Organisation for Economic Cooperation and Development OECD

  • Date:14 May 2004
  • Type:Policy & Advocacy: Submission
OECD Principles of Corporate Governance: Australian Institute of Company Directors feedback
8 January 2004
Andrew Sellars
Department of the Treasury
Parkes Place
PARKES ACT 2600

OECD Principles of Corporate Governance: Australian Institute of Company Directors feedback

Thank you for seeking the AICD's feedback on the redraft of the OECD Principles of Corporate Governance.

Having reviewed the OECD document "DAFFE/CA/CG(2003)11/REV1" of 43 pages, the AICD has the following comments (using that document's page and internal numbering system).
  • Page 5 paragraph B – requires addition of materiality test
  • Page 5 paragraph C3 – is appropriate only if this is in line with Australian law (noting CLERP 9 proposals)
  • Page 6 paragraph F – query need to add materiality or cost/benefit test (this area is obviously of more concern to IFSA than to AICD)
  • Page 9 paragraph F – consider widening from merely bankruptcy to insolvency generally
  • Page 10 paragraph A – The deletion of the word "material" is unacceptable
  • Page 12 introductory paragraph – the addition of the words "and loyalty" adds ambiguity, is meaningless as it is unmeasurable and "woolly"
  • Page 12 paragraph C – the amendments have decreased meaningfulness and increased ambiguity as they are unmeasurable and "woolly"
  • Page 12 paragraph D7 – the addition at the end thereof of the words "and relevant standards" needs clarification so as to only refer to standards having the force of law in the respective jurisdiction. Standards not having the force of law are merely guidelines and are thus not mandatory. There is no compulsion to comply with standards not having the force of law.
  • Page 13 paragraph E3 – whilst the sentiment is sound and the words an improvement on the original AICD queries how this will be measured and thus satisfied
  • Page 15 paragraph 3 – AICD suggests that one of the largest influences on corporate governance requirements and practices in addition to those listed is "tax law"
  • Page 16 paragraph B – there needs to be the addition of a materiality test here
  • Page 17 paragraph 1 – in addition to suggesting that shareholder resolutions being placed on the agenda need to be supported by shareholders holding a specified number or percentage of shares or voting rights, AICD suggests the addition of the caveat that the cost of putting such additional resolutions to shareholders be borne by the proponent shareholders
  • Page 17 paragraph 3 – AICD agrees with the principle but only as far as consistent with Australian law (noting CLERP 9 proposals)
  • Page 19 paragraph F – the principle has deleted the notion of cost/benefit which AICD believes should be retained, noting that the explanatory paragraph under the principle retains this rider
  • Page 29 paragraph A – the word "material" should be retained
  • Page 30 paragraph 3 – AICD queries how the concept of indirect control can be defined and thus complied with
  • Page 33 paragraph B – the final paragraph commencing "In some countries….." is unnecessary, waffly and adds little if anything
  • Page 35 final paragraph – first line, query grammar of "the first best solution"
  • Page 36 – is this intended to be left blank?
  • Page 37, lead italics sentence - the addition of the phrase "and loyalty" needs replacing or definition with something more meaningful such as "fiduciary duty to act in the best interests of"
  • Page 37 paragraph 3, beginning with "Together with guiding…", fifth line - AICD suggests changing "board responsibility is to implement systems" with "board responsibility is to ensure implementation of systems"
  • Page 37 paragraph 4 – 3rd line – the phrase "…. Boards are expected to take due regard of, and deal fairly with, other stakeholder interests …" should be limited to the extent of the law in the relevant jurisdiction
  • Page 37 paragraph A – Note the Australian legal exceptions to this (eg in wholly owned companies and with shareholder approval)
  • Page 37 paragraph B – The term "fairly" needs some definition or explanation so as to be meaningful and helpful
  • Page 38 paragraph C – The amended words are meaningless and have totally changed the original intent of this principle. The statement "ethical conduct goes beyond compliance with the law" highlights the ill defined and ambiguous nature of this new principle which is neither helpful nor measurable with regards to compliance
  • Page 39 paragraph 4, line 9 – the inclusion of the phrase "re-pricing of options" is not recommended
  • Page 39 paragraph 5 – the final phrase "extending to a broader range of people than has often been the case in the past" is deemed unnecessary and inflammatory
  • Page 39 paragraph 6 – the opening sentence of the explanatory paragraph could be amended to read "It is an important function of the board to ensure the establishment of internal control systems…"
  • Page 39 paragraph 6, line 4 – AICD suggests addition after the words "direct access to the board" of "or its Audit Committee"
  • Page 40 paragraph 1 – 3rd line – what is being discussed here is the existence of a company whistleblower process not a company code of ethics
  • Page 40 paragraph 8 – the last word in the 1st sentence should be "country" not "company"
  • Page 42 point 1 paragraph 2 – final sentence – AICD would be interested in knowing which countries and in what form "shareholders have direct responsibility for nominating and electing non-executive directors to specialised functions".
Rob Elliott
Policy Manager/Legal Counsel/Coy Sec