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Companies Should Take Opportunity to Restore Faith in Global Economic Downturn

Top Australian companies are approaching corporate governance reporting as a 'box-ticking' exercise, rather than a key factor in strengthening their sustainability and performance, according to research by the Association of Chartered Certified Accountants (ACCA) and Net Balance Foundation Ltd.

The Disclosures on Corporate Governance report, conducted by ACCA in collaboration with Net Balance Foundation Ltd, assesses the extent to which Australia's 50 largest publicly-listed corporations have implemented and reported on corporate governance.

The Report scored the overall performance of the ASX50 on their disclosure of corporate governance practices. ANZ was the top scorer with 77%, followed by Westpac (74%), BHP Billiton (69%), Qantas Airways (68%), Stockland (65%), OZ Minerals (64%), Orica (63%), Rio Tinto (62%), Transurban (60%) and Wesfarmers rounded out the top ten with a score of 58%.

The Report found the top 50 companies were generally effective in meeting criteria subject to ASX regulatory requirements, including disclosing the structure of the board (average score 90%) and safeguards and integrity in financial reporting (average score 81%).

However, the ASX50 fell short when it came to following international guidelines and global best practice in corporate governance reporting.

"Overall, the ASX top 50 are reporting on their corporate governance; however the emphasis is on meeting mandatory ASX requirements," says Michaela Campbell, head of ACCA Australia & New Zealand.

"With the global economic downturn diminishing faith in corporations, there is a real opportunity for companies to go beyond the minimum and reinforce the very purpose of the governance – transparency, accountability, fairness and responsibility.

"Organisations must support policies with strong leadership, accountability and a culture that fosters an ethical, sustainable approach to corporate governance," says Ms Campbell.

The Report assessed disclosures of governance processes, such as the role of companies' sustainability committees, and found the ASX50 scored an average of just 35% across these criteria. However, with scores of 90% each, Qantas Airways, Orica, Rio Tinto and Lend Lease Corporation excelled in this area.

Ross Wyatt, General Manager of Net Balance Foundation Ltd, says, " Corporations are generally aware of their obligations relating to accountable financial reporting and good governance. However, attitudes to wider corporate governance disclosures are still divided.

"There is a great opportunity for organisations to demonstrate integrity and leadership in uncertain times by committing to long-term, sustainability-related issues," says Mr Wyatt.

Ms Campbell adds, "Accountability is integral to sustainable corporate governance and competitive advantage. Organisations that commit to and report against measurable targets will provide stakeholders with a clearer view of triple-bottom line performance, not just monetary performance."

When assessing how companies evaluate and report on senior executive performance against sustainability objectives, the Report found many organisations fell short.

"While organisations are disclosing their executive remuneration processes to meet existing regulations, they do not go far enough in examining the behaviour and performance that is being rewarded.

"To regain stakeholder and shareholder faith, companies should disclose remuneration practices that link reward with performance, not just look at what is considered a market norm.

"Current local and global reviews of executive remuneration are an important step in prompting organisation to work toward long-term, sustainable practices," says Ms Campbell.

In the category 'ethical decision-making' the top 50 listed companies scored an average of 52%. WorleyParsons secured the highest score with 88%.

"When evaluating commitment to governance; leadership and 'tone from the top' is critical. If a board is required to model ethical behaviour themselves, it will positively impact an organisation's 'ethical health' and encourage the good governance throughout the organisation," says Ms Campbell.

One of the stronger areas of disclosure was 'key impacts and risks', with an ASX50 average score of 57%. The top ten were particularly strong in this category, with an average score of 72%.

When it came to the criteria group 'adherence to global codes and guidelines', the Report found organisations are falling short of world's best practice. Twenty-two of the top 50 companies adhered to GRI reporting guidelines, followed by AA1000 Assurance Standard (10) and UN Global Compact (8).

"Corporate governance communications should consider different stakeholder groups, not just shareholders. The global economic downturn has put the spotlight on organisations' corporate governance practices and prompted a dramatic increase in stakeholder expectations.

"Guidelines are important, but in isolation they are not a 'silver bullet' to good corporate governance. Current reporting standards do not bridge the gap between basic standards of disclosure and what's needed to ensure greater transparency and best practice.

"Linking reporting to the implementation of good governance will drive organisations to move toward ethical and sustainable corporate governance. This will not only improve stakeholder perceptions, but also support organisations' resilience to the shifting economic climate.

"Now is the time for Australian companies to closely examine their corporate governance structure and initiate transparent processes that go beyond minimum compliance," concludes Ms Campbell.

ACCA and Net Balance Foundation recommend that reporting on corporate governance should:

• Disclose organisational vision and values, including how corporate governance is considered an important element of internal behaviour.
• Include clear reporting on corporate governance performance measures using KPIs.
• Give a clear indication of key stakeholders groups and engagement measures, including what dialogue takes place relating to corporate governance.
• Provide an overview of the governance structures in place to manage non-financial (sustainability) issues and performance – including any board committees and their composition and remit as well as individual board member responsibility.
• Detail any remuneration structures in place that directly link reward to executive performance against sustainability targets (such as diversity, health and safety and emissions reductions).
• Explain the structure and composition of the board, including independence of directors, separation of CEO and Chairman, as well as audit, nomination and risk committees and their remits.
• Provide a detailed description (or full version) of the organisational code of conduct, including policy on areas such as whistleblowing, anti bribery processes and facilitation payments. The report should also explain how compliance with this code is monitored and any performance data (on breaches and non compliance related actions).
• Identify key organisational risks – both financial and non financial – and the process by which they were selected. Reports should also include an explanation of how these risks are subsequently managed and mitigated.
• Highlight any standards or guidance used to report on corporate governance issues.

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For further information please contact:

Frances Dwyer
IMPACT Communications
02 9519 5411/0402 382 447

Marcela Balart
IMPACT Communications
02 9519 5411/0422 483 371