Laws That Govern Corporate Governance in Australia - Assignment Example

Corporate Governance al Affiliation) Corporate Governance What is it? The term corporate governance can be defined as the framework of processes, systems, relationships and rules within which the authority of the company is exercised and then controlled. The term encompasses the criteria and mechanisms by which firms and those taking control are held accountable. When a company has good corporate governance, it is more likely to promote the confidence of an investor (Asic.gov.au, 2014). The investor’s confidence is important to the ability of a company to compete for the available resources such as capital. Corporate governance tends to influence how the company’s objective are set and then achieved, risk monitoring and assessment, and the optimization of a performance. When a company has effective corporate governance, the company is more likely to create value through innovation, exploration entrepreneurialism, development, and offer control systems and accountability with the involved risks. The practices of corporate governance tend to evolve in the midst of changing situation of a company and needs to be tailored so that the underlined circumstances can be met. Importance Why is it important? The importance of corporate governance include changing the ownership structure, significance of social responsibility, increasing number of scams, indifferent on shareholder’s part, globalization, and mergers and takeovers. In recent year the structure of ownership has always been on a changing trend. Institutions such as mutual funds and public financial institutions have the largest shareholders in majority of big companies. Therefore, they force the management of companies to apply corporate governance. That is they incur a lot of pressured on their management to be more accountable, efficient, and transparent. They also seek the management of companies to make policies that are eco-friendly. Hence leading the ownership structure to have better corporate governance. Consequently, social responsibility is emphasized. The managers need to protect the shareholder’s, local communities, suppliers, and customer’s rights. This can only be achieved when they make us of corporate governance. Another importance of corporate governance is that, in recent times, various corrupt practices, frauds, and scams have occurred. Misappropriation and misuse of funds are taking place daily worldwide. They have happened in banks, stock markets, government offices, companies, and stock markets. To avoid the financial irregularities and scams, many firms have structure ‘corporate governance. Generally, the shareholders are always inactive in the company’s management. The shareholders only attend Annual General Meeting (Asic.gov.au, 2014). This has made the association of shareholders to be weak resulting to misuse of office by the shareholders to suit their vested interest. So corporate governance is importance in protecting the company’s shareholders. Based on globalization, big firms sell their production global markers. This makes them to attract foreign customers and investors. They also need to follow foreign regulations and rules. All this needs corporate governance to be in place. Without structure corporate governance, emerging companies might face difficulties in surviving the global market. For take overs and mergers, corporate governance is importance in order to protect the two parties during the mergers and takeovers. Consequently, SEBI has made the corporate governance for companies to be compulsory so that the stakeholders and the investors can be protected (Asx.com.au, 2014). Laws that govern corporate governance in Australia In Australia, a listed company need to disclose and establish the designed responsibility and roles of their board and later monitor and evaluate their performance. Second rule is that a listed company needs to have a board with a reasonable composition, commitment, skill, and size so that their duties can discharge effectively. A company also needs to act responsibly and ethically. Consequently, a company needs to have a rigorous and formal process that can safeguard and verify the integrity of an institution. Another Australian rule is that a company needs to make balanced and timely disclosure for matters that concern the value and the price of a company’s security (Asx.com.au, 2014). An Australian entity needs to respect the rights of their shareholders by offering them with the relevant information and resources to enable them exercise those rights in an effective manner. Entities also need to recognize and then manage the risk. Companies need to come up with a sound risk management that is periodically assessed to ensure that they are effective. The last law states that any listed company need to pay the remuneration for directors so that they can attract and retain directors of high quality. This is important because it will enable them to be more motivated. Relationship between law and corporate governance Harmonization of the regulation that relates to corporate governance and law is important so that the financial products and services of a single market can be created. In the field of corporate governance and law, their relationship resides with the provision of the equivalent protection for the parties and other shareholders that concerned with the company ensure that the establishment of a company is free and can foster the competitiveness and efficiency of a business. Corporate is both embedded in the theory of an organization and their legal concept. This is derived from the notion that companies that are listed always follow certain principles and regulations put in place by law. The underlined laws ensure that the listed company operates under the corporate governance code (Austlii.edu.au, 2014). Therefore, under the Australian code, the law empowers the nation to enact that the companies that the listed companies need to abide by the code of corporate governance. Based on the statutory provisions, the company needs to come up with a decree that enables the listed companies to go into the provisions of the application laws. The Australian Code of Corporate Governance stipulates that the supervisory board and the management board and laws need to come up with an explanation if they fail to apply one of the laws and the best actions that need to be taken based on the legal basis. According to the foregoing, the application of the pertinent provisions in the Australian code is not limited to situation when a company decides on the compliance of the law but also where the listed companies decides on leaving from the set laws. The practices of corporate governance need to evolve in the context of Australian and overseas development. There is no designed model of better corporate governance  (Corporate Governance Report: Principles of Good Governance and the Code of Best Practice, 1999). Therefore, this term has set of principles that cut across companies within the same context and group. The attributes of corporate governance are molded by various factors. The factors can either be internal or external. Some of the internal factors include the policies of an organization and the constitutions. Key Bodies that enforce governance in Australia Over 20 decades ago, Australian government made a progressive decision in the public administration to come up with a statutory agency that is responsible for taking care of corporate governance. A body that enhances corporate governance in Australia is ASX. The function of the body is to enhance the practices of Australian corporate governance by coming up with a Corporate Governance Council. The council brings forth the industry groups, shareholders, and business each providing valuable expertise and insights on the issues of governance from the stakeholder’s perspective. The council operates within a stipulated charter. For ten years, the council releases and develops governance practices that adopt the listed firms that are designed to promote the confidence of investors and to help the listed entities in meeting the expectation of stakeholders (Hilb, 2005). Under the ruling of the council, the companies that are listed need to benchmark their practices against the recommendations of the council. Media articles 1. http://www.readcube.com/articles/10.1111%2Fj.1467-8683.1993.tb00039.x?r3_referer=wol&tracking_action=preview_click&show_checkout=1 2. http://www.asx.com.au/documents/asx-compliance/cg_principles_recommendations_with_2010_amendments.pdf Benefits of good corporate governance in an organization Corporate governance is beneficial because it helps in improving the relationship with the banks. The corporate governance enables a regular and robust financial reporting. The resulting systematic mechanism to produce data fosters confidence in their confidence from their investors. Corporate governance is also important because it improves the profitability of a company. Proper governance normally leads to an improved performance and reporting. Meaning that the owners and the managers are well prepared to make higher decisions that can increase margins and sale and reduce costs (Mallin, 2004). The significance to an organization to practice better corporate governance is widely known. The benefits of good corporate governance are that an organization can raise more funds more cheaply in a setting when the sources of capital are scarce. This is because with good corporate governance, in case of downturn, the company will be able to get support from the stakeholders in their attempt of their turnaround. This will in turn make the business of the organization to be sustainable. Assuming the board of a company makes an improper judgment and in handling some of the uncertain events of the future, it will not be regarded as a scandal rather it will be regarded as the risk or reward ration that is involved in the investment of the risk. Thereby, enhancing the company’s reputation. Although there is evidence that establishes the benefit of good corporate governance, what is still unknown is how the practice can be implemented. Subsequently, the business or the strategic plan by the board of directors involves dealing the uncertain events of the future. It is not regarded as a science and no one is prescient. Corporate governance is a process that enables the outsiders to look into the company and assess the firm whether is well governed (Monks & Minow, 2004). What is beneficial for the good governance is that the directors tends to apply their mind as to the right corporate process that suit the interest of the company’s business. There are certain fundamentals which has become an essential in the company’s governance like the audit committee and the outside directors. Another benefit of corporate governance is that it clarifies the role of the management team and the owners. The governance permits the owners and the managers to delineate their responsibilities and come up with ownership issues from the business management. This normally facilitates an efficient decision making as it enables the owners and the managers to choose are best in handling the issues at hand. Examples of bad corporate governance 1. http://www.ft.com/intl/cms/s/0/fd30eaf2-3fa8-11e2-b0ce-00144feabdc0.html#axzz3LcVd3B00 [Accessed 11 Dec. 2014]. 2. http://www.businessballs.com/corporate-governance.htm [Accessed 11 Dec. 2014]. Consequences of bad corporate governance Poor corporate governance in an organization is one of the causes of a financial crisis in an institution. Results from study shows that poor corporate governance has a value destroying risk on the operation of an organization. One of the major consequences of poor governance is that the shareholders will fail to monitor the performance of the company. This will therefore, restrict the markets disciplinary effect for the corporate control due to the restriction of the shareholder’s right and the rights of the owner based on the ownership ceiling and voting rights. Additionally, managers are normally termed as risk averse and are less willing compared to the risk neutral stakeholders to handle debt (Shank, Paul Hill & Stang, 2013). Therefore, firms that have poor practices of corporate governance where the preference of managers, dominate the objectives of shareholders. Therefore, such practices see slower rates and less debt on capital structure adjustment. Following the exercise of audit that was carried out by the examiners of CBN it was realized that the 5 of banks had a loan of 500 billion dollars cumulatively, among other financial obligations that eroded the funds of the shareholders. The fundamental factors that contribute to the current situation of bad governance are the control laxity by the regulatory authorities, inactive boards, and the executive’s greed. The regulatory responsibility of the council is non-existent, which arises due to unqualified employees (van Essen, Engelen & Carney, 2012). The inability of the managers to supervise the top management of an organization normally contributes to the bad situation. Bad governance leads to huge loss in the growth of an economy. Additionally, it affects the personality of people, human ingenuity, and human resources. Corruption and bad governance deter the waster national resources, increase insecurity, and forebode allocation. The poor and disadvantaged people tend to suffer more from poor governance. Amongst the major weakness of corporate governance include pervasive corruption and absence of monitoring organizations which affect poverty and growth of the economy in Australia. Corporate governance program of Bellamy’s Australia Limited Bellamy’s Australia Limited uses various corporate governance programs to ensure the rights of their shareholders are maintained. First the company has laid solid foundations for oversight and management. The company has achieved the program by establishing and disclosing the respective responsibilities and roles for their management and board and how their performance are evaluated and measured. The company provides holders for security with the entire material information on their possession that is relevant to their decisions. Additionally, the company has ensured that the secretary of the company is accountable to the board through the office of the chairman on all issues to carry out proper board functioning. Another corporate governance program that the company has employed is that it has structured the board to add value to the company’s operation. The company has a board that is characterized by appropriate composition, commitment, and skills to enable them discharge their duties effectively. The company has a board that has a nomination committee that has at least 3 member’s majority of which are independent directors and are governed and chaired by directors who are independent. To suit the program, the company has disclosed the matrix setting for the board skills out the diversity and skills mix that the company looks to attain their membership. Additionally, the lists of directors of the company are considered by the board members to be directors who are independent. The company also employs the ethical and responsibility program. The company has proved to act responsibly and ethically. The company has code of conducts for their directors, employees, and senior executives. Additionally, the company disclosed the codes and their summary. The company has also program of safeguarding their integrity in their corporate reporting. Based on this program, the company has rigorous and formal processes that independently safeguard and verify the company integrity in their corporate reporting. To achieve this, the company has an audit committee with three members all of which are directors and independent directors. Future Corporate Governance Trend (150) In future Bellamy’s Australian Limited need to come up with security holders that has all the pertinent material in their possession to make decisions when reelecting or electing a director. This will ensure that the company fully meets the first principle of laying the foundations for the oversight and management. Another trend is that the company will need to disclose at the end of every financial year the measurable objective to achieve the diversity of gender that is set by the relevant committee. Consequently, based on every period of reporting, the number of periods the company should meet and the individual attendance at the meeting will be reviewed. This will ensure that the corporate governance program of acting ethically and responsibly is achieved. To respect the shareholder’s entity the company will need to provide information about itself to the investors  (van Essen, Engelen & Carney, 2012). References Asic.gov.au,. 2014. ASIC Home | ASIC - Australian Securities and Investments Commission. Retrieved 11 December 2014, from http://www.asic.gov.au/ Asx.com.au,. 2014. Retrieved 11 December 2014, from http://www.asx.com.au/regulation/corporate-governance-council.htm Austlii.edu.au,. 2014. CORPORATIONS ACT 2001. Retrieved 11 December 2014, from http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ Companydirectors.com.au,. 2014. Corporate Governance Information for Directors - Australian Institute of Company Directors. Retrieved 11 December 2014, from http://www.companydirectors.com.au/Director-Resource-Centre/Governance-and-Director-Issues Corporate Governance Report: Principles of Good Governance and the Code of Best Practice. 1999.Corporate Governance, 72, 207-208. doi:10.1111/1467-8683.00148 Hilb, M. 2005. New Corporate Governance: from good guidelines to great practice. Corporate Governance: An International Review, 135, 569-581. doi:10.1111/j.1467-8683.2005.00452.x Mallin, C. 2004. Corporate governance. Oxford: Oxford University Press. Monks, R., & Minow, N. 2004. Corporate governance. Malden, Mass.: Blackwell Pub. Shank, T., Paul Hill, R., & Stang, J. 2013. Do investors benefit from good corporate governance?.Corporate Governance: The International Journal Of Business In Society, 134, 384-396. doi:10.1108/cg-03-2010-0027 van Essen, M., Engelen, P., & Carney, M. 2012. Does “Good” Corporate Governance Help in a Crisis? The Impact of Country- and Firm-Level Governance Mechanisms in the European Financial Crisis.Corporate Governance: An International Review, 213, 201-224. doi:10.1111/corg.12010 Reference Linklater, R., Delpy, J., & Hawke, E. (2003). Before sunset: screenplay. S.l.: s.n. Read More