Policy Update
Changes to Corporate Governance Principles
On 30 June, the ASX Corporate Governance Council released final changes to the Corporate Governance Principles and Recommendations relating to diversity, remuneration committees, trading policies and analyst briefings.
We were closely involved with the deliberations on the council regarding the changes. In May, we lodged submissions outlining our support for the council’s proposed amendments and also suggested a number of further additions to the Principles and Recommendations to encourage companies to provide greater transparency around the processes which are adopted in searching for and selecting new directors to the board.
We were pleased to note that our comments and feedback were considered and incorporated into the final version of the principles. Our suggestion that companies provide greater transparency around their selection processes was adopted by the council almost word-for-word (and now appears in the commentary to Recommendation 2.4 in the new guidelines).
OECD Guidelines for Multinational Enterprises
We recently attended a stakeholder roundtable event with the Department of Treasury to champion the director perspective for the upcoming review of the OECD Guidelines for Multinational Enterprises.
The guidelines are recommendations addressed by governments to multinational enterprises operating in or from adhering countries. They provide voluntary principles and standards for responsible business conduct in areas such as employment and industrial relations, environment, information disclosure, consumer interests, competition and taxation.
Terms of Reference for the review were agreed on in May 2010 by the 42 governments adhering to the guidelines.
Corporate Reporting Reform passed
Directors from a range of companies are now able to reap the benefits of long-awaited corporate reporting reforms, which passed through both houses of Federal Parliament on 24 June.
Not-for-profit (NFP) companies will be the winners under the legislation with some public companies limited by guarantee no longer required to prepare annual reports or to have their financial reports audited.
Contained in the Corporations Amendment (Corporate Reporting Reform) Bill, the reforms are expected to be taken advantage of by companies with financial year ends of 30 June 2011. They include the introduction of a three-tiered differential reporting framework for public companies limited by guarantee, the preferred structure for many NFPs.
Under the first tier of the framework, small companies limited by guarantee (those without deductible gift recipient status and with revenue below $250,000) will not have to do the following unless required to do so by a member direction or by the Australian Securities and Investments Commission:
- Prepare a financial report;
- Prepare a directors’ report;
- Have financial reports
audited; or
- Notify members of reports.
Under the second tier, companies limited by guarantee with annual revenue of less than $1 million, which do not meet the criteria to be a small company limited by guarantee, must continue to prepare financial reports, but may elect to have their financial report reviewed rather than audited and will be able to prepare a less detailed directors’ report.
Companies limited by guarantee and with revenue of $1 million or more will make up the third tier. These companies must still prepare a financial report and have it audited, but they will benefit from being able to prepare a less detailed directors’ report. Companies in both the second and third tier will also only be required to give reports to members who elect to receive them.
As a result of the reforms, a new requirement has been added to the directors’ declaration. Going forward, if a company has made an explicit and unreserved statement of compliance with International Financial Reporting Standards (IFRS) in the notes to the accounts, the directors’ declaration must specifically point out that this statement has been included in the notes to the financial statements.
The reforms also change the test for paying dividends. Companies will only be able to pay a dividend when:
- The company’s assets exceed its liabilities;
- The payment of the dividend is fair and reasonable to the company’s shareholders as a whole; and
- The payment of the dividend does not materially prejudice the company’s ability to pay its creditors.
For the purpose of this test, assets and liabilities are to be calculated in accordance with accounting standards.
While we have long advocated for the removal of the profits test for the payment of dividends, we have expressed concerns to the Minister for Corporate Law Chris Bowen about the introduction of the new test. As a result of the new test, small companies that are not required to prepare their financial statements in compliance with IFRS will need to consider and apply IFRS before paying a dividend. We continue to press the Government to amend the new test.
The reforms also include changes to streamline parent-entity reporting. Under the new provisions, where the accounting standards require an entity to prepare financial statements in relation to a consolidated entity, separate financial statements will not need to be prepared in relation to the parent entity itself. The reforms also include provisions that will make it easier for companies to change their year end date.
More women on ASX 200 boards
On 25 June, we announced an increase in the number of women appointed to ASX 200 boards. While we admit there is still a long way to go, our calculations show that so far in 2010,
24 per cent of all ASX 200 board appointees were female, compared to just five per cent in 2009 and eight per cent in 2007 and 2008.
In less than six months this year, 24 women have been appointed to ASX 200 boards, compared to only 10 for the whole of 2009. The percentage of women on ASX 200 boards rose from 8.3 per cent at the beginning of this year to
9.2 per cent as at 25 June.
The new figures were based on our analysis of ASX data.
Health Roundtable
Given the uncertainty caused by the Government’s major reform agenda for the healthcare system, the Australian Institute of Company Directors and Thomson Playford Cutlers convened a roundtable discussion in June.
A diverse array of stakeholders attended to discuss a range of complex issues and a workable governance model for the National Health and Hospitals Network established by the Council of Australian Governments. Participants highlighted the challenges, opportunities and uncertainties presented by this major reform.
Directors expressed a range of views about how best to take advantage of the opportunities presented in a climate of uncertainty. They debated if there were ways the industry could influence the decisions being made so that the resulting reform could achieve the best possible outcomes. Diversifying funding streams, exploring international opportunities and seeking innovative approaches within the sector and with other sectors were discussed.
Rob Elliott FAICD
General manager policy and General Counsel
Australian Institute of Company Directors