Term Paper: Corporate Governance in Australia

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Corporate Governance in Australia

Australia Corporate Responsibility and Corporate Governance

The proper governance of companies will become as crucial to the world economy as the proper governing of countries... strong corporate governance produces good social progress. The two go together." James Wolfensohn, President of the World Bank (qtd in Detomasi, 2002)

Economic prosperity is a product of a strong collaboration between the investors and the government. Both local and foreign investors need an assurance of their security and protection of interests from the government. A call for a responsible corporate governance in return yields a rewarding economic stability that eventually contributes to the country's progress.

Corporate governance and responsibility of a particular country are measured up by international investors in order to protect their interests, especially in the global market. The rules concerning the implementation of these decrees should be in their favor.

Since the fall down of Enron and Worldcom, and the implementation of Sarbanes-Oxley Act of 2002 in the United States, domestic and foreign companies have become more prudent in analyzing corporate governance and responsibility. Because of theses incidents in the past, corporate governance is recently facing a stage wherein it has to meet up with global demands that recognizes the fact that every country has a need to attract and protect its investors. Once these conditions of global convergence are met, global capital will generally flow at favorable rates to where it is best protected, but will not flow at all or will flow at higher-risk rates where protections are uncertain or nonexistent. (Millstein, 2005)

Globalization has determined the trend in economic prosperity as with the appropriate and relative corporate responsibility exhibited by an enviable corporate governance.

Analysis of Major Schools of Thought on Corporate Responsibility and Corporate Governance

Corporate responsibility comes hand in hand with corporate governance. The practice of the latter is a representation of the former. Corporate governance provides the basis for a stable and productive business environment. It can be especially important in emerging markets and to firms that seek to distinguish themselves in the global economy. http://usinfo.state.gov/journals/ites/0205/ijee/ijee0205.pdf, para 5)

Knowing what corporate governance and responsibility is and its impact on the investors in a particular country had become one of the major concerns of globally competitive countries, as well as those who are only on their way to become one. Getting acquainted with the principles governing corporate governance will further help the economic progress of the country and create a strong and stable economic status. Good corporate governance attracts more investors upon which contribute to an increase in power in the global context.

After the famous Cadbury Report released by the Committee on the Financial Aspects of Corporate Governance chaired by Sir Adrian Cadbury, corporate governance had gained the awareness of the public, most particularly the investors. The report defines corporate governance as "the system by which companies are directed and controlled," although there are yet other definitions referring to the term. Other definitions involve "a system of checks and balances between the board, management and investors to produce an efficiently functioning corporation, ideally geared to produce long-term value," (Garrett, 2004) and others would refer it to the "rules that guide the behavior of corporations, shareholders, and managers, as well as to government actions to promote and enforce those rules." (http://usinfo.state.gov/journals/ites/0205/ijee/ijee0205.pdf, para 7)

Moreover, defining corporate governance using the Australian Securities Exchange (ASX) is "the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimized... Good corporate governance structures encourage companies to create value (through entrepreneurism, innovation, development and exploration) and provide accountability and control systems commensurate with the risks involved." http://www.shareholder.com/shared/dynamicdoc/ASX/364/ASXRecommendations.pdf, 5)

To be able to achieve a good corporate governance, it involves "no single model of good corporate governance...The ASX Corporate Governance Council believes underlie good corporate governance. Each principle is explained in detail, with implementation guidance in the form of best practice recommendations. http://www.shareholder.com/shared/dynamicdoc/ASX/364/ASXRecommendations.pdf, 6)

Although the Council's recommendations are not mandatory and cannot, in themselves, prevent corporate failure or mistakes in corporate decision-making, they can provide a reference point for enhanced structures to minimize problems and optimize performance and accountability..." (www.shareholder.com/shared/dynamicdoc/ASX/364/ASXRecommendations.pdf)

Under the Australian Securities Exchange, there are several fundamental principles that involve the achievement of a responsible corporate governance. The first principle establishes the roles of management and the board, with a balance of skills, experience and independence on the board appropriate to the nature and extent of company operations stated under the second principle. Integrity is as well significant in attaining a strong corporate governance thus, its importance among those who can influence a company's strategy and financial performance, together with responsible and ethical decision-making encompasses the third principle. http://www.shareholder.com/shared/dynamicdoc/ASX/364/ASXRecommendations.pdf,8)

The fourth principle tries to meet the information needed of a modern investment community that is paramount in terms of accountability and attracting capital, as well as presenting a company's financial and non-financial position requires processes that safeguard, both internally and externally, the integrity of company reporting. The provision of a timely and balanced picture of all material matters makes up the fifth principle. The rights of company owners, that is shareholders, need to be clearly recognized and upheld is contained within the sixth principle. (www.shareholder.com/shared/dynamicdoc/ASX/364/ASXRecommendations.pdf)

The elements of uncertainty that carries a risk that can be managed through effective oversight and internal control holds the seventh principle, and the maintenance of the pace with the modern risks of business and other aspects of governance requires formal mechanisms that encourage enhanced board and management effectiveness is on ASX's eighth principle. http://www.shareholder.com/shared/dynamicdoc/ASX/364/ASXRecommendations.pdf,10)

ASX, furthermore, has added the principles concerning the rewards needed to attract the skills required to achieve the performance expected by shareholders that is contained in its ninth principle. Finally, the tenth principle talks about the impact of company actions and decisions that is increasingly diverse and good governance recognizes the legitimate interests of all stakeholders. (www.shareholder.com/shared/dynamicdoc/ASX/364/ASXRecommendations.pdf)

At the least, however, corporate governance is simply the relationship among various stakeholders with respect to the control of corporations. Corporate governance deals with these relationships and above all addresses the relationship between the owners of a company and those who manage the company's operations. The owners are as well the shareholders who are the principals and those who manage the companies are the executives hired by the owners to run the company as agents of the principals. Corporate governance encompasses the weight given to various factors in connection with the process for making strategic decisions, the adequacy and transparency of disclosures, the reliability of financial reporting, and compliance with laws and regulations. Corporate governance comprises a combination of regulatory rules and private sector-driven guidelines that takes in hand these concerns between the two most basic figures that run the corporation. (Millstein, 2005)

Countries around the globe formulate their own individual strategies regarding corporate governance. Meeting up with the demands of the different corporations in the country has become one of the main goals of the countries concerned with economic prosperity and its sustainable development. In relation to the desired corporate governance, governments have become more aware as to how they would help protect the interests of both the domestic and international investors such that they would remain stable for the benefit of the people and the country's economic progress as well.

Highly developed countries continuously struggle upon coming up with the perfect corporate governance such that those whose legal systems are rooted in British common law, the interests of shareholders are held to be dominant in most corporate decisions. On the other hand, for the developing countries that have traditionally fostered concepts of partnerships between management, employees, and other stakeholders, have other social priorities, or have mixed government-private ownership arrangements are now recognizing investor protection as an important signal to potential capital providers. They need to demonstrate adoption of corporate governance principles so as to promote investor trust and attract capital, which will in turn lead to investment and economic growth. Moreover, modifying these principles is necessary to be able to match the needs of its local or domestic investors. But there are certain fundamentals that cannot be ignored, which may be found necessary and significant in order to adapt to the demands of the stakeholders as well as the community itself. (Millstein, 2005)

On the other hand, countries with a more sophisticated financial market, their corporate governance rules and structures are contained in laws protecting property rights and shareholder rights through legislation, accompanying regulations, judicial decisions, and stock exchange listing rules. This situation has been the most important strategy that works for the government that is parallel to the need of their markets. It has been fundamental for these countries to utilize such strategies to meet the needs of their investors. In addition to formal rules, corporations adopt best-practice principles and guidelines, which are continually being developed by the private sector and academia in response to prevailing market conditions and investor demands. Developing countries need… [END OF PREVIEW]

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