Law Essay Example

8CORPORATE GOVERNANCE OF PUBLIC COMPANIES

Corporate Governance of Public Companies

Introduction

Australia Stock Exchange (ASX) corporate Governance Council Principles and Recommendations was started in 2003 whereas the second edition was issued in 2007 (Lama and Anderson, 2015). Since the release, there have been significant emphasis all over the world on issues of corporate governance practices taking into consideration the events occurring as well as during the Global Financial Crisis. These recommendations were therefore introduced to provide valuable perspectives as well as the proficiency with regard to governance issues from the vantage point of the stakeholders. Therefore, this assessment will discuss the purpose of ASX, the reasons for its introduction as well as the issues affecting corporate governance.

Purpose of these Australian Securities Exchange Recommendations

These principles and recommendations of the ASX provide rules and regulations on the acceptance as well as the disclosure of authority practices which are meant to boost the confidence of investors and at the same time assist the bodies listed in the ASX meet the expectations of their stakeholders around governance (Lama and Anderson, 2015). Furthermore, the ASX draws together 21 businesses, shareholders as well as groups of industries with the concern of encouraging good governance in Australia each offering worthful intuition as well as expertise on matters related to governance from the point of view of a specific stakeholder (Lama and Anderson, 2015).

In addition, these principles and recommendations seek to enforce good governance by ensuring that any company enlisted in the ASX needs to disclose to the market on the extent of how they are flowing the recommendations on the best practices (Lama and Anderson, 2015). Furthermore, the recommendations ensure that the listed companies prepare a statement which should be included in their yearly report indicating how they have managed to cope with the Recommendations for the purpose of disclosure. Also, the ASX Recommendations encourage companies to conduct early transition to the Recommendations and are therefore considered to report by reference to their recommendation to corporate reporting (Lama and Anderson, 2015).

Why were they Introduced?

These recommendations created by the Australian Stock Exchange Council were introduced in order to place a solid base for both management and oversight. This is intended to identify and publish the responsibilities of both the board as well as the management (Gandini, 2006). In doing so, the company can therefore enable the panel to offer strategic leadership for the company and ascertain that there is a balance of authority and that no one has any unfettered powers. Secondly, the recommendations were introduced in order to provide structure within the board of a listed company. This will ensure that the company has a proper understanding of both the present as well as the upcoming matters of the business (Gandini, 2006). Furthermore, it ensures that the company has the ability to challenge and effectively review the performance of the management and at the same time exercise independent judgment.

Furthermore, these recommendations were introduced in order to promote ethical and responsible decision making. This would enable a company clarify the level of ethical behaviour expected from the directors and executives of the company (Lama and Anderson, 2015). It also ensures that the company publishes its position with regard to the matters of both the board as well as the staff members trading in the securities of the company and associated products that function to reduce the economic risk of those securities. Additionally, these recommendations were introduced so as to safeguard the integrity in financial reporting by having an arrangement that autonomously controls and at the same time safeguard’s the integrity of the financial reports of the firm (Lama and Anderson, 2015). This necessitates that a company install an authorization that is planned to ascertain the faithful and accurate presentation of the financial position of the company for instance, considering the accounts by the audit committee.

Moreover, they were also introduced so as to promote the timely and balanced disclosure of every issues regarding the company. It ascertains that a listed company set up mechanisms planned to ensure that they comply with the ASX Listing Rule necessities (Lama and Anderson, 2015). For instance, every investor has a share as well as a timely right of use to material information related to the company and the announcements of the company are conducted factually and are demonstrated in a vivid and balanced manner by disclosing both the positive and negative outcomes. Respecting the rights of the shareholders is another reason why the ASX recommendations were introduced. This is primarily so that the company can enable effective communication with their shareholders. Offering them direct access to balanced and understandable information regarding the company and corporate proposal (Lama and Anderson, 2015). This makes it easier for the stakeholders to take part actively in the affairs of the company.

What Issues were they trying to overcome?

The Australian Stock Exchange issued these recommendations so as to overcome issues such as corporate purpose and governance roles. In addition, it was formulated to sort out the value of shareholder activism (Gregory, 2014). This will offer the board the capability of dealing with activism pressure which would rely on their ability to effectively communicate long-term strategies. This will enable companies realize areas in which might have been subjected to activism. Furthermore, these recommendations were formulated to tackle issues of distinguishing the roles and responsibilities of the board and management of a company (Gregory, 2014). Furthermore, it also set up to overcome matters related to the appointments to the boards and directors through elections. These recommendations also formulated to oversee the protection of the rights and expectations of the shareholders of a particular company. Moreover, issues that concern investors and their role in making a company “socially responsible corporate citizen” is also another form of challenge which the ASX recommendations are set up to overcome (Gregory, 2014). Furthermore, the remuneration of the directors as well as that of the executives are issues with which this recommendations are formulated to overcome.

Why Can’t These Recommendations Apply For Small Private Companies?

The ASX Corporate governance principles and recommendations are solely for the listed companies but are not applicable for small private companies. The distinction between private firms and larger public firms is the deficiency of difference between owners and managers (Morrocchi, 2006). Therefore, these recommendations cannot apply to small private firms because they incline to have similar individuals in their management due to their small size as well as lack of intricacy in their functions. Most at times, they have an informal method of governance. In addition, their necessities for reporting and disclosure are often lower than those for listed companies although there is a significant supervisory load encompassing the day-to-day functions of a small firm (Ding, Zhang and Zhang, 2007). Furthermore, issues related ownership in the smaller firms such as: owner’s lack of time, reluctance, succession planning, limited resources and risk management among others are the challenges that makes it difficult for the recommendations to apply to them.

Conclusion

To sum up, ASX recommendations were introduced in order to identify and publish the responsibilities of both the board as well as the management and to provide structure within the board of a listed company among others. In addition, ASX recommendations were introduced so as to overcome issues such as: value of shareholder activism distinguishing the roles and responsibilities of the board and management and protection of the rights and expectations of the shareholders. Finally, these recommendations cannot apply to private firms because they incline to have similar individuals in their management. Also, they have issues related ownership in the smaller firms such as: owner’s lack of time, reluctance, succession planning, limited resources and risk management.

References

Ding, Y., Zhang, H & Zhang, J 2007, Private vs State Ownership and Earnings Management: evidence from Chinese listed companies. Corporate Governance: An International Review, vol. 15, no. 2, pp. 223-238. http://dx.doi.org/10.1111/j.1467-8683.2007.00556.x

Gandini, G 2006, Corporate Governance and Global Communication. Symphonya. Emerging Issues In Management, no. 1, pp. 62-78. http://dx.doi.org/10.4468/2006.1.05gandini

Gregory, H 2014, Corporate Governance Issue for 2015. Retrieved 22nd Sept. from https://corpgov.law.harvard.edu/2014/12/12/corporate-governance-issues-for-2015/

Lama, T & Anderson, W 2015, Company characteristics and compliance with ASX corporate governance principles. Pacific Accounting Review, vol. 27, no. 3, pp. 373-392. http://dx.doi.org/10.1108/par-12-2013-0104

Morrocchi, L 2006, Global Corporations, Corporate Governance and Social Responsibility. Symphonya. Emerging Issues In Management, no. 2, pp. 1-3. http://dx.doi.org/10.4468/2006.2.03morrocchi