WorldCom and Xerox are the latest additions to the lexicon of directors' nightmares. Directors, shareholders, regulators and the public have been deceived in the accounting of expenses and revenues in these companies. In a global market as we have today these latest cases of corporate misconduct damage the reputation of business everywhere and adversely affect values of well governed companies. Investor confidence is a fundamental tenet of free enterprise and boards will now have to more actively demonstrate their commitment to corporate governance practices in order to attract positive investor sentiment. The New York Stock Exchange has issued a series of recommendations, which propose new standards of corporate governance, and changes in disclosure practices. These recommendations, if adopted, will produce dramatic changes in the way American companies are governed. From the Australian perspective many of the recommendations are very familiar, as they have been adopted as best practice by many Australian companies and have been strongly supported by the AICD.
The NYSE recommendations provide that:
• independent directors must form the majority of a board
• audit, nomination and compensation committees be established and comprised solely of independent directors
• directors fees are the sole compensation of audit committee members
• new board members undertake an orientation program
• companies must adopt and publish codes of conduct and ethics, and key committee charters. Waivers of codes must be promptly disclosed.
• the chair of the audit committee must have accounting or financial management experience
• the audit committee has the responsibility for hiring and firing the company's auditors
• shareholders must be given the opportunity to vote on all equity-based compensation plans.
The recommendations also require a listed-company's CEO to certify annually that the company has established and complied with procedures for verifying the accuracy and completeness of information provided to shareholders and that the company has complied with NYSE rules. Corporate governance is not black letter law or a tick the box adherence to corporate regulations. It is a dynamic process requiring interaction and input on many levels.
As a process, corporate governance needs to be promoted and encouraged and AICD is not the only player in this context. At present, the ASX issues Guidance Notes for Corporate Governance Statements in the annual reports of publicly-listed companies. Because corporate governance is dynamic it is appropriate that these guidance notes are revisited on a regular basis to ensure that they meet international best practice. Investor confidence is a fragile commodity and if this confidence can be enhanced and strengthened by improved corporate governance statements then everyone benefits. AICD believes the ASX Guidance Notes for Corporate Governance Statements need to be revised and updated to offer a clearer statement of shareholder and community expectations on disclosure in this area. While it is clear that many of the reforms sought by the NYSE have already been adopted in Australia as "best practices" it now seems appropriate that these should be recognised by the ASX in the Guidance Notes. The NYSE recommendations should also serve as a basis for reviewing the content of ASX listed companies' corporate governance statements.
The recommendations also propose the establishment of a NYSE directors institute to provide continuing education and training for corporate directors and officers. This is clearly another area where Australian practice through the AICD has already been well established. We should not take any comfort from the fact that huge corporate collapses are happening in the US. Our own recent history of corporate collapses and governance failures reminds us that there is still much to be undertaken. The NYSE recommendations provide further evidence that the Australian corporate governance system generally accords with world's best practice. The challenge for the AICD and all company directors is to ensure that we continue to lead in this field to support shareholder and community confidence in our listed companies.
Disclaimer
The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.