies’ Performance Monitoring <strong>of</strong> <strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong>,<br />
refer to http://www.anao.gov.au/uploads/documents/2000-01_Audit_Report_15.pdf<br />
33
34<br />
4.14 4.8 Setting appropriate fnancial targets aims to:<br />
a. ensure that GBEs operate and price their goods and services effciently replicate the<br />
discipline that the threat <strong>of</strong> takeover would exert over the directors and managers <strong>of</strong> a<br />
frm owned by the private sector; and<br />
b. provide an environment for GBEs which is competitively neutral with the private<br />
sector and is consistent with Competitive Neutrality policy.<br />
4.15 4.9 For GBEs that are classifed as trading GBEs, the target is the weighted average<br />
cost <strong>of</strong> capital (WACC). GBEs (other than those covered under paragraph 4.10)<br />
should target a weighted average cost <strong>of</strong> capital (WACC). This principal fnancial<br />
target requires the GBE to earn returns suffcient to cover the cost <strong>of</strong> debt and<br />
the required return on equity. WACC is used to estimate the required rate <strong>of</strong><br />
return on total assets, taking into account the different required rates <strong>of</strong> return<br />
attached to the different components <strong>of</strong> the company’s GBE’s capital structure.<br />
a. The cost <strong>of</strong> debt is the expected rate at which the GBE is able to borrow; and<br />
b. The required return on equity is the risk free rate plus a risk premium<br />
appropriate to the GBE.<br />
4.16 4.10 For GBEs that are classifed as fnancial GBEs, service-based providers and<br />
therefore carry little debt as part <strong>of</strong> their optimal capital structure, the cost <strong>of</strong><br />
equity element <strong>of</strong> the WACC can be targeted (rather than the WACC itself) as the<br />
principal fnancial target. the target is a return on equity. (a) This target is the risk<br />
free rate (government bond rate) plus the proportion <strong>of</strong> market a risk premium<br />
appropriate to the GBE.<br />
4.17 4.11 Any other fnancial targets which might be set for particular GBEs, on a case-bycase<br />
basis consistent with the requirements <strong>of</strong> paragraph 3.3 <strong>of</strong> these Guidelines,<br />
should be consistent with the objective <strong>of</strong> increasing shareholder value. In some<br />
cases, such as for newly established GBEs, it may be appropriate to target the<br />
achievement <strong>of</strong> relevant principal and other fnancial targets over the medium term.<br />
Nevertheless, establishing appropriate fnancial targets is required to drive the<br />
decisions <strong>of</strong> the GBE.<br />
4.18 4.12 The Shareholder Minister(s) will agree with each GBE the methodology they will<br />
use to measure performance against their principal fnancial target and other<br />
fnancial targets. WACC, or return on equity, as appropriate. This measure These<br />
measures will be based on shareholder value added and the change in shareholder<br />
value added year-on-year.<br />
4.19 The basic methodology is outlined in An Economic Framework for Assessing the<br />
Financial Performance <strong>of</strong> <strong>Government</strong> Trading <strong>Enterprises</strong>, Steering Committee on<br />
National Performance Monitoring <strong>of</strong> <strong>Government</strong> Trading <strong>Enterprises</strong>, July 1996, which<br />
draws on material provided by the Industry Commission.<br />
Exposure Exposure Draft Draft
4.3 Managing Risks<br />
4.3.1 The government is exposed to a number <strong>of</strong> risks associated with GBEs. This includes<br />
fnancial, operational, political and reputational risks.<br />
4.3.2 Risk management is ultimately the responsibility <strong>of</strong> the GBE board whose role it is to<br />
identify, monitor and control the risks that may affect the operations <strong>of</strong> the GBE. The<br />
current GBE Guidelines refect this.<br />
4.3.3 The current GBE Guidelines also require corporate plans and progress reports to ‘contain a<br />
statement’ that the board has appropriate risk management policies and practices in place<br />
and that adequate systems and expertise are being applied to achieve compliance with<br />
those policies and procedures.<br />
4.3.4 Sections 17 and 42 <strong>of</strong> the CAC Act provide that GBEs are to report on strategies for<br />
managing fnancial risk associated with investment/fnancing programs and analysis <strong>of</strong><br />
factors likely to create signifcant fnancial risk. However, given the government’s potential<br />
exposure from the actions <strong>of</strong> GBEs and to enhance both transparency and accountability,<br />
Finance considers that GBEs should be required to increase the level <strong>of</strong> information<br />
disclosed in relation to risks in the corporate plan and progress reports.<br />
4.3.5 More specifcally, Finance considers that corporate plans should include a summary <strong>of</strong> the<br />
GBE’s risk management policy, material risks that the GBE will and is likely to face over the<br />
period covered under the corporate plan, and strategies for managing these risks. 44 Progress<br />
reports should inform the Shareholder Minister(s) <strong>of</strong> any emerging risks that were not<br />
identifed in the corporate plan and strategies for managing these risks. This is consistent<br />
with the ANAO’s views and recommendations on the risk management practices <strong>of</strong> GBEs. 45<br />
The changes are also consistent with the JCPAA’s fnding that the GBE Guidelines clarify the<br />
risk management responsibilities <strong>of</strong> the board 46 (part 3.3 <strong>of</strong> the Guidelines refers).<br />
4.3.6 The current GBE Guidelines are silent on requirements for GBEs to behave as model<br />
corporate citizens in respect to their taxation obligations. Finance considers it appropriate for the<br />
revised Guidelines to provide a clear statement <strong>of</strong> an appropriate taxation management approach<br />
for GBEs.<br />
4.3.7 Please note that some <strong>of</strong> the changes proposed to address risk management are taken up<br />
in proposed changes to Part 3, ‘Planning and Reporting’.<br />
Exposure Draft<br />
44 This is consistent with the ASX Principles (page 32), which suggests that a summary <strong>of</strong> a GBE’s risk management policies be disclosed. Refer<br />
http://asx.ice4.interactiveinvestor.com.au/ASX0701/Corporate%20Governance%20Principles/EN/body.aspx?z=1&p=13&v=1&uid=<br />
45 Australian National Audit Offce, Audit Report No.2 ‘<strong>Government</strong> <strong>Business</strong> Enterprise Monitoring Practices’, page 47 (September 1997), please refer to<br />
http://www.anao.gov.au/uploads/documents/2000-01_Audit_Report_15.pdf<br />
46 JCPAA Report 372, page 95.<br />
35
36<br />
Proposed Change:<br />
Corporate Plans<br />
2.1 (d)(iv) 3.3a To supplement the information required to be provided in GBE corporate plans<br />
under the CAC Act and the Corporations Act, the plans should include details<br />
<strong>of</strong> the following matters (so far as they are applicable):<br />
vi. a summary <strong>of</strong> the GBE’s risk management policies, material risks and strategies for<br />
managing these risks. This is in addition to the requirements set out in paragraph<br />
4.15 (refer guidance in Part 4 Financial Guidance).<br />
3.10d. commentary on any emerging issues and risks or changes to risk factors that might<br />
have a material impact on performance. Details <strong>of</strong> strategies for managing any material<br />
risks that were not identifed in the corporate plan should also be provided. This is in<br />
addition to the requirements set out in paragraph 4.15.<br />
Managing Risks<br />
4.9 4.14 Directors GBE boards are responsible for managing risks. Directors Boards should<br />
therefore establish processes and practices within the GBE to manage all risks<br />
associated with the GBE´s operations.<br />
4.10 4.15 Directors GBE boards should keep the Shareholder Minister(s) informed <strong>of</strong> risk<br />
management strategies by outlining them in corporate plans and progress reports,<br />
and other reports when necessary as outlined in paragraph 3.3 above. In addition,<br />
and unless otherwise qualifed because <strong>of</strong> circumstances applying to a particular<br />
Board GBE, corporate plans and progress reports should contain a statement that<br />
the board has appropriate risk management policies and practices in place and<br />
that adequate systems and expertise are being applied to achieve compliance with<br />
those policies and procedures.<br />
4.11 4.16 The <strong>Government</strong> <strong>Commonwealth</strong>, as a shareholder, is sensitive to commercial<br />
risk. In some circumstances, it may therefore choose to set limits on the activities<br />
<strong>of</strong> particular GBEs; for example on liabilities, fnancial exposures, use <strong>of</strong> derivative<br />
instruments, etc.<br />
a. In normal circumstances, a GBE should only use derivative fnancial instruments for<br />
the purpose <strong>of</strong> hedging exposures.<br />
4.11 b Shareholder ministers may require the Board <strong>of</strong> a GBE to provide a risk<br />
management plan, the contents to be agreed on a case-by-case basis.<br />
4.18 GBE boards are expected to engage in normal tax planning activities that are within<br />
the spirit <strong>of</strong> the law. It is not appropriate for GBEs to lead the market in aggressive tax<br />
planning strategies.<br />
4.23 4.21 GBEs will usually borrow from fnancial markets. Borrowing from the<br />
<strong>Commonwealth</strong> Budget requires the specifc approval <strong>of</strong> the Finance Minister.<br />
GBE boards should be aware that some lenders will want to include in their loan<br />
documentation the right to call up their loan(s) if the control <strong>of</strong> the GBE changes.<br />
The Shareholder Minster(s) prefer(s) that GBE boards do not agree to such clauses<br />
being included in loan documentation or to any other clauses that would be<br />
triggered, at the lender’s discretion, by an ownership change.<br />
Exposure Draft
Part 5 - Other Governance Matters<br />
5.1.1 As has been touched on above in relation to the introduction <strong>of</strong> the CAC Act and to changes<br />
to the Corporations Act (Part 3 above), there have been a number <strong>of</strong> changes in legislation<br />
since the current GBE Guidelines were introduced in 1997. The following sections have<br />
been updated to refect changes and amendments to employment legislation and to ensure<br />
consistency across the documentation.<br />
5.1.2 The setting <strong>of</strong> remuneration for CEOs is a matter for the board to determine in consultation<br />
with the Remuneration Tribunal. However, in order to maintain maximum transparency<br />
and accountability around the establishment and maintenance <strong>of</strong> appropriate remuneration<br />
levels for CEOs, GBEs may wish to advise the Shareholder Minister(s) <strong>of</strong> updates to the<br />
arrangements agreed between the board and the CEO.<br />
Proposed Change:<br />
5.1 Subject to these Guidelines, GBEs are free to manage relations with their employees<br />
consistent with the Fair Work Act 2009 Workplace Relations Act 1996 and in accordance<br />
with the following:<br />
a. The Board <strong>of</strong> each GBE is required to consult with the Remuneration Tribunal in<br />
determining remuneration packages for Chief Executive Offcers. The CEOs <strong>of</strong> GBEs<br />
are, with limited exceptions, covered by the Tribunal’s Principal Executive Offce (PEO)<br />
Classifcation Structure. As such, the Board, where it is the employing body, may<br />
determine remuneration for the <strong>of</strong>fce, consistent with the PEO framework set by<br />
the Tribunal. The Tribunal may seek the views <strong>of</strong> the Shareholder Minister(s) prior to<br />
agreeing to any new or changed arrangements to these packages.<br />
b. The Remuneration Tribunal determines the remuneration for the directors GBE<br />
directors that is compatible with their roles and responsibilities, and having regard<br />
to, amongst other things, rates paid by the private sector federal public <strong>of</strong>fces and<br />
internal relativities.<br />
c. GBEs are encouraged to apply the government’s workplace relations policy, currently<br />
the Australian <strong>Government</strong> Employment Bargaining Framework.<br />
c. d. Any matters specifed from time-to-time by the Minister for Industrial Relations<br />
responsible for workplace relations policy, after consultation with the Prime<br />
Minister and the Finance Minister.<br />
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Partly Owned Subsidiaries <strong>of</strong> GBEs and Joint Ventures involving GBEs<br />
5.2.1 Finance considers that the guidance in relation to Partly Owned GBEs, Partly Owned<br />
Subsidiaries <strong>of</strong> GBEs and Joint Ventures Involving GBEs provides an appropriate framework<br />
for the governance <strong>of</strong> subsidiaries, partly-owned GBEs and joint ventures within the<br />
parameters <strong>of</strong> the various legislative requirements. The minor changes proposed refect<br />
changes in legislation and legislative frameworks since the current GBE Guidelines were<br />
issued, and refect the desire to capture requirements for new GBE subsidiaries.<br />
5.2.2 To strengthen the guidance on the establishment and management <strong>of</strong> partly owned<br />
subsidiaries <strong>of</strong> GBEs, Finance considers it appropriate to include some additional direction<br />
on the makeup <strong>of</strong> subsidiary boards.<br />
Proposed Change: (New)<br />
5.8a. Where the GBE has any subsidiary it will ensure that control <strong>of</strong> the affairs <strong>of</strong> that<br />
subsidiary will be exercised by a majority <strong>of</strong> the directors <strong>of</strong> that subsidiary, who<br />
are directors or employees <strong>of</strong> the GBE or have been approved by the Shareholder<br />
Minister(s) for appointment as directors <strong>of</strong> that subsidiary.<br />
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Appendix A:<br />
<strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong><br />
<strong>Enterprises</strong> Governance and<br />
Oversight Guidelines<br />
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Table <strong>of</strong> Contents<br />
Part 1 - Overview 41<br />
Defnition 41<br />
Application 41<br />
Principles 41<br />
Mandate and Objectives 42<br />
Part 2 - Board and Corporate Governance 44<br />
Board Responsibility and Conduct 44<br />
Board Appointments and Performance 45<br />
Part 3 – Planning and Reporting 48<br />
Requirements 48<br />
Corporate Plans 50<br />
Statements <strong>of</strong> Corporate Intent 52<br />
Progress Reports 52<br />
Annual Reports 53<br />
Keeping Shareholder Ministers Informed 54<br />
Part 4 - Financial Governance 56<br />
Capital Structure and Dividend Policy 56<br />
Financial Targets for GBEs 57<br />
Managing Risks 58<br />
GBE Borrowings 58<br />
Part 5 - Other Governance Matters 59<br />
Workplace Relations 59<br />
Superannuation 59<br />
Partly Owned GBEs 59<br />
Partly Owned Subsidiaries <strong>of</strong> GBEs and Joint Ventures involving GBEs 60<br />
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Arrangements for GBEs Being Established, Sold, Restructured or Wound Up 61
Part 1 - Overview<br />
Defnition<br />
1.1 A <strong>Government</strong> <strong>Business</strong> Enterprise (GBE) is a <strong>Commonwealth</strong> authority or<br />
<strong>Commonwealth</strong> company as defned by the <strong>Commonwealth</strong> Authorities and Companies<br />
Act 1997 (CAC Act) and prescribed as a GBE under the <strong>Commonwealth</strong> Authorities and<br />
Companies Regulations 1997.<br />
Application<br />
1.2 The <strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong> Enterprise Governance and Oversight<br />
Guidelines (the GBE Guidelines) apply to GBEs that are <strong>Commonwealth</strong> authorities<br />
(authority GBEs) and GBEs that are wholly-owned <strong>Commonwealth</strong> companies (whollyowned<br />
company GBEs). 1<br />
a. When forming subsidiaries or entering into joint ventures, GBE Directors should ensure<br />
that there are no provisions in the company constitution or any shareholders agreement<br />
<strong>of</strong> the subsidiary which prevent the GBE from complying with the GBE Guidelines.<br />
1.3 For GBEs that are <strong>Commonwealth</strong> companies and are not wholly-owned <strong>Commonwealth</strong><br />
companies, the extent to which these GBE Guidelines apply will be identifed in legislation<br />
applying specifcally to the GBE, the company constitution or shareholders’ agreement<br />
(see paragraphs 5.3 to 5.12 <strong>of</strong> these guidelines for more detail).<br />
1.4 These GBE Guidelines should be read in conjunction with the CAC Act<br />
(http://www.fnance.gov.au/fnancial-reporting-and-accounting-policy/index.html).<br />
Principles<br />
1.5 The main features <strong>of</strong> the <strong>Commonwealth</strong>’s relationship with its GBEs are:<br />
a. a strong interest in the performance and fnancial returns <strong>of</strong> the GBE;<br />
b. reporting and accountability arrangements that facilitate best practice governance and<br />
active oversight by the <strong>Commonwealth</strong>; and<br />
c. action by the <strong>Commonwealth</strong> in relation to the strategic direction <strong>of</strong> its GBEs where it<br />
prefers a different direction from the one proposed.<br />
1.6 The <strong>Commonwealth</strong>’s ownership interest is generally represented by two `Shareholder<br />
Ministers´. The Shareholder Ministers are the Responsible Minister (that is the Minister<br />
responsible for the GBE) and the Finance Minister 2 . The Finance Minister is generally the<br />
sole Shareholder Minister for those GBEs within the Finance portfolio.<br />
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1 That is, where the <strong>Commonwealth</strong> has a 100 per cent ownership interest in the company.<br />
2 Under section 5 <strong>of</strong> the CAC Act, the Finance Minister is the Minister who administers the CAC Act.<br />
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1.7 The key principles underpinning the GBE Guidelines are:<br />
a. Shareholder Ministers exercise strategic control consistent with their accountability to<br />
the Parliament and the public.<br />
b. Shareholder Ministers set clear objectives for GBEs.<br />
c. The directors <strong>of</strong> a GBE develop the business strategies and handle the day-to-day<br />
management policies.<br />
d. The directors <strong>of</strong> a GBE ensure that:<br />
i. the GBE´s activities are conducted so as to seek to minimise any divergence <strong>of</strong><br />
interests between the GBE and the shareholders;<br />
ii. GBEs are managed in the best interests <strong>of</strong> the entity as a whole; and<br />
iii. GBEs and their <strong>of</strong>fcers maintain the highest standards <strong>of</strong> integrity, accountability<br />
and responsibility.<br />
e. Required standards <strong>of</strong> disclosure are satisfed. In particular consistent with directors’<br />
responsibilities under the CAC Act, regular and timely disclosure is to be made by GBEs<br />
<strong>of</strong> information:<br />
i. which may affect the value <strong>of</strong> the GBE;<br />
ii. which may infuence government decisions in relation to the GBE; or<br />
iii. in which the government has a legitimate interest.<br />
f. Information is produced for the Shareholder Minister(s) and the community according to<br />
the highest standards;<br />
i. where appropriate, information enables ready comparison with other relevant<br />
information.<br />
g. The Shareholder Minister(s) must be consulted on matters <strong>of</strong> signifcance.<br />
Mandate and Objectives<br />
1.8 A principal objective for each GBE is that it adds to its shareholder value. To achieve this it<br />
is required to:<br />
a. operate effciently, that is, at minimum cost for a given scale and quality <strong>of</strong> outputs;<br />
b. price effciently;<br />
i. A GBE should set prices taking into account economic forces, including the level <strong>of</strong><br />
demand for, and the enterprise’s capacity for and cost <strong>of</strong> supplying, individual goods<br />
and services; and<br />
ii. The government may impose price conditions on GBEs providing goods and<br />
services in a monopolistic market or Community Service Obligations (CSOs). Such<br />
price conditions and CSOs, where appropriate, would be in addition to those arising<br />
from regulation by the Australian Competition and Consumer Commission and<br />
generally specifed in legislation or through contractual arrangements.<br />
c. earn at least a commercial rate <strong>of</strong> return;<br />
i. This means recovering the full cost <strong>of</strong> the resources employed, including the cost <strong>of</strong><br />
capital; and<br />
ii. Each GBE is to work towards a principal fnancial target and a dividend policy,<br />
agreed in advance with the Shareholder Ministers, with the principal fnancial target<br />
to be set on the basis that each GBE should be required to earn commercial returns<br />
at least suffcient to justify the long-term retention <strong>of</strong> assets in the business, and to<br />
pay commercial dividends from those returns.<br />
d. comply with the <strong>Commonwealth</strong>’s Competitive Neutrality (CN) policy.<br />
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1.9 In addition to setting a principal fnancial target, the Shareholder Minister(s) may set other<br />
fnancial targets and non-fnancial targets, for particular GBEs, on a case-by-case basis in<br />
consultation with the GBE (Refer also to paragraphs 2.2 and 3.3c).<br />
1.10 A GBE should operate in the industry sector, and provide the goods and services (including<br />
CSOs), that the government has mandated.<br />
a. The government may impose service quality standards on GBEs providing goods and<br />
services in a monopolistic market or CSO goods and services.<br />
b. In providing each GBE with a clear mandate and set <strong>of</strong> objectives, the Shareholder<br />
Minister(s) will ensure that the objectives include any requirements to meet the<br />
government’s explicitly stated social and economic policy objectives.<br />
1.11 The mandate <strong>of</strong> a GBE will be considered by the Shareholder Minister(s) as part <strong>of</strong> the<br />
annual corporate planning process. In addition, the Shareholder Minister(s) will, where<br />
appropriate, periodically undertake a stand-alone review <strong>of</strong> the mandate.<br />
1.12 Ministerial directions to GBEs, including those prescribed in enabling legislation and<br />
company constitutions, will be in writing and tabled in both Houses <strong>of</strong> Parliament within 15<br />
sitting days after giving the direction and reported in each GBE’s annual report.<br />
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Part 2 - Board and Corporate Governance<br />
Board Responsibility and Conduct<br />
2.1 The general conduct <strong>of</strong> directors is subject to the provisions <strong>of</strong> the Corporations Act (for a<br />
wholly-owned <strong>Commonwealth</strong> company GBE), the CAC Act (for Authority GBEs) and the<br />
common law and equity. The CAC Act provisions are based on the Corporations Act and<br />
both provide for civil and criminal penalties for breaches.<br />
2.2 Boards have absolute responsibility for the performance <strong>of</strong> the GBE, and are fully<br />
accountable for this to the Shareholder Minister(s). Boards should implement effective<br />
governance frameworks to support their role and responsibilities, and report on their<br />
implementation in the Annual Report.<br />
2.3 Board members have their fduciary and other duties drawn to their attention by the<br />
Shareholder Minister(s) in, or with, correspondence <strong>of</strong>fering appointment, and are to fully<br />
accept the individual responsibility this places on them.<br />
a. Appointment letters for all directors and Chief Executive Offcers (CEOs) should include<br />
the following:<br />
• director powers and duties (attaching a link to the <strong>Commonwealth</strong> Authorities and<br />
Companies Act 1997 and the GBE Guidelines);<br />
• a copy <strong>of</strong> the GBE’s constitution or enabling legislation (which would include the<br />
circumstances in which an <strong>of</strong>fce <strong>of</strong> director becomes vacant);<br />
• general public sector performance and accountability obligations, including that the<br />
GBE may be subject to Parliamentary scrutiny and audit processes;<br />
• information on the operations <strong>of</strong> the GBE, full details <strong>of</strong> their legislative obligations,<br />
their public sector accountability obligations and directors’ responsibilities, and<br />
outlining the circumstances in which the GBE will bear the cost <strong>of</strong> directors<br />
obtaining independent pr<strong>of</strong>essional advice in carrying out their duties;<br />
• the term <strong>of</strong> appointment and remuneration arrangements (with particular reference<br />
to Remuneration Tribunal arrangements); and<br />
• reference to Directors and Offcers insurance arrangements, confdentiality<br />
<strong>of</strong> information and board decisions, confict <strong>of</strong> interest matters, and induction<br />
arrangements.<br />
b. Directors are to formally respond to the letter <strong>of</strong> appointment within 30 days <strong>of</strong> receipt<br />
and provide an undertaking to advise the Shareholder Minister(s) if there is any change<br />
in circumstances that might impact on their ability to be a director.<br />
2.4 Boards should continue to regularly monitor the ongoing independence <strong>of</strong> each director<br />
and the board generally to ensure that they continue to exercise unfettered and<br />
independent judgement.<br />
2.5 In particular, the government expects GBE boards to establish and maintain a code <strong>of</strong><br />
conduct for directors, employees and contractors and ensure that GBEs, in undertaking<br />
their business, avoid activities that could give rise to questions about their political<br />
impartiality. For example, GBEs should not make direct or indirect political donations or<br />
participate in activities sponsored or in support <strong>of</strong> partisan political causes.<br />
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2.6 The code <strong>of</strong> conduct may cover the following matters: being pr<strong>of</strong>essional and apolitical;<br />
customer service; work practices and performance; confict <strong>of</strong> interest; relationship with<br />
suppliers; gifts and benefts; outside employment; appropriate use <strong>of</strong> assets and resources;<br />
and confdentiality <strong>of</strong> information, including in electronic form.<br />
Board Appointments and Performance<br />
2.7 GBE boards are to comprise directors with an appropriate mix <strong>of</strong> skills, who are to be<br />
appointed on the basis <strong>of</strong> their individual capacity to contribute to the board having<br />
an appropriate balance <strong>of</strong> relevant skills (such as commerce, fnance, accounting, law,<br />
marketing, workplace relations, management and other skills relevant to the GBE’s<br />
operations) and contribute to the achievement <strong>of</strong> the GBE´s objectives.<br />
a. Boards should draw on outside expertise where necessary to augment their own skills.<br />
b. The Chair shall not also be an executive <strong>of</strong> the GBE, unless otherwise agreed by the<br />
Shareholder Minister(s).<br />
c. The appointment <strong>of</strong> departmental <strong>of</strong>fcers to GBE boards may only be considered in<br />
exceptional circumstances, having regard to their possession <strong>of</strong> the skills referred to<br />
above, any potential conficts <strong>of</strong> interest that might arise and the particular circumstances<br />
<strong>of</strong> the GBE (such as GBEs in winding-down mode). In such cases, the appointed<br />
departmental <strong>of</strong>fcers are expected to act in the best interests <strong>of</strong> the GBE when there is a<br />
divergence between the interest <strong>of</strong> the GBE and those <strong>of</strong> the government.<br />
2.8 The Chair shall head a board committee, which shall, provide the Shareholder Minister(s),<br />
through the board with recommendations on board composition and membership.<br />
a. The Chair shall, following consultation with the Shareholder Minister(s), develop a board<br />
plan which includes:<br />
• The medium term aims in relation to board composition, taking into account the<br />
strategic objectives <strong>of</strong> the GBE;<br />
• A forecast <strong>of</strong> likely board vacancies; and<br />
• An assessment <strong>of</strong> the skill requirements for the board in the context <strong>of</strong> the strategic<br />
requirements <strong>of</strong> the GBE.<br />
b. The Chair shall write to the Shareholder Minister(s) at least three months prior to a<br />
vacancy arising on the board or in the role <strong>of</strong> CEO.<br />
• Through the Chair, the board should advise the Shareholder Minister(s) about its<br />
preferred candidate for the position <strong>of</strong> CEO. The CEO is directly accountable to<br />
the board.<br />
• Following consultation with the Shareholder Minister(s), the board may provide,<br />
through the Chair, a shortlist <strong>of</strong> candidates for board vacancies.<br />
• Additional processes for identifying candidates such as public advertising or the<br />
use <strong>of</strong> executive search processes may be undertaken by agreement with the<br />
Shareholder Minister(s).<br />
• Chairs may recommend the reappointment <strong>of</strong> an existing director where this is<br />
sought by the director and where appropriate (i.e. based on evidence <strong>of</strong> good<br />
performance, where the tenure falls within the requirements set out in legislation<br />
applying to the GBE and where the term has not been excessive).<br />
• All recommendations for appointment should have regard to government policy on<br />
fostering a governance culture that embraces diversity in the composition <strong>of</strong> boards<br />
with the objective <strong>of</strong> achieving the <strong>Government</strong>’s target <strong>of</strong> 40% <strong>of</strong> <strong>Government</strong><br />
board members to be women, 40% <strong>of</strong> board members to be men, and the<br />
remaining 20% <strong>of</strong> positions to be held by either women or men, with this target to<br />
be achieved by 2015.<br />
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2.9 The Shareholder Minister(s) may elect to appoint a candidate not proposed by the Chair.<br />
2.10 Any decision to appoint the CEO as a director is at the discretion <strong>of</strong> the Shareholder<br />
Minister(s) and the CEO recruitment and succession arrangements undertaken by the<br />
board should refect this.<br />
2.11 Boards are to implement and maintain a succession plan for CEO positions and to provide<br />
an annual assurance to the Shareholder Minister(s) that this is the case.<br />
2.12 Where an appointment is proposed, the Shareholder Minister(s) shall consult the Prime<br />
Minister seeking his/her, or at his/her discretion, Cabinet’s approval <strong>of</strong> the appointment<br />
before each appointment is fnalised.<br />
2.13 Board appointments should normally be for terms <strong>of</strong> three years.<br />
a. The term for non-executive directors should not normally exceed two terms (i.e. six<br />
years) and for the Chair three terms (i.e. nine years). Appointment terms may be<br />
staggered or varied in duration to maintain board continuity.<br />
b. Appointments exceeding two terms will be considered on a case-by-case basis taking<br />
into account exceptional circumstances.<br />
2.14 The Remuneration Tribunal determines remuneration for directors that is compatible with<br />
their roles and responsibilities, and having regard to, amongst other things, rates paid by<br />
the private sector, federal public <strong>of</strong>fces and internal relativities.<br />
2.15 The Shareholder Minister(s) may, at their discretion, remove directors at any time prior to<br />
the completion <strong>of</strong> their term <strong>of</strong> appointment.<br />
a. In the event that a GBE is not performing satisfactorily, the Shareholder Minister(s)<br />
will initiate prompt remedial action. Dismissal <strong>of</strong> the directors would be considered,<br />
particularly in any case <strong>of</strong> failure to keep Ministers adequately informed, and in<br />
situations <strong>of</strong> ongoing under-performance in respect <strong>of</strong> fnancial or other aspects <strong>of</strong> the<br />
operations <strong>of</strong> the business.<br />
b. A director may be placed in a situation where continuing to be a GBE director could<br />
embarrass the GBE or the Shareholder Minister(s). In such situations, they should<br />
raise the issue with their Chair immediately. The Chair in turn will decide whether it is<br />
necessary to raise the issue with the Shareholder Minister(s). In a worst case situation,<br />
the director may be asked to resign, or failing that, be removed.<br />
2.16 Boards are to work with departmental <strong>of</strong>fcials, as representatives <strong>of</strong> the Shareholder<br />
Minister(s) to develop and implement an appropriate induction and development program<br />
for directors. Induction programs should incorporate information on general public sector,<br />
legal, performance and accountability obligations.<br />
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2.17 On an annual basis the GBE board as a whole will assess its performance; and the<br />
board will assess the performance <strong>of</strong> the Chair. Chairs are expected to provide written<br />
confrmation to the Shareholder Minister(s) that this process has been followed and raise<br />
any areas <strong>of</strong> concern with the Shareholder Minister(s) as required.<br />
a. Part <strong>of</strong> the performance assessment will include a review <strong>of</strong> the level <strong>of</strong> director<br />
attendance at board meetings. Directors are expected to attend all scheduled board<br />
meetings, and attendance is to be reported in the annual report. Chairs are to raise<br />
on-going non-attendance issues with the Shareholder Minister(s) for consideration and<br />
possible further action.<br />
2.18 Boards are to ensure that board committees do not duplicate work performed by the<br />
CEO and management. The composition and charter <strong>of</strong> each board committee should be<br />
reviewed annually by 1 December each year to ensure that they remain appropriate in the<br />
context <strong>of</strong> the governance needs <strong>of</strong> the GBE.<br />
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Part 3 - Planning and Reporting<br />
Requirements<br />
3.1 The planning and reporting requirements for GBEs are contained in the CAC Act and<br />
Orders, with additional requirements for <strong>Commonwealth</strong> companies contained in the<br />
Corporations Act. The reporting requirements outlined in these Guidelines can be<br />
summarised as follows:<br />
Table 1: Summary <strong>of</strong> Legislative Requirements<br />
Requirement <strong>Commonwealth</strong><br />
Authorities<br />
<strong>Commonwealth</strong><br />
Companies<br />
Corporate Plan content CAC Act Section 17 CAC Act Section 42<br />
Annual Reports CAC Act Section 9 CAC Act Section 36<br />
Statement <strong>of</strong> Governance Clause 15 <strong>of</strong> the CAC Act<br />
Orders 2.2<br />
Report on Operations and<br />
Financial Statements<br />
Additional Notifcation<br />
Requirements<br />
(Signifcant Events)<br />
Supplementary<br />
Interim Reports<br />
Performance Audit Auditor-General Act 1997<br />
section 16 and 17<br />
Recommended to<br />
follow Clause 15 <strong>of</strong> the<br />
CAC Act Orders<br />
CAC Act Schedule 1 CAC Act Division 2<br />
Corporations Act 2001<br />
Chapter 2M;<br />
CAC Act Sections 15 and 16 CAC Act Sections 40 and 41<br />
CAC Act Section 13 CAC Act Section 38<br />
Auditor-General Act 1997<br />
section 16 and 17<br />
3.2 GBEs are to provide the Shareholder Minister(s) with a series <strong>of</strong> annual corporate planning<br />
and reporting documents for comment and review by the key dates shown in Table 2. GBEs<br />
are to engage with the Shareholder Minister(s) early in the reporting and planning processes<br />
to allow suffcient time for GBEs to build <strong>Government</strong> priorities into the processes.<br />
a. In reviewing the documents, the Shareholder Minister(s) may seek clarifcation <strong>of</strong> the<br />
information provided, or request certain amendments.<br />
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Table 2: Best Practice Timetable for GBE Reports and Dividends<br />
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Corporate Plans<br />
3.3 Corporate plans are to be prepared in accordance with the appropriate section <strong>of</strong> the CAC<br />
Act and Corporations Act (refer summary at paragraph 3.1).<br />
a. To supplement the information required to be provided in GBE corporate plans under<br />
the CAC Act and the Corporations Act, the plans should include details <strong>of</strong> the following<br />
matters (so far as they are applicable):<br />
i. details <strong>of</strong> the broad mandate <strong>of</strong> the GBE, (including a summary <strong>of</strong> core activities<br />
that are in line with existing core competencies, and proposed non-core activities<br />
that require new competencies to be developed), together with a summary <strong>of</strong><br />
those functions that may require its retention as a government owned GBE;<br />
ii. an estimate <strong>of</strong> the current commercial value <strong>of</strong> the <strong>Commonwealth</strong>’s investment in<br />
the GBE and how that value was assessed, with the expectation that a discounted<br />
cash fow methodology would be used as the valuation basis, unless otherwise<br />
agreed by the Finance Minister;<br />
iii. fnancial projections, to be prepared in the same format as the progress and<br />
fnal report and consisting <strong>of</strong> pr<strong>of</strong>t and loss statement, balance sheet and cash<br />
fow statement;<br />
iv. capital expenditure projections linked to the physical assets <strong>of</strong> the GBE (where<br />
material), its business objectives and acquisition, maintenance and disposal plans;<br />
v. cash fow (liquidity) projections;<br />
vi. a summary <strong>of</strong> the GBE’s risk management policies, material risks and strategies for<br />
managing these risks. This is in addition to the requirements set out in paragraph<br />
4.15 (refer guidance in Part 4 Financial Governance); and<br />
vii. proposed borrowing(s) (refer guidance in Part 4 Financial Governance).<br />
b. If the GBE has a subsidiary (or subsidiaries), the reporting is to cover both the GBE and<br />
its subsidiaries.<br />
c. GBEs are to incorporate targets for the following minimum key performance indicators<br />
(KPIs) across a fve-year period (two prior and three forward years) in corporate plans,<br />
and if appropriate results are to be reported against in progress reports as outlined in<br />
the following table:<br />
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Measure Key Performance<br />
indicator<br />
Financial<br />
Performance<br />
<strong>Business</strong><br />
Effciency<br />
Leverage/<br />
Solvency<br />
Customers and<br />
Stakeholders<br />
Staff<br />
Defnition<br />
Total shareholder return (Commercial value at end, less commercial<br />
value at start plus dividends paid less equity<br />
injected)/commercial value at start<br />
Dividend yield Dividends paid/average commercial value<br />
Dividend payout ratio Dividends paid/net cash fow from operating<br />
activities less depreciation expense<br />
EBIT Earnings before net interest and tax<br />
EBITDA Earnings before net interest, tax, depreciation,<br />
amortisation and fair value adjustments for<br />
fnancial instruments<br />
Return on equity (RoE) Net pr<strong>of</strong>t after tax/average equity<br />
Net pr<strong>of</strong>t after tax (NPAT) The bottom line <strong>of</strong> the Income Statement<br />
Underlying net pr<strong>of</strong>t<br />
after tax<br />
The bottom line <strong>of</strong> the Income Statement<br />
adjusted for one-<strong>of</strong>f items and AASB fair<br />
value movements<br />
Operating margin EBITDA/operating revenue<br />
Return on capital<br />
employed<br />
EBIT adjusted for AASB fair value movements<br />
(net <strong>of</strong> tax)/average capital employed.<br />
Capital employed is defned as total assets<br />
less current liabilities<br />
Debtors age (days) (Debtors/revenue) x 365<br />
Gearing Ratio Net interest bearing debt/net interest bearing<br />
debt plus equity<br />
Interest Cover EBITDA/interest paid<br />
Current ratio Current assets/current liabilities<br />
Liquidity Ratio Cash and equivalents/current liabilities<br />
Customer Satisfaction Percentage <strong>of</strong> customers rating the GBE very<br />
good or excellent as determined by survey<br />
Meeting Community<br />
Service obligations<br />
Staff Retention and<br />
turnover rates<br />
Number <strong>of</strong> staff replaced/average number <strong>of</strong><br />
staff for the period<br />
Staff Satisfaction Percentage <strong>of</strong> staff very/extremely satisfed as<br />
determined by survey<br />
Exposure Draft<br />
Lost time injury<br />
frequency rates and<br />
OHS incident rate<br />
Lost time injuries per million hours worked<br />
Wages expense ratio Cost <strong>of</strong> wages and salaries/operating revenue<br />
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52<br />
d. The Shareholder Minister(s) may propose and agree other indicators that are relevant to the<br />
measuring <strong>of</strong> the performance <strong>of</strong> the GBE, to be included in the corporate plan prior to the<br />
Shareholder Minister(s) approving the Plan.<br />
3.4 The Shareholder Minister(s) may elect to meet with the directors <strong>of</strong> a GBE prior to<br />
responding to the corporate plan.<br />
3.5 The response by the Shareholder Minister(s) will:<br />
a. be within 45 days <strong>of</strong> receipt <strong>of</strong> the plan;<br />
i. Draft corporate plans should be provided to departmental <strong>of</strong>fcers for discussion<br />
with the GBE prior to being endorsed by the board to ensure a timely response; and<br />
b. include (if necessary) any proposed changes to the corporate plan to better refect the<br />
government’s policies and objectives for the GBE.<br />
3.6 All corporate plans and subsequent updates, reports or supplementary information are<br />
confdential to the Minister(s), their advisers and departments.<br />
Statements <strong>of</strong> Corporate Intent<br />
3.7 The directors <strong>of</strong> a <strong>Commonwealth</strong> authority GBE or a wholly-owned <strong>Commonwealth</strong><br />
company GBE and the Shareholder Minister(s) will annually agree on a Statement <strong>of</strong><br />
Corporate Intent (SCI), which shall be a public document.<br />
3.8 The SCI is a brief, high level, plain English document that is to be no more than fve pages<br />
expressed in terms <strong>of</strong> programs or outcomes. It is an integral part <strong>of</strong> the corporate plan,<br />
but does not include commercially sensitive information. A SCI would normally contain<br />
a business description and mission statement, corporate vision, objectives, values <strong>of</strong><br />
the GBE, statement <strong>of</strong> accountability (including reporting obligations) and selected key<br />
indicators <strong>of</strong> fnancial and non-fnancial performance as outlined in paragraph 3.3(c) above.<br />
3.9 GBEs are to arrange for the SCI to be tabled in the Parliament within ffteen sitting days<br />
following the start <strong>of</strong> the new fnancial year and then be published as soon as practicable<br />
on the GBE’s website.<br />
a. Shareholder Ministers may agree to later tabling, in which case Parliament would<br />
be informed.<br />
Progress Reports 3<br />
3.10 Confdential quarterly progress reports are to be provided by the Chair to the Shareholder<br />
Minister(s) one month after the period end. The minimum requirement for progress reports<br />
is that they should include:<br />
a. analysis <strong>of</strong> the GBE’s quarterly and year-to-date performance against corporate plan<br />
forecasts for the corresponding period, including detailed analysis <strong>of</strong> revenue and<br />
expense (including capital expenditure) performance for the period and explanations for<br />
deviations from corporate plan forecasts;<br />
b. fnancial statements, the format <strong>of</strong> which is approved by the Finance Minister;<br />
c. analysis <strong>of</strong> the GBE’s performance against its broader corporate plan objectives (such<br />
as its KPIs and operational performance targets/forecasts where relevant) including any<br />
major achievements during the period along with explanations for any changes<br />
to strategies;<br />
Exposure Draft<br />
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<br />
have a material impact on performance. Details <strong>of</strong> strategies for managing any material<br />
risks that were not identifed in the corporate plan should also be provided. This is in<br />
addition to the requirements set out in paragraph 4.15 below;<br />
e. a clear statement <strong>of</strong> the GBE’s outlook for the rest <strong>of</strong> the fnancial year in terms<br />
<strong>of</strong> meeting its full year re-forecast outturn, key risks and opportunities arising and<br />
management plans; and<br />
f. commentary on progress in meeting CSOs (where relevant).<br />
3.11 Shareholder Ministers may elect to comment on the progress report within 45 days <strong>of</strong><br />
its receipt.<br />
3.12 All progress reports are confdential to the Ministers, their advisers and departments.<br />
Annual Reports<br />
3.13 The directors <strong>of</strong> a GBE are required to provide an annual report to the Shareholder<br />
Minister(s) in accordance with the requirements <strong>of</strong> the CAC Act.<br />
a. Where a GBE is a <strong>Commonwealth</strong> authority the annual report is prepared in accordance<br />
with the CAC Act, the authority’s enabling legislation and any other applicable legislation<br />
and guidance issued by the Finance Minister or portfolio.<br />
b. Where a GBE is a company, the annual report is prepared in accordance with the CAC<br />
Act and the Corporations Act.<br />
c. GBEs should include comments on performance against the fnancial and non-fnancial<br />
expectations outlined in the SCI relating to that fnancial year.<br />
3.14 The current disclosure requirements for the Statement on Governance are outlined in the<br />
<strong>Commonwealth</strong> Authorities and Companies (Report <strong>of</strong> Operations) Orders (the Orders).<br />
While the Orders only apply to <strong>Commonwealth</strong> authorities, <strong>Commonwealth</strong> companies<br />
should, as a matter <strong>of</strong> better practice, also include a Statement on Governance in their<br />
report on operations covering the matters outlined the Orders.<br />
3.15 Financial statements <strong>of</strong> GBEs and their subsidiaries, associated with annual reports are<br />
audited, or reported on, by the Auditor-General.<br />
3.16 GBEs are to note that the Auditor-General is able to conduct a performance audit <strong>of</strong> a<br />
<strong>Commonwealth</strong> Authority GBE or a wholly-owned <strong>Commonwealth</strong> company GBE, or any <strong>of</strong><br />
its subsidiaries, in the circumstances outlined in the Auditor-General Act 1997.<br />
3.17 The Finance Minister may require the directors <strong>of</strong> a wholly-owned GBE to prepare an<br />
interim report in accordance with the requirements <strong>of</strong> the CAC Act.<br />
3.18 The Shareholder Minister(s) assess the fnancial performance <strong>of</strong> all GBEs on a regular basis<br />
and may write to a GBE about issues identifed in such assessments.<br />
Exposure Draft<br />
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Keeping Shareholder Ministers Informed<br />
3.19 The directors <strong>of</strong> a <strong>Commonwealth</strong> authority GBE or a <strong>Commonwealth</strong> company GBE are<br />
required to keep the Shareholder Minister(s) informed <strong>of</strong> the operations <strong>of</strong> the GBE and<br />
its subsidiaries and should follow a disclosure principle which is similar to the continuous<br />
disclosure requirements <strong>of</strong> the Australian Stock Exchange listing rules.<br />
a. Should a GBE become aware <strong>of</strong> any information that may have a material effect on<br />
its value and/or performance 4 , that information must be provided immediately to the<br />
Shareholder Minister(s).<br />
b. Directors are required to provide such other information in relation to the GBE’s<br />
operations as the Shareholder Minister(s) require(s), within the time limits set by<br />
the Minister(s).<br />
c. Where there are two Shareholder Ministers, all correspondence and reports from<br />
GBEs should be sent to both Ministers simultaneously. Whilst Shareholder Ministers<br />
will consult in relation to all correspondence, they may decide that, in relation to some<br />
matters, one <strong>of</strong> the Ministers will correspond on behalf <strong>of</strong> both Ministers.<br />
d. The Shareholder Minister(s) may consult with the Prime Minister and/or Treasurer<br />
about any material matter (as defned above) affecting the value <strong>of</strong> the GBE and provide<br />
copies <strong>of</strong> corporate plans, progress reports and correspondence on other major matters<br />
to the Prime Minister and/or the Treasurer for possible comment.<br />
3.20 Additional notifcation requirements are contained in the CAC Act for both GBEs that are<br />
<strong>Commonwealth</strong> authorities, and for GBEs that are <strong>Commonwealth</strong> companies.<br />
3.21 Proposals for signifcant business initiatives 5 should be developed for inclusion in the<br />
normal corporate planning cycle. Should an urgent initiative arise which is unable to<br />
wait for inclusion in the planning cycle, it is to be treated as a notifable signifcant event,<br />
pursuant to section the CAC Act. GBEs are required to notify the Shareholder Minister(s)<br />
prior to entering into any identifed business opportunities. These should include, but not<br />
be limited to, new business ventures, major contracts and capital raising proposals.<br />
3.22 Unless otherwise agreed, GBE boards are required to submit all business cases outlining<br />
new proposals to the Shareholder Minister(s) for consideration. GBEs should distinguish<br />
between business cases that relate to core business and those that relate to non-core<br />
business. The threshold dollar value for consultation for proposed non-core business<br />
opportunities will be lower than that for core business opportunities and are to be agreed<br />
in consultation between the board and the Shareholder Minister(s) as part <strong>of</strong> the annual<br />
corporate planning process. As a minimum, business cases should address the following:<br />
a. the rationale for the project and an explanation <strong>of</strong> how it fts into the GBE’s<br />
corporate strategy;<br />
b. cost, anticipated return (net present value), the effect on shareholder value and some<br />
measure <strong>of</strong> the project’s risk;<br />
c. key assumptions around revenue and costs (including base case, scenarios and<br />
sensitivity analysis), plus key risks and mitigation strategies;<br />
d. proposed funding strategy;<br />
e. the impact on the GBE’s capital structure and credit rating (if applicable);and<br />
f. expected outcome, and impact on future dividends.<br />
Exposure Draft<br />
4 Finance considers 5% <strong>of</strong> the GBE’s commercial value is an appropriate threshold.<br />
5 Finance considers a threshold value <strong>of</strong> 5% <strong>of</strong> total shareholder equity for larger GBEs and 10% <strong>of</strong> total shareholder value for small GBEs.
3.23 GBEs should allow a reasonable amount <strong>of</strong> time (not less than 10 working days) for the<br />
Shareholder Minister(s) and their department(s) to respond to any business case, and<br />
factor that into the decision making timeframe.<br />
3.24 All business case proposals, subsequent updates and supplementary information are<br />
confdential to the Shareholder Minister(s), their advisers and department(s).<br />
3.25 The Shareholder Minister(s) may, in consultation with the board, establish further guidance<br />
and limits on the activities <strong>of</strong> a GBE. This will be documented in the form <strong>of</strong> a Commercial<br />
Freedoms Framework appropriate to the commercial activities, environment and risk pr<strong>of</strong>le<br />
<strong>of</strong> the GBE, having regard to the GBE’s mandate as agreed by the <strong>Government</strong>.<br />
3.26 GBEs are to conduct Annual General Meetings, to which the Shareholder Minister(s)<br />
or their delegate(s) are invited to attend. The focus <strong>of</strong> the meetings will be to discuss<br />
both the board’s and the GBE’s performance over the past year and to engage on the<br />
development <strong>of</strong> strategy going forward.<br />
Exposure Draft<br />
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Part 4 - Financial Governance<br />
Capital Structure and Dividend Policy<br />
4.1 Each GBE should target an optimal capital structure (the combination <strong>of</strong> fnancial liabilities<br />
and equity used to fund the assets <strong>of</strong> the GBE) that is agreed annually between the board<br />
and the Shareholder Minister(s) in the corporate plan consultation process.<br />
a. An optimal capital structure is one that, in light <strong>of</strong> economic, industry and GBE specifc<br />
factors, would provide for an investment grade credit rating, whilst at the same time<br />
imposing a discipline on the GBE to optimise effciency. Finance recommends a target<br />
credit rating <strong>of</strong> BBB.<br />
b. As part <strong>of</strong> developing a target optimal capital structure, consideration will be given<br />
to the forecast level <strong>of</strong> capital expenditure in the GBE’s annual corporate plan, and<br />
appropriate options for funding capital expenditure (including via retained earnings or<br />
debt). Consideration will also be given to longer term objectives outlined in a GBE’s<br />
annual corporate plan.<br />
c. In providing for a GBE to expand its capital base through retained earnings, any proposed<br />
future capital expenditure should add shareholder value. That is, as a minimum, capital<br />
expenditure plans should meet a hurdle rate <strong>of</strong> return that is consistent with the GBE’s<br />
principal fnancial target (Refer 1.8 and 4.7 ‘Financial Targets for GBEs’).<br />
4.2 A GBE’s level <strong>of</strong> estimated dividends (and forecast payout ratio) is to be agreed annually<br />
between the directors and the Shareholder Minister(s) through the corporate plan<br />
consultation process and should have regard to the maintenance <strong>of</strong>, or progress toward, its<br />
optimal capital structure.<br />
a. The level <strong>of</strong> estimated dividends shall be driven by the desired capital structure, the<br />
pr<strong>of</strong>tability <strong>of</strong> the enterprise, and the level <strong>of</strong> agreed future capital expenditure.<br />
b. The proposed dividend payout ratio and estimated dividend payment should be included<br />
in the corporate plan for each year covered by the plan.<br />
c. The agreed dividend payout ratio should take account <strong>of</strong> the <strong>Government</strong>’s preference<br />
for dividends over capital gains.<br />
d. Pr<strong>of</strong>ts generated by subsidiaries are to be taken into account in agreeing the level <strong>of</strong><br />
estimated dividends and forecast payout ratio.<br />
4.3 Dividends should be paid in two instalments: an interim dividend and a fnal dividend.<br />
a. Interim dividends are paid by 30 April and fnal dividends by 31 October.<br />
b. The Shareholder Minister(s) may agree on variations to those dates, after consultation<br />
with the Board <strong>of</strong> the GBE.<br />
4.4 Interim and fnal dividends to be paid should be agreed between the board and the<br />
Shareholder Minister(s), as soon as possible after the half yearly progress reports for the<br />
periods ending December and June have been received by the Shareholder Minister(s).<br />
Exposure Draft<br />
4.5 The capital structure <strong>of</strong> a GBE is to be reviewed where the application <strong>of</strong> dividend policy<br />
has not led to, or is unlikely to lead to, an optimal capital structure within a reasonable<br />
period <strong>of</strong> time.<br />
4.6 Dividend policy for partly owned GBEs should have regard to the above principles, the<br />
extent <strong>of</strong> <strong>Commonwealth</strong> ownership and the views <strong>of</strong> other shareholders.
Financial Targets for GBEs<br />
4.7 All GBEs are required to add to shareholder value in their operations with a view to at least<br />
meeting fnancial targets agreed by the Shareholder Minister(s) in the annual corporate plan.<br />
a. Increases in shareholder value are achieved when the GBE’s weighted average cost <strong>of</strong><br />
capital (WACC) is exceeded, regardless <strong>of</strong> whether or not the target return is reached.<br />
However where a GBE achieves a return which is less than its fnancial target, it has not<br />
achieved the minimum return acceptable to the shareholder, and the shareholder would<br />
expect the adoption <strong>of</strong> strategies aimed at achieving the target.<br />
4.8 Setting appropriate fnancial targets aims to:<br />
a. ensure that GBEs operate and price their goods and services effciently; and<br />
b. provide an environment for GBEs which is competitively neutral with the private sector<br />
and is consistent with Competitive Neutrality policy.<br />
4.9 GBEs (other than those covered under paragraph 4.10) should target a weighted average<br />
cost <strong>of</strong> capital (WACC). This principal fnancial target requires the GBE to earn returns<br />
suffcient to cover the cost <strong>of</strong> debt and the required return on equity. WACC is used<br />
to estimate the required rate <strong>of</strong> return on total assets, taking into account the different<br />
required rates <strong>of</strong> return attached to the different components <strong>of</strong> the GBE’s capital structure.<br />
a. The cost <strong>of</strong> debt is the expected rate at which the GBE is able to borrow; and<br />
b. The required return on equity is the risk free rate plus a risk premium appropriate to<br />
the GBE.<br />
4.10 For GBEs that are service-based and therefore carry little debt as part <strong>of</strong> their optimal<br />
capital structure, the cost <strong>of</strong> equity element <strong>of</strong> the WACC can be targeted (rather than the<br />
WACC itself) as the principal fnancial target. This target is the risk free rate (government<br />
bond rate) plus a risk premium appropriate to the GBE.<br />
4.11 Any other fnancial targets which might be set for particular GBEs, on a case-by-case<br />
basis consistent with the requirements <strong>of</strong> paragraph 3.3 <strong>of</strong> these Guidelines, should be<br />
consistent with the objective <strong>of</strong> increasing shareholder value. In some cases, such as<br />
for newly established GBEs, it may be appropriate to target the achievement <strong>of</strong> relevant<br />
principal and other fnancial targets over the medium term. Nevertheless, establishing<br />
appropriate fnancial targets is required to drive the decisions <strong>of</strong> the GBE.<br />
4.12 The Shareholder Minister(s) will agree with each GBE the methodology they will use to<br />
measure performance against their principal fnancial target and other fnancial targets.<br />
These measures will be based on shareholder value added and the change in shareholder<br />
value added year-on-year.<br />
4.13 Financial targets should not be adjusted for any unfunded components <strong>of</strong> CSOs.<br />
Rather, any adjustments considered necessary should be made, notionally, to the GBE’s<br />
actual revenues.<br />
Exposure Draft<br />
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Managing Risks<br />
4.14 GBE boards are responsible for managing risks. Boards should therefore establish<br />
processes and practices within the GBE to manage all risks associated with the<br />
GBE´s operations.<br />
4.15 GBE boards should keep the Shareholder Minister(s) informed <strong>of</strong> risk management<br />
strategies by outlining them in corporate plans and progress reports, and other reports<br />
when necessary as outlined in paragraph 3.3 above. In addition, and unless otherwise<br />
qualifed because <strong>of</strong> circumstances applying to a particular GBE, corporate plans and<br />
progress reports should contain a statement from the board that the GBE has appropriate<br />
risk management policies and practices in place and that adequate systems and expertise<br />
are being applied to achieve compliance with those policies and procedures.<br />
4.16 The <strong>Commonwealth</strong>, as a shareholder, is sensitive to commercial risk. In some<br />
circumstances, it may therefore choose to set limits on the activities <strong>of</strong> particular GBEs; for<br />
example on liabilities, fnancial exposures, use <strong>of</strong> derivative instruments, etc.<br />
a. In normal circumstances, a GBE should only use derivative fnancial instruments for the<br />
purpose <strong>of</strong> hedging exposures.<br />
4.17 As a general rule the <strong>Commonwealth</strong> will not provide formal guarantees <strong>of</strong> GBE liabilities.<br />
Accordingly, GBE boards should take this policy into account when making decisions which<br />
affect a GBE’s operations and performance.<br />
a. Guarantees provided in the past continue to apply to existing borrowings until they<br />
mature, in order to protect the interests <strong>of</strong> investors.<br />
4.18 GBE boards are expected to engage in normal tax planning activities that are within<br />
the spirit <strong>of</strong> the law. It is not appropriate for GBEs to lead the market in aggressive tax<br />
planning strategies.<br />
GBE Borrowings<br />
4.19 Ongoing oversight <strong>of</strong> GBE borrowings is an integral part <strong>of</strong> the corporate plan and progress<br />
report processes outlined in Part 3 <strong>of</strong> these Guidelines.<br />
4.20 The <strong>Commonwealth</strong> will consider sanctioning borrowing proposals beyond the frst forward<br />
year for GBEs that have a proven track record <strong>of</strong> good performance and accountability,<br />
and which provide appropriate justifcation (including expected rates <strong>of</strong> return) in corporate<br />
plans to support proposed capital expenditure programs.<br />
4.21 GBEs will usually borrow from fnancial markets. Borrowing from the <strong>Commonwealth</strong><br />
Budget requires the specifc approval <strong>of</strong> the Finance Minister. GBE boards should be<br />
aware that some lenders will want to include in their loan documentation the right to call<br />
up their loan(s) if the control <strong>of</strong> the GBE changes. The Shareholder Minister(s) prefer(s) that<br />
GBE boards do not agree to such clauses being included in loan documentation or to any<br />
other clauses that would be triggered, at the lender’s discretion, by an ownership change.<br />
4.22 Wholly-owned GBEs should generally avoid issuing debt securities that would bring them<br />
within the defnition <strong>of</strong> “disclosing entity” under the Corporations Act.<br />
a. This will minimise the potential for confict between the information provision<br />
requirements <strong>of</strong> the CAC Act, these GBE Guidelines and the Corporations Act.<br />
Exposure Draft
Part 5 - Other Governance Matters<br />
Workplace Relations<br />
5.1 Subject to these Guidelines, GBEs are free to manage relations with their employees<br />
consistent with the Fair Work Act 2009 and in accordance with the following:<br />
a. the CEOs <strong>of</strong> GBEs are, with limited exceptions, covered by the Tribunal’s Principal<br />
Executive Offce (PEO) Classifcation Structure. As such, the Board, where it is the<br />
employing body, may determine remuneration for the <strong>of</strong>fce, consistent with the<br />
PEO framework set by the Tribunal. The Tribunal may seek the views <strong>of</strong> Shareholder<br />
Minister(s) prior to agreeing to any new or changed arrangements to these packages;<br />
b. the Remuneration Tribunal determines the remuneration for GBE directors that is<br />
compatible with their roles and responsibilities, and having regard to, amongst other<br />
things, federal public <strong>of</strong>fces and internal relativities;<br />
c. GBEs are encouraged to apply the government’s workplace relations policy, currently<br />
the Australian <strong>Government</strong> Employment Bargaining Framework; and<br />
d. any matters specifed from time-to-time by the Minister responsible for workplace<br />
relations policy, after consultation with the Prime Minister and the Finance Minister.<br />
Superannuation<br />
5.2 Superannuation arrangements for GBEs are covered by the Superannuation Benefts<br />
(Supervisory Mechanisms) Act 1990 (the Act). GBEs (except with respect to any staff<br />
employed for those employing staff under the Public Service Act 1999) are able to establish<br />
and operate superannuation arrangements <strong>of</strong> their choice, provided that any relevant<br />
prescribed requirements made under the Act are complied with.<br />
Partly Owned GBEs, Partly Owned Subsidiaries <strong>of</strong> GBEs and<br />
Joint Ventures involving GBEs<br />
Partly Owned GBEs<br />
5.3 Where the <strong>Commonwealth</strong> decides to move to, or adopt, partial ownership <strong>of</strong> a GBE these<br />
Guidelines should apply to the maximum extent possible, consistent with minimising the<br />
risk <strong>of</strong> a potential oppression action by minority shareholders under section 232 <strong>of</strong> the<br />
Corporations Act.<br />
5.4 <strong>Government</strong> approval is required for any proposal to set up a partly owned GBE, or to<br />
change <strong>Commonwealth</strong> ownership <strong>of</strong> an existing GBE from whole to partial ownership<br />
(including by the introduction <strong>of</strong> employee share ownership schemes). The approval may<br />
anticipate a continuous process <strong>of</strong> a reduced share or level <strong>of</strong> <strong>Commonwealth</strong> ownership<br />
leading to transfer <strong>of</strong> the controlling interest to other parties and to eventual sale <strong>of</strong> all <strong>of</strong><br />
the <strong>Commonwealth</strong>’s interest.<br />
Exposure Draft<br />
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5.5 Where the government decides to move to partial ownership <strong>of</strong> a GBE in which it is likely to<br />
retain a controlling interest for a period <strong>of</strong> time, the Shareholder Minister(s), in consultation<br />
with the Attorney-General, should, before any shares in the GBE are sold or issued:<br />
a. review any enabling or other relevant legislation and the company constitution or<br />
memorandum and articles <strong>of</strong> association (M&As) <strong>of</strong> the GBE (as applicable), to assess<br />
the extent to which they are consistent with the GBE Guidelines; and<br />
b. provide, through a shareholders´ agreement with potential owners and/or changes to<br />
the enabling legislation and the M&As or company constitution (where applicable),<br />
for the GBE Guidelines to apply to the maximum extent consistent with the policy<br />
objectives the government is pursuing through its movement to partial ownership <strong>of</strong><br />
the GBE.<br />
5.6 In negotiations with potential other owners <strong>of</strong> a GBE that the <strong>Commonwealth</strong> will not<br />
control, the Shareholder Minister(s) should aim to have the GBE Guidelines applied to<br />
the maximum extent possible, having regard to the policy objectives <strong>of</strong> the government in<br />
the circumstances.<br />
Partly Owned Subsidiaries <strong>of</strong> GBEs and Joint Ventures<br />
involving GBEs<br />
5.7 GBEs are generally free to establish partly owned subsidiaries, purchase control <strong>of</strong> other<br />
companies or enter into joint venture arrangements; however under paragraph 3.19 <strong>of</strong><br />
these Guidelines they are required to notify the Shareholder Minister(s) <strong>of</strong> signifcant<br />
proposals to form subsidiaries, joint ventures, etc 6 .<br />
a. When becoming involved in joint ventures, GBEs should generally adopt the<br />
incorporated form or enter into the joint venture through a subsidiary.<br />
5.8 Where a GBE establishes a wholly-owned subsidiary, or purchases a 100% interest in a<br />
company (thereby creating a subsidiary), the board <strong>of</strong> the GBE should ensure, prior to any<br />
move to partial ownership <strong>of</strong> the subsidiary, that no obstacles are present in the company<br />
constitution and any shareholders’ agreement <strong>of</strong> the subsidiary to prevent the GBE from<br />
complying with the GBE Guidelines for as long as the <strong>Commonwealth</strong> has a controlling<br />
interest in the subsidiary through the GBE.<br />
a. Where the GBE has any subsidiary it will ensure that control <strong>of</strong> the affairs <strong>of</strong> that<br />
subsidiary will be exercised by a majority <strong>of</strong> the directors <strong>of</strong> that subsidiary, who<br />
are directors or employees <strong>of</strong> the GBE or have been approved by the Shareholder<br />
Minister(s) for appointment as directors <strong>of</strong> that subsidiary.<br />
5.9 Where a GBE establishes a subsidiary with less than 100% ownership or purchases a<br />
controlling interest in a company with less than a 100% ownership, the directors <strong>of</strong> the<br />
GBE should ensure, primarily through the company constitution and any shareholders´<br />
agreement <strong>of</strong> the subsidiary, that the subsidiary operates so as to enable the GBE to<br />
comply with the GBE Guidelines to the maximum extent possible, for as long as the<br />
<strong>Commonwealth</strong> has a controlling interest in the subsidiary through the GBE, consistent<br />
with not exposing the subsidiary to any signifcant risk <strong>of</strong> successful oppression action by<br />
minority shareholders under section 232 <strong>of</strong> the Corporations Act.<br />
Exposure Draft<br />
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<br />
which a GBE is undertaking equity investment and promotion <strong>of</strong> companies as part <strong>of</strong> its<br />
day-to-day business operations (for example, a GBE which provides fnancial services as its<br />
core function) provided the Shareholder Minister(s) have notifed the GBE <strong>of</strong> the types <strong>of</strong><br />
investments which are exempt.<br />
5.11 Where a GBE, or one <strong>of</strong> its subsidiaries, becomes involved in a joint venture the GBE<br />
should ensure that the reporting and control arrangements relating to the joint venture<br />
enable the GBE to satisfactorily meet its obligations under the GBE Guidelines.<br />
5.12 The Shareholder Minister(s) should ensure that there are no provisions in enabling<br />
legislation, company constitution, guidelines to directors or shareholders´ agreements <strong>of</strong> a<br />
GBE which would prevent the GBE from complying with the requirements outlined above<br />
relating to subsidiaries and joint ventures.<br />
Arrangements for GBEs Being Established, Sold, Restructured<br />
or Wound Up<br />
5.13 These Guidelines apply in full to a wholly-owned GBE during an establishment, sale<br />
or restructuring, or winding-up process, until the Shareholder Minister(s) decide(s) on<br />
variations to facilitate the establishment, sale/restructuring or winding-up process and to<br />
streamline reporting. The board will be advised <strong>of</strong> variations.<br />
5.14 Where a decision has been taken to sell all or part <strong>of</strong> the <strong>Commonwealth</strong>’s interest in a<br />
GBE, or where the possibilities <strong>of</strong> sale are being explored, the board and management<br />
<strong>of</strong> the GBE are required to provide full co-operation and requested information to the<br />
government during the period leading up to the sale.<br />
Exposure Draft<br />
61
Appendix B:<br />
<strong>Commonwealth</strong> <strong>Government</strong> <strong>Business</strong><br />
<strong>Enterprises</strong> Guidelines June 1997<br />
Exposure Draft<br />
63
Governance Arrangements for <strong>Commonwealth</strong><br />
<strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong><br />
June 1997
Part 1 – Overview<br />
Principles<br />
Application<br />
Mandate and Objectives<br />
Part 2 – Reporting<br />
Corporate Plans<br />
Statements <strong>of</strong> Corporate Intent<br />
Progress Reports<br />
Table <strong>of</strong> Contents<br />
Reports on Operations and Financial Statements<br />
Keeping Shareholder Ministers Informed<br />
Part 3 – Boards <strong>of</strong> Directors<br />
Board Responsibility<br />
Board Appointments and Removal<br />
Part 4 – Financial Governance<br />
Capital Structure and Dividend Policy<br />
Managing Risks<br />
Financial Targets for GBEs<br />
GBE Borrowings<br />
Part 5 – Other Governance Matters<br />
Workplace Relations<br />
Superannuation<br />
Partly Owned GBEs, Partly Owned Subsidiaries <strong>of</strong> GBEs and Joint Ventures<br />
Involving GBEs<br />
Arrangements for GBEs Being Sold or Restructured<br />
Attachment A: Matters for Inclusion in the Statement <strong>of</strong> Corporate Governance<br />
Attachment B: Best practice timetable for GBE reports and dividend
Principles<br />
Part 1 – Overview<br />
1.1 The <strong>Commonwealth</strong>’s relationship to its GBEs is similar to the relationship between<br />
a holding company and its subsidiaries, features <strong>of</strong> which include:<br />
(a) a strong interest in the performance and financial returns <strong>of</strong> the GBE;<br />
(b) reporting and accountability arrangements that facilitate active oversight by<br />
the shareholder; and<br />
(c) action by the shareholder in relation to the strategic direction <strong>of</strong> its GBEs<br />
where it prefers a different direction from the one proposed.<br />
1.2 The <strong>Commonwealth</strong>’s ownership interest is represented by two ‘Shareholder<br />
Ministers’, the portfolio Minister (that is the Minister responsible for the portfolio in<br />
which the GBE is located) and the Finance Minister.<br />
(a) All correspondence, reports, etc from GBEs should be sent to both<br />
Shareholder Ministers simultaneously. Whilst Shareholder Ministers will<br />
consult in relation to all correspondence, they may decide that, in relation to<br />
some matters, one <strong>of</strong> the Shareholder Ministers will correspond on behalf <strong>of</strong><br />
both Ministers.<br />
(b) The Shareholder Ministers may provide copies <strong>of</strong> corporate plans, progress<br />
reports and correspondence on other major matters to the Prime Minister<br />
and/or the Treasurer for possible comment.<br />
1.3 The guiding principles <strong>of</strong> the governance arrangements are:<br />
(a) Shareholder Ministers exercise strategic control consistent with their<br />
accountability to the Parliament and the public.<br />
(b) Shareholder Ministers set clear objectives for GBEs;<br />
i. any Community Service Obligations (CSOs) that a GBE is to undertake<br />
are generally specified through contractual arrangements.<br />
(c) The directors <strong>of</strong> a GBE develop the business strategies and handle the day-today<br />
management policies.<br />
(d) The directors <strong>of</strong> a GBE ensure that:<br />
i. the GBE’s activities are conducted so as to minimise any divergence <strong>of</strong><br />
interests between the GBE and the shareholders;<br />
ii. GBEs are managed in the best interests <strong>of</strong> the shareholders; and<br />
iii. GBEs and their <strong>of</strong>ficers maintain the highest standards <strong>of</strong> integrity,<br />
accountability and responsibility.
(e) Required standards <strong>of</strong> disclosure are satisfied. In particular, timely disclosure<br />
is to be made by GBEs <strong>of</strong> information:<br />
i. which may affect the shareholder value <strong>of</strong> the organisation;<br />
ii. which may influence <strong>Government</strong> decisions in relation to the GBE; or<br />
iii. in which the <strong>Government</strong> has a legitimate interest.<br />
(f) Information is produced for the shareholder and the community according to<br />
the highest standards;<br />
i. where appropriate, information enables ready comparison with other<br />
relevant information.<br />
(g) The Shareholder Ministers must be consulted on matters <strong>of</strong> significance.<br />
Application<br />
1.4 These arrangements apply to:<br />
(a) <strong>Government</strong> <strong>Business</strong> <strong>Enterprises</strong> (GBEs) that are wholly owned by the<br />
<strong>Commonwealth</strong>; and<br />
(b) indirectly, subsidiaries <strong>of</strong> wholly owned GBEs through the governance<br />
arrangements that the wholly owned GBE has with its subsidiaries.<br />
1.5 For partly owned GBEs, the extent to which the governance arrangements apply<br />
will be identified in legislation applying specifically to the GBE, and/or the GBE’s<br />
memorandum and articles <strong>of</strong> association and/or shareholders’ agreement<br />
(see paragraphs 5.3 to 5.12 for more detail).<br />
Mandate and Objectives<br />
1.6 A principal objective for each GBE is that it adds to shareholder value. To achieve<br />
this it is required to:<br />
(a) operate efficiently, that is, at minimum cost for a given scale and quality <strong>of</strong><br />
outputs<br />
(b) price efficiently<br />
i. A GBE should set prices taking into account economic forces, including<br />
the level <strong>of</strong> demand for, and the enterprise’s capacity for and cost <strong>of</strong><br />
supplying, individual goods and services.<br />
ii. The <strong>Government</strong> may impose price conditions on GBEs providing<br />
goods and services in a monopolistic market or CSO goods and services.<br />
Specific arrangements, if needed, would be additional to those arising<br />
from general oversight by the Australian Competition and Consumer<br />
Commission.
(c) earn at least a commercial rate <strong>of</strong> return<br />
i. This means recovering the full cost <strong>of</strong> the resources employed, including<br />
the cost <strong>of</strong> capital.<br />
ii. Each GBE is to work towards a financial target and a dividend policy,<br />
agreed in advance with the Shareholder Ministers, with the financial<br />
target to be set on the basis that each GBE should be required to earn<br />
commercial returns at least sufficient to justify the long-term retention<br />
<strong>of</strong> assets in the business, and to pay commercial dividends from those<br />
1<br />
returns.<br />
1.7 In addition to setting a commercial rate <strong>of</strong> return target, the Shareholder Ministers<br />
may set other financial targets and non-financial targets, for particular GBEs, on a<br />
case-by-case basis.<br />
1.8 A GBE should operate in the industry sector, and provide the goods and services<br />
(including CSOs), that the <strong>Government</strong> has mandated.<br />
(a) The <strong>Government</strong> may impose service quality standards on GBEs providing<br />
goods and services in a monopolistic market or CSO goods and services.<br />
(b) In providing each GBE with a clear mandate and set <strong>of</strong> objectives the<br />
Shareholder Ministers will ensure that the objectives include any requirements<br />
to meet explicitly stated <strong>Government</strong> social and economic objectives.<br />
1.9 The mandate <strong>of</strong> a GBE will be reviewed by the <strong>Government</strong> about every three<br />
years, and consideration given to the rationale for continuing <strong>Commonwealth</strong><br />
ownership <strong>of</strong> the organisation.<br />
1.10 Ministerial directions to GBEs, as prescribed in enabling legislation and company<br />
constitutions, are to be in writing and tabled in both Houses <strong>of</strong> Parliament within<br />
15 sitting days.<br />
1.11 An ultimate objective for each GBE is for it to operate at world best practice.<br />
Corporate Plans<br />
Part 2 – Reporting 2<br />
2.1 The directors <strong>of</strong> a wholly owned GBE must prepare a corporate plan at least once a<br />
year and give it to the Shareholder Ministers.<br />
(a) The plan covers a period <strong>of</strong> at least 3 years.<br />
(b) If the GBE has subsidiaries, the plan covers both the GBE and its subsidiaries.<br />
In particular, for each subsidiary the plan includes details <strong>of</strong> the matters in (d)<br />
below, so far as they are applicable.
(c) The directors keep the Shareholder Ministers informed about:<br />
i. significant changes to the plan; and<br />
ii. matters that arise that might significantly affect the achievement <strong>of</strong><br />
objectives in the plan.<br />
(d) The plan includes details <strong>of</strong> the following matters (so far as they are<br />
applicable):<br />
i. the objectives <strong>of</strong> the GBE;<br />
• including details <strong>of</strong> the broad mandate <strong>of</strong> the GBE, and those<br />
functions that may require its retention as a <strong>Government</strong> owned<br />
organisation;<br />
ii. assumptions about the business environment in which the GBE operates;<br />
iii. the business strategies <strong>of</strong> the GBE;<br />
iv. the investment and financing programs <strong>of</strong> the GBE, including:<br />
• strategies for managing risk; and<br />
• proposed borrowing;<br />
v. financial targets and projections for the GBE;<br />
• with financial projections prepared in the same format as the<br />
progress and final reports — consisting <strong>of</strong> pr<strong>of</strong>it and loss<br />
statement, balance sheet and cash flow statement;<br />
vi. the dividend policy <strong>of</strong> the GBE;<br />
vii. non-financial performance measures for the GBE;<br />
viii. community obligations <strong>of</strong> the GBE, including;<br />
• strategies and policies the GBE is to follow in carrying out those<br />
obligations; and<br />
• estimated costs, including strategies for minimising costs;<br />
ix. review <strong>of</strong> performance (financial and non-financial) against previous<br />
corporate plans and targets;<br />
x. analysis <strong>of</strong> factors likely to affect achievement <strong>of</strong> targets or create<br />
significant financial risk for the GBE or for the <strong>Commonwealth</strong>;<br />
xi. price control and quality control strategies for goods or services supplied<br />
by the GBE in a monopolistic market;<br />
xii. human resource and workplace relations strategies.
(e) The plan also covers any other matters required by the Shareholder Ministers<br />
(which may include further details about the matters in (d) above).<br />
2.2 The Shareholder Ministers may elect to meet with the directors <strong>of</strong> a GBE prior to<br />
the Ministers responding to the corporate plan.<br />
2.3 The response by the Shareholder Ministers will:<br />
(a) include (if necessary) proposed changes to the corporate plan to better reflect<br />
the <strong>Government</strong>’s policies and objectives for the business; and<br />
(b) be within 45 days <strong>of</strong> receipt <strong>of</strong> the plan.<br />
i. It would assist in meeting the timetable for response if drafts <strong>of</strong> the<br />
corporate plan were made available for discussion with departmental<br />
<strong>of</strong>ficers prior to the plan’s endorsement by the Board.<br />
2.4 All corporate plans and subsequent updates, reports or supplementary information<br />
are confidential to the Ministers, their advisers and Departments.<br />
Statements <strong>of</strong> Corporate Intent<br />
2.5 The directors <strong>of</strong> a wholly owned GBE and the Shareholder Ministers agree on a<br />
Statement <strong>of</strong> Corporate Intent (SCI), which shall be a public document.<br />
2.6 The SCI is a brief (no more than five pages), high level, plain English document<br />
expressed in terms <strong>of</strong> outputs or outcomes. It is an integral part <strong>of</strong> the Corporate<br />
Plan, but does not include commercial-in-confidence information. An SCI would<br />
normally contain a business description and mission statement, corporate vision,<br />
objectives, code <strong>of</strong> ethics, statement <strong>of</strong> accountability (including reporting<br />
obligations) and broad expectations on financial and non-financial performance.<br />
2.7 The SCI is tabled in Parliament within fifteen sitting days <strong>of</strong> the Parliament,<br />
following the start <strong>of</strong> the new financial year.<br />
(a) Shareholder Ministers may agree to later tabling, in which case Parliament<br />
would be informed.<br />
3<br />
Progress Reports<br />
2.8 Confidential six monthly reports (or quarterly reports, as agreed from time-to-time<br />
by the Shareholder Ministers) are provided by the directors <strong>of</strong> a wholly owned GBE<br />
to the Shareholder Ministers on progress against, and any changes to, the corporate<br />
plan.<br />
(a) Progress reports include financial statements, the format <strong>of</strong> which is approved<br />
by the Finance Minister.<br />
2.9 The Shareholder Ministers may elect to comment on the report. Any response is<br />
provided by the Ministers within 45 days <strong>of</strong> receipt <strong>of</strong> the progress report.
2.10 All progress reports are confidential to the Ministers, their advisers and<br />
Departments.<br />
Reports on Operations and Financial Statements<br />
2.11 The directors <strong>of</strong> a GBE are required to provide an annual report, or the annual<br />
general meeting documents, to the Shareholder Ministers. The portfolio Minister<br />
tables the report or documents in each House <strong>of</strong> the Parliament.<br />
(a) Where a GBE is a statutory authority the annual report, or the financial<br />
statements included therein, is prepared in accordance with guidance<br />
promulgated by the Finance Minister.<br />
(b) Where a GBE is a company, the annual report is prepared in accordance with<br />
the Corporations Law.<br />
i. The annual report <strong>of</strong> a company GBE should include a statement <strong>of</strong> the<br />
main corporate governance practices that the GBE had in place during<br />
the reporting period, similar to that required by the Australian Stock<br />
Exchange (ASX) listing rules. An indicative list <strong>of</strong> matters that a GBE<br />
may include when making the statement is included at Attachment A.<br />
2.12 Financial statement <strong>of</strong> GBEs and their subsidiaries, associated with annual reports,<br />
annual general meeting documents, or interim reports, are audited, or reported on,<br />
4<br />
by the Auditor-General.<br />
2.13 The Auditor-General may conduct a performance audit <strong>of</strong> a wholly owned GBE, or<br />
any <strong>of</strong> its subsidiaries, in certain circumstances.<br />
2.14 The Finance Minister may require:<br />
(a) the directors <strong>of</strong> a wholly owned GBE to prepare an interim report covering<br />
operations for the first six months, or for the first three, six and nine months <strong>of</strong><br />
each financial year; and<br />
(b) to provide it to the portfolio Minister within 2 months after the end <strong>of</strong> the<br />
period to which the report relates.<br />
2.15 The portfolio Minister tables the interim report in each House <strong>of</strong> Parliament.<br />
2.16 The Shareholder Ministers assess the financial performance <strong>of</strong> all GBEs on a regular<br />
basis and may write to a GBE about issues identified in such assessments.
Keeping Shareholder Ministers Informed<br />
2.17 The directors <strong>of</strong> a wholly owned GBE should follow a disclosure principle which is<br />
similar to the continuous disclosure requirements <strong>of</strong> the Australian Stock Exchange<br />
listing rules: once a GBE comes aware <strong>of</strong> any information that may have a material<br />
effect on its value, that information must be immediately provided to the<br />
Shareholder Ministers.<br />
(a) Wholly owned GBEs should generally avoid issuing debt securities that would<br />
bring them within the definition <strong>of</strong> "disclosing entity" under the Corporations<br />
Law. This will minimise the potential for conflict between the proposed<br />
<strong>Commonwealth</strong> Authorities and Companies Act 1997 (CAC Act) and<br />
section 1001A(1) <strong>of</strong> the Corporations Law.<br />
2.18 If a wholly owned GBE, or any <strong>of</strong> its subsidiaries, proposes to participate, change or<br />
dispose <strong>of</strong> an interest in a company, significant business, significant partnership,<br />
trust, unincorporated joint venture or similar arrangement, the directors should<br />
immediately give the Shareholder Ministers written particulars <strong>of</strong> the proposal.<br />
(a) The Shareholder Ministers may give written guidelines to the directors that are<br />
to be used by the directors in deciding whether a proposal requires<br />
consultation with the Ministers.<br />
(b) When becoming involved in joint ventures, GBEs should generally adopt the<br />
incorporated form, or enter into the joint venture through a subsidiary.<br />
2.19 The directors <strong>of</strong> a wholly owned GBE are required to keep the Shareholder<br />
Ministers informed <strong>of</strong> the operations <strong>of</strong> the GBE and its subsidiaries, and to give the<br />
Ministers such information in relation to those operations as the Shareholder<br />
Ministers require, within the time limits set by the Ministers.<br />
Board Responsibility<br />
Part 3 – Boards <strong>of</strong> Directors<br />
3.1 The general conduct <strong>of</strong> directors is subject to the provisions <strong>of</strong> the Corporations<br />
Law (for company GBEs) and the proposed CAC Act ( for statutory authority<br />
GBEs). The latter provisions are based on the Corporations Law. Both sets <strong>of</strong><br />
provisions include penalties for misconduct.<br />
3.2 Boards have absolute responsibility for the performance <strong>of</strong> the GBE, and are fully<br />
accountable for this to the Shareholder Ministers.<br />
3.3 Board members have their fiduciary and other duties drawn to their attention by<br />
Shareholder Ministers in, or with correspondence <strong>of</strong>fering appointment, and are to<br />
fully accept the individual responsibility this places on them.
Board Appointments and Removal<br />
3.4 GBE Boards <strong>of</strong> directors are to comprise people with an appropriate mix <strong>of</strong> skills,<br />
who are to be appointed on the basis <strong>of</strong> their individual capacity to contribute to the<br />
Board having an appropriate balance <strong>of</strong> relevant skills (such as commerce, finance,<br />
accounting, law, marketing, workplace relations and management) and contribute to<br />
the achievement <strong>of</strong> the GBE’s objectives.<br />
(a) Boards should draw on outside expertise where necessary to augment their<br />
own skills.<br />
(b) The Board Chairperson shall not also be an executive <strong>of</strong> the GBE, unless<br />
otherwise agreed by the Shareholder Ministers.<br />
(c) The appointment <strong>of</strong> departmental <strong>of</strong>ficers to GBE Boards will only be<br />
considered in exceptional circumstances, having regard to their ability to<br />
represent the interests <strong>of</strong> the <strong>Government</strong>, their possession <strong>of</strong> the business<br />
skills referred to above, and to any potential conflicts <strong>of</strong> interest that might<br />
arise.<br />
3.5 The Board Chairperson shall head a Board Nomination and Remuneration<br />
Committee, which shall, through the Board, provide Shareholder Ministers with a<br />
list <strong>of</strong> suitable candidates for Board membership.<br />
(a) Shareholder Ministers may elect to appoint a candidate not proposed by the<br />
Committee.<br />
(b) Shareholder Ministers shall consult with the Prime Minister and the Treasurer<br />
on all Board appointments.<br />
3.6 The Remuneration Tribunal determines the remuneration for the directors that is<br />
compatible with their responsibilities, and having regard to, amongst other things,<br />
rates paid by the private sector.<br />
3.7 Board appointments should normally be for terms <strong>of</strong> three years. The Board<br />
Nomination and Remuneration Committee is free to include retiring Directors in its<br />
list <strong>of</strong> candidates.<br />
3.8 Shareholder Ministers may, at their discretion, remove directors prior to the<br />
completion <strong>of</strong> their term <strong>of</strong> appointment.<br />
(a) In the event that a GBE is not performing satisfactorily, the Shareholder<br />
Ministers will initiate prompt remedial action. Dismissal <strong>of</strong> the directors<br />
would be considered, particularly in any case <strong>of</strong> failure to keep Ministers<br />
adequately informed, and in situations <strong>of</strong> ongoing under-performance in<br />
respect <strong>of</strong> financial or other aspects <strong>of</strong> the operations <strong>of</strong> the business.<br />
3.9 The Board should consult the Shareholder Ministers about its preferred candidate<br />
for the position <strong>of</strong> Chief Executive Officer (CEO) and provide sufficient time for<br />
the Shareholder Ministers to respond prior to an appointment being made. The CEO<br />
is directly accountable to the Board.
Part 4 – Financial Governance<br />
Capital Structure and Dividend Policy<br />
4.1 Each GBE should have a target optimal capital structure (the combination <strong>of</strong><br />
financial liabilities and equity used to fund the assets <strong>of</strong> the GBE) that is agreed<br />
annually between the directors and the Shareholder Ministers in the corporate plan<br />
consultation process. An optimal capital structure is one that, in light <strong>of</strong> economic,<br />
industry and firm specific factors, would provide for an investment grade credit<br />
rating, whilst at the same time imposing a discipline on the GBE to optimise<br />
efficiency.<br />
4.2 A GBE’s level <strong>of</strong> estimated dividends (and forecast payout ratio) is to be agreed<br />
annually between the directors and the Shareholder Ministers through the corporate<br />
plan consultation process and should have regard to the maintenance <strong>of</strong>, or progress<br />
toward, its optimal capital structure.<br />
(a) In that context, the level <strong>of</strong> estimated dividends shall be driven by the desired<br />
capital structure, the pr<strong>of</strong>itability <strong>of</strong> the enterprise, and the level <strong>of</strong> agreed<br />
future capital expenditure.<br />
(b) The proposed dividend payout ratio and estimated dividend payment should<br />
be included in the corporate plan for each year covered by the plan.<br />
4.3 In providing for a GBE to expand its capital base through retained earnings, any<br />
proposed future capital expenditure should add shareholder value. That is, as a<br />
minimum, capital expenditure plans must meet a hurdle rate <strong>of</strong> return that is<br />
consistent with the GBE’s principal financial target (as discussed under the<br />
subheading "Financial Targets for GBEs").<br />
4.4 The agreed dividend payout ratio should take account <strong>of</strong> the <strong>Government</strong>’s<br />
preference for dividends over capital gains (a payout ratio greater than 60% <strong>of</strong><br />
pr<strong>of</strong>its after tax and abnormals would reflect that preference), but the payout for<br />
each year and for each GBE should relate principally to the considerations described<br />
in paragraph 4.2 above.<br />
4.5 Dividends should be paid in two instalments: an interim dividend and a final<br />
dividend.<br />
(a) Interim dividends are paid by 30 April and final dividends by 31 October.<br />
(b) The Shareholder Ministers may agree on variations to those dates, after<br />
consultation with the directors <strong>of</strong> the GBE.<br />
4.6 Interim and final dividends to be paid should be agreed between the directors and<br />
the Shareholder Ministers, as soon as possible after the half yearly progress reports<br />
for the periods ending December and June have been received by the Shareholder<br />
Ministers.
4.7 The capital structure <strong>of</strong> a GBE is to be reviewed where the application <strong>of</strong> dividend<br />
policy has not lead to, or is unlikely to lead to an optimal capital structure within a<br />
reasonable period <strong>of</strong> time.<br />
4.8 Dividend policy for partly owned GBEs should have regard to the above principles,<br />
the extent <strong>of</strong> <strong>Government</strong> ownership and the views <strong>of</strong> other shareholders.<br />
Managing Risks<br />
4.9 Directors are responsible for managing risks. Directors should therefore establish<br />
processes and practices within the GBE to manage all risks associated with the<br />
GBE’s operations.<br />
4.10 Directors should keep the Shareholder Ministers informed <strong>of</strong> risk management<br />
strategies by outlining them in corporate plans and progress reports, and other<br />
reports when necessary. In addition, and unless otherwise qualified because <strong>of</strong><br />
circumstances applying to a particular GBE, corporate plans and progress reports<br />
should contain a statement from the Board that the Board has appropriate risk<br />
management policies and practices in place and that adequate systems and expertise<br />
are being applied to achieve compliance with those policies and procedures.<br />
4.11 The <strong>Government</strong>, as a shareholder, is sensitive to commercial risk. In some<br />
circumstances, it may therefore choose to set limits on the activities <strong>of</strong> particular<br />
GBEs; for example on liabilities, financial exposures, use <strong>of</strong> derivative instruments,<br />
etc.<br />
(a) In normal circumstances, a GBE should only use derivative financial<br />
instruments for the purpose <strong>of</strong> hedging exposures.<br />
(b) Shareholder Ministers may require the Board <strong>of</strong> a GBE to provide a risk<br />
management plan, the contents to be agreed on a case-by-case basis.<br />
4.12 As a general rule the <strong>Government</strong> will not provide formal guarantees <strong>of</strong> GBE<br />
liabilities. Accordingly, directors should take this policy into account when making<br />
decisions which affect a GBE’s operations and performance.<br />
(a) Guarantees provided in the past continue to apply to existing borrowings until<br />
they mature, in order to protect the interests <strong>of</strong> investors.<br />
(b) The enabling legislation <strong>of</strong> public financial enterprises currently provide for<br />
statutory guarantees <strong>of</strong> most <strong>of</strong> the obligations <strong>of</strong> those enterprises.<br />
Financial Targets for GBEs<br />
4.13 All GBEs are required to add to shareholder value in their operations with a view to<br />
at least meeting a financial target agreed by the Shareholder Ministers.<br />
(a) Increases in shareholder value are achieved when the return on assets is<br />
increased, regardless <strong>of</strong> whether or not the target is reached. However where a<br />
GBE achieves a return which is less than its financial target, it has not<br />
achieved the minimum return acceptable to the shareholder, and the
shareholder would expect the adoption <strong>of</strong> strategies aimed at achieving the<br />
target.<br />
4.14 Setting an appropriate financial target aims to:<br />
(a) replicate the discipline that the threat <strong>of</strong> takeover would exert over the<br />
directors and managers <strong>of</strong> a firm owned by the private sector; and<br />
(b) provide an environment for GBEs which is competitively neutral with the<br />
private sector.<br />
4.15 For GBEs that are classified as trading GBEs, the target is the weighted average cost<br />
<strong>of</strong> capital (WACC).<br />
(a) This target requires the GBE to earn returns sufficient to cover the cost <strong>of</strong><br />
debt and the required return on equity. WACC is used to estimate the<br />
required rate <strong>of</strong> return on total assets, taking into account the different<br />
required rates <strong>of</strong> return attached to the different components <strong>of</strong> the<br />
company’s capital structure.<br />
i. The cost <strong>of</strong> debt is the expected rate at which the GBE is able to borrow.<br />
ii. The required return on equity is the risk free rate plus the proportion <strong>of</strong><br />
market risk premium appropriate to the GBE.<br />
4.16 For GBEs that are classified as financial GBEs, the target is a return on equity.<br />
(a) This target is the risk free rate plus the proportion <strong>of</strong> market risk premium<br />
appropriate to the GBE.<br />
4.17 Any other financial targets which might be set for particular GBEs, on a case-bycase<br />
basis, should be consistent with the objective <strong>of</strong> increasing shareholder value.<br />
Measuring against targets<br />
4.18 Shareholder Ministers will agree with each GBE the methodology they will use as<br />
their measure for performance against the WACC, or return on equity, as<br />
appropriate. This measure will be based on shareholder value added and the change<br />
in shareholder value added year-on-year.<br />
4.19 The basic methodology is outlined in An Economic Framework for Assessing the<br />
Financial Performance <strong>of</strong> <strong>Government</strong> Trading <strong>Enterprises</strong>, Steering Committee on<br />
National Performance Monitoring <strong>of</strong> <strong>Government</strong> Trading <strong>Enterprises</strong>, July 1996,<br />
which draws on material provided by the Industry Commission.<br />
4.20 Financial targets should not be adjusted for any unfunded components <strong>of</strong> CSOs.<br />
Rather, any adjustments considered necessary should be made, notionally, to the<br />
organisation’s actual revenues.
GBE Borrowings<br />
4.21 Ongoing oversight <strong>of</strong> GBE borrowings is an integral part <strong>of</strong> the corporate plan and<br />
progress report processes outlined in paragraphs 2.1 to 2.10 above.<br />
4.22 The <strong>Government</strong> will consider supporting borrowing proposals beyond the first<br />
forward year for GBEs that have a proven track record <strong>of</strong> good performance and<br />
accountability, and which provide appropriate justification (including expected rates<br />
<strong>of</strong> return) in corporate plans to support proposed capital expenditure programs.<br />
4.23 GBEs will usually borrow from financial markets. Borrowing from the<br />
<strong>Commonwealth</strong> Budget requires the specific approval <strong>of</strong> the Finance Minister.<br />
4.24 Wholly owned GBEs should generally avoid issuing debt securities that would bring<br />
them within the definition <strong>of</strong> "disclosing entity" under the Corporations Law.<br />
(a) This will minimise the potential for conflict between the proposed CAC Act<br />
and section 1001A(1) <strong>of</strong> the Corporations Law.<br />
Part 5 – Other Governance Matters<br />
Workplace Relations<br />
5.1 Subject to these governance arrangements, GBEs are free to manage relations with<br />
their employees consistent with the Workplace Relations Act 1996 and in<br />
accordance with the following:<br />
(a) the Board <strong>of</strong> each GBE is required to consult with the Remuneration Tribunal<br />
in determining remuneration packages for Chief Executive Officers;<br />
(b) the Remuneration Tribunal determines the remuneration for the directors that<br />
is compatible with their responsibilities, and having regard to, amongst other<br />
things, rates paid by the private sector; and<br />
(c) any matters specified from time-to-time by the Minister for Industrial<br />
Relations, after consultation with the Prime Minister and the Finance Minister.<br />
Superannuation<br />
5.2 Superannuation arrangements for GBEs are covered by the Prescribed Requirements<br />
regime determined under the Superannuation Benefits (Supervisory Mechanisms)<br />
Act 1990. Under the Prescribed Requirements regime GBEs (except for those<br />
employing staff under the Public Service Act 1922) are able to establish and operate<br />
superannuation arrangements <strong>of</strong> their choice. Accountability to the <strong>Government</strong> is<br />
satisfied by GBEs submitting detailed annual reports to the <strong>Government</strong> on their<br />
superannuation arrangements.
Partly Owned GBEs, Partly Owned Subsidiaries <strong>of</strong> GBEs and<br />
Joint Ventures Involving GBEs<br />
Partly Owned GBEs<br />
5.3 Where the <strong>Commonwealth</strong> decides to move to, or adopt, partial ownership <strong>of</strong> a GBE<br />
the GBE governance arrangements should apply to the maximum extent possible,<br />
consistent with minimising the risk <strong>of</strong> a potential oppression action by minority<br />
shareholders under section 260 <strong>of</strong> the Corporations Law.<br />
5.4 <strong>Government</strong> approval is required <strong>of</strong> any proposal to set up a partly owned GBE, or<br />
to change <strong>Commonwealth</strong> ownership <strong>of</strong> an existing GBE from whole to partial<br />
ownership (including the introduction <strong>of</strong> employee share ownership schemes). The<br />
approval may anticipate a continuous process <strong>of</strong> a reduced share or level <strong>of</strong><br />
<strong>Commonwealth</strong> ownership leading to transfer <strong>of</strong> the controlling interest to other<br />
parties and to eventual sale <strong>of</strong> all <strong>of</strong> the <strong>Commonwealth</strong>’s interest.<br />
5.5 Where Cabinet decides to move to partial ownership <strong>of</strong> a GBE in which it is likely<br />
to retain a controlling interest for a period <strong>of</strong> time, the Shareholder Ministers, in<br />
consultation with the Attorney-General, should, before any shares in the GBE are<br />
sold or issued:<br />
(a) review any enabling or other relevant legislation and the memorandum and<br />
articles <strong>of</strong> association (M&As) <strong>of</strong> the GBE, to assess the extent to which they<br />
are consistent with the GBE governance arrangements; and<br />
(b) provide, through a shareholders’ agreement with potential owners and/or<br />
changes to the enabling legislation and the M&As, for the GBE governance<br />
arrangements to apply to the maximum extent consistent with the policy<br />
objectives the <strong>Government</strong> is pursuing through its movement to partial<br />
ownership <strong>of</strong> the GBE.<br />
5.6 In negotiations with potential other owners <strong>of</strong> a GBE that the <strong>Commonwealth</strong> will<br />
not control, the Shareholder Ministers should aim to have the GBE governance<br />
arrangements applied to the maximum extent, having regard to the policy objectives<br />
<strong>of</strong> the <strong>Government</strong> in the circumstances.<br />
Partly owned Subsidiaries <strong>of</strong> GBEs and Joint Ventures involving GBEs<br />
5.7 GBEs are generally free to establish partly owned subsidiaries, purchase a<br />
controlling interest in other companies or enter into joint venture arrangements;<br />
however under paragraph 2.18 <strong>of</strong> the GBE governance arrangements they are<br />
required to notify the Shareholder Ministers <strong>of</strong> significant proposals to form<br />
subsidiaries, joint ventures, etc.<br />
(a) When becoming involved in joint ventures, GBEs should generally adopt the<br />
incorporated form or enter into the joint venture through a subsidiary.<br />
5.8 Where a GBE establishes a fully owned subsidiary, or purchases a 100% interest in<br />
a company (thereby creating a subsidiary), the directors <strong>of</strong> the GBE should ensure,<br />
prior to any move to partial ownership <strong>of</strong> the subsidiary, that no obstacles are
present in the M&As and any shareholders’ agreement <strong>of</strong> the subsidiary to prevent<br />
the GBE from complying with the GBE governance arrangements for as long as the<br />
<strong>Commonwealth</strong> has a controlling interest in the subsidiary through the GBE.<br />
5.9 Where a GBE establishes a subsidiary with less than 100% ownership or purchases<br />
a controlling interest in a company with less than a 100% ownership, the directors<br />
<strong>of</strong> the GBE should ensure, primarily through the M&As and any shareholders’<br />
agreement <strong>of</strong> the subsidiary, that the subsidiary operates so as to enable the GBE to<br />
comply with the GBE governance arrangements to the maximum extent possible,<br />
for as long as the <strong>Commonwealth</strong> has a controlling interest in the subsidiary through<br />
the GBE, consistent with not exposing the subsidiary to any significant risk <strong>of</strong><br />
successful oppression action by minority shareholders under section 260 <strong>of</strong> the<br />
Corporations Law.<br />
5.10 The above requirements relating to GBEs establishing subsidiaries do not apply to<br />
cases in which a GBE is undertaking equity investment and promotion <strong>of</strong> companies<br />
as part <strong>of</strong> its day-today business operations (for example, a GBE which provides<br />
financial services as its core function) provided the Shareholder Ministers have<br />
notified the GBE <strong>of</strong> the types <strong>of</strong> investments which are exempt.<br />
5.11 Where a GBE, or one <strong>of</strong> its subsidiaries, becomes involved in a joint venture the<br />
GBE should ensure that the reporting and control arrangements relating to the joint<br />
venture enable the GBE to satisfactorily meet its obligations under the GBE<br />
governance arrangements.<br />
5.12 The Shareholder Ministers, in consultation with the Attorney-General, should<br />
ensure that there are no provisions in enabling legislation, M&As, guidelines to<br />
directors or shareholders’ agreements <strong>of</strong> a GBE which would prevent the GBE from<br />
complying with the requirements outlined above relating to subsidiaries and joint<br />
ventures.<br />
Arrangements for GBEs Being Sold or Restructured<br />
5.13 The governance arrangements apply in full to a wholly owned GBE during a sale or<br />
restructuring process, until the Shareholder Ministers decide on variations to<br />
facilitate the sale/restructuring process and to streamline reporting. The directors<br />
will be advised <strong>of</strong> variations.<br />
5.14 Where a decision has been taken to sell all or part <strong>of</strong> the <strong>Commonwealth</strong>’s interest<br />
in a GBE, or where the possibilities <strong>of</strong> sale are being explored, the directors and<br />
management <strong>of</strong> the GBE are required to provide full co-operation and requested<br />
information to the <strong>Government</strong> during the period leading up to the sale.<br />
Footnotes:<br />
1 Details on financial targets are provided in paragraphs 4.13 to 4.17; details on dividends are provided in<br />
paragraphs 4.1 to 4.8.<br />
2 A best practice reporting timetable is at Attachment B.<br />
3 Progress reports are distinct from the interim reports to Parliament (see paragraphs 2.14 and 2.15).<br />
4 Interim reports are discussed in paragraphs 2.14 to 2.15.
Attachment A<br />
Matters for Inclusion in the Statement <strong>of</strong> Corporate<br />
Governance<br />
The following is an indicative list <strong>of</strong> matters that a GBE may include when making the<br />
corporate governance statement required under paragraph 2.11 <strong>of</strong> these arrangements:<br />
(a) whether individual directors, including the Chair, are executive or non-executive<br />
directors;<br />
(b) the names and positions in relation to the GBE <strong>of</strong> the members <strong>of</strong> the Board<br />
Nomination and Remuneration Committee;<br />
(c) the main procedures for establishing and reviewing the compensation<br />
arrangements for the directors <strong>of</strong> the GBE;<br />
(d) the main procedures by which the Board, or members <strong>of</strong> it, can seek independent<br />
pr<strong>of</strong>essional advice, at the GBE’s expense, in carrying out their duties;<br />
(e) the Board’s approach to identifying areas <strong>of</strong> significant business risk, and to<br />
putting arrangements in place to manage them; and<br />
(f) the GBE’s policy on the establishment and maintenance <strong>of</strong> appropriate ethical<br />
standards.
Best practice timetable for GBE reports and<br />
dividends 5<br />
Date Item Comment<br />
Attachment B<br />
by 31 July Final corporate plan Submitted to Shareholder Ministers.<br />
Final statement <strong>of</strong> Signed by Shareholder Ministers and<br />
corporate intent the Chairman <strong>of</strong> the Board.<br />
by 31 August Progress report — June Submitted to Shareholder Ministers.<br />
quarterly or half yearly Quarterly reports submitted on an<br />
report<br />
exceptions basis.<br />
by 30 September Annual report Forwarded to Shareholder Ministers for<br />
tabling in Parliament.<br />
by 31 October Final dividend paid<br />
by 11 November Progress report — Submitted to Shareholder Ministers on<br />
September quarterly<br />
report<br />
an exceptions basis.<br />
by 11 February Progress report — Submitted to Shareholder Ministers.<br />
December quarterly or Quarterly reports submitted on an<br />
half yearly report exceptions basis.<br />
by 30 April Interim dividend paid<br />
by 12 May Progress report — Submitted to Shareholder Ministers on<br />
March quarterly report an exceptions basis.<br />
by 31 May Corporate plan Submitted to Shareholder Ministers for<br />
comment. Shareholder Ministers to<br />
respond by 15 July.<br />
Statement <strong>of</strong> corporate Submitted to Shareholder Ministers for<br />
intent<br />
comment. Shareholder Ministers to<br />
respond by 15 July.<br />
Attachment Footnote:<br />
5 Variations to time may be agreed between the Shareholder Ministers and the directors, on a case-by-case<br />
basis.