Corporate Governance

Corporate governance is, “the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations” (ASX, 2011).

The most influential parties involved in corporate governance include government agencies and authorities, stock exchanges, management and shareholders. Other influential stakeholders may include lenders, suppliers, employees, creditors, customers and the community at large.

The board of directors are the main party which influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimised.

All parties to corporate governance have an interest, whether direct or indirect, in the financial performance of the corporation.

Directors, workers and management receive salaries, benefits and reputation and shareholders expect to receive financial returns from dividends or capital gains. Customers are concerned with the provision of goods and services, suppliers are concerned with payments for their goods or services and trading relationships. These parties provide value to a company. They need to feel certain that the board of directors will base decision in the interest of the stakeholders to deliver the expected outcomes in order to decide to whether to engage with that company.

The ASX Corporate Governance Council’s Recommendations articulates eight core principles (the Principles). The Recommendations are not mandatory, they are guidelines, designed to produce an outcome that is effective and of high quality and integrity (ASX, 2011).

Governance can denote the entire external and internal structure of major actors and influences on those actors involving the legal system, the market for corporate control, ownership patterns, or the boards of directors (Denis & McConnell, 2003).

Under ASX Listing Rule 4.10.3, companies are required to provide a statement in their annual report disclosing the extent to which they have followed...