What is good corporate governance?

What is good corporate governance?
Corporate governance is the system by which corporations are directed and controlled:

The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs.

The subject of corporate governance is wide and varied. Even though good corporate governance can mean different things to different people, essentially it is an extended partnership between a company and a range of other groups including its shareholders, its management, its employees, the regulators, the markets and the wider community. It also regulates the relationship between a company's members.

Good corporate governance is at least:
o a system of checks and balances to promote fairness, accountability and transparency;
o part of an overall risk management program;
o founded on the premise that the board is charged with the role of agent for the shareholders to ensure the organisation is managed in the shareholder's best interests;
o about protecting the organisation's reputation; and
o capable of responding to the tension between ensuring managerial accountability and enhancing per-formance.

Good corporate governance is applicable to public, private, government and not-for profit organisations alike.

Good governance and good risk management have many similar features. Both identify and determine the amount of acceptable risk; establish a regime to measure and monitor risk, separate risk management from management; and develop a strong corporate risk culture so that the rewards, as well as the risks, are always considered.

Responsibility for corporate governance commonly falls on the board. Any governance standard adopted by a board is likely to be used as a benchmark in assessing whether a board or individual directors have applied a reasonable degree of care and diligence in exercising their powers and discharging their duties, as is required by law. One key element of the governance of a corporation is its constitution, the relationship between the governance matters and the constitution is a very interesting area and one I plan to wite on further: see The 2010 McPherson Lectures Series by Dr Robert P Austin, Adjunct Professor and Challis Lecturer in Corporate Law, the University of Sydney (formerly a Judge of the Supreme Court of New South Wales - three one-hour lectures in the Series under the topic, 'The Role and Duties of Australian Company Directors: a Restatement'.


In Australia there are many sources of corporate governance rules, including the Corporations Act 2001, common law and the company's constitution. The Australian Standards, "Good Governance Principles", and the ASX Corporate Govern-ance Council's Principles and Recommendations also provide a sound approach to corporate governance for many different types of entities.

The area of corporate governance on the whole is premised on self-regulation. Self-regulation is flexible, able to evolve to meet specific and changing circumstances, utilises the expertise of those it regulates and has the ability to enlist the support and input of stakeholders within the industry to create an effective culture of performance.

A beginners blog of governance, corporate and securities stuff: Photo

A beginners blog of governance, corporate and securities stuff: Photo

Centro decision

I think there is an interesting question emerging for directors and officer from the decision in Centro.

What is the nature of the "certification" obligations? Is 295(4), 344(1) different from other Corporations Act requirements?

How does this impact on takeover documents, prospectuses etc. What are the effective limitations of "reasonable reliance"?

It seems that as regards the accounts they could not delegate or "abdicate" that responsibility to others. Middleton J said that:
…directors cannot substitute reliance upon the advice of management for their own attention and examination of an important matter that falls specifically within the Board’s responsibilities as with the reporting obligations.

In Middleton J's view:
the whole purpose of the directors’ involvement in the adoption and approval of the accounts is to have the directors involved in the process at a level and responsibility commensurate with their role.

In other words, a reasonable step would be to delegate various tasks to others, but this does not discharge the entire obligation upon the directors.

A further step is required, which involves the directors taking upon themselves the responsibility of reading and understanding the financial statements in light of an understanding of basic accounting concepts.

The same reasoning applied in respect of reliance by directors on the audit committee. Middleton J held that whilst an audit committee has an important role in monitoring and oversight, this cannot be to the exclusion of the role of a director to consider the financial accounts.