ASX Corporate Governance Council Summary of Principles of Good Corporate Governance and Best Practice Recommendations March 2003

What is corporate governance? Corporate governance is the system by which companies are directed and managed. It influences … the objectives of the company … how risk is monitored and assessed, and how performance is optimised. Good corporate governance structures encourage companies to create value … and provide accountability and control systems commensurate with the risks involved.

Why is good corporate governance important to Australia? It can lower the cost of capital. It promotes investor confidence. It is important for Australia to respond to global best practice.

How is good corporate governance achieved? There is no single model of good corporate governance. The ASX Corporate Governance Council has recommended 10 core principles that underlie good corporate governance. These principles are of equal importance. Their adoption is not mandatory.

Principal 1: Lay solid foundations for management and oversight Formalise and disclose the functions reserved to the board and those delegated to management. Adopt a … formal board charter that details the functions and responsibilities of the board … or a formal statement of delegated authority to management.

Principle 2: Structure the board to add value A majority of the board should be independent directors. An independent director is independent of management and free of any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with – the exercise of their unfettered and independent judgement.

Principle 2 The chairperson should be an independent director. The roles of chairperson and chief executive officer should not be exercised by the same individual. The board should establish a nomination committee.

Principle 3: Promote ethical and responsible decision-making Clarify the standards of ethical behaviour required of company directors and key executives establish a code of conduct Integrity is noted as fundamental, though not able to be achieved by regultion.

Principle 4: Safeguard integrity in financial reporting Require the CEO and the CFO to state in writing to the board that the company’s financial reports present a true and fair view of its financial condition in accordance with relevant accounting standards. Establish an audit committee of at least 3, not chaired by chair of board and comprised of non-executive directors, mostly independent.

Principle 5: Make timely and balanced disclosure Develop continuous disclosure policies and procedures.

Principle 6: Respect the rights of shareholders Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings.

Principle 7: Recognise and manage risk Establish a system to identify, assess, monitor and manage risk inform investors of material changes to the company’s risk profile. The CEO and CFO should certify to the board that the company’s risk management and compliance systems are operating effectively.

Principle 8: Encourage enhanced performance Disclosure of performance evaluation of the board. Induction program for new directors. All board members to have direct access to company secretary. Board members to have access to independent advice at company expense.

Principle 9: Remunerate fairly and responsibly Disclose company’s remuneration policies including cash, fees and other benefits. The board should establish a remuneration committee

Principle 10: Recognise the legitimate interests of stakeholders Public or social accountability is generally based on notions of legitimacy, fairness and ethics. The board has a responsibility to set the tone and standards of the company and to oversee adherence to these. Establish a code of conduct to guide compliance with legal and other obligations & disclose to legitimate stakeholders.