Models of corporate governance

MAIN CRITERIA
The Australian corporate governance model emphasizes several key criteria to promote good governance practices. These criteria serve as guidelines for companies and directors to enhance transparency, accountability, and the protection of shareholder interests. The main criteria of the Australian corporate governance model include:
1. Accountability: Companies are expected to be accountable for their actions, decisions, and performance. This includes ensuring that there are clear lines of responsibility and appropriate reporting structures within the organization.
2. Director Independence: The model emphasizes the importance of independent directors who can bring unbiased judgment and exercise independent decision-making. Independent directors are expected to act in the best interests of the company, free from conflicts of interest.
3. Transparency and Disclosure: Companies are required to provide timely and accurate information to shareholders and stakeholders. They must disclose relevant information on financial performance, risks, and governance practices to enable informed decision-making.
4. Shareholder Rights: Australian corporate governance places importance on protecting shareholder rights. This includes providing shareholders with the opportunity to vote on significant matters, access company information, and participate in general meetings.

5. Risk Management: The model emphasizes the establishment of effective risk management frameworks and internal controls to identify, assess, and mitigate risks. Companies are expected to have appropriate risk mitigation strategies in place to safeguard the interests of shareholders and stakeholders.

6. Ethical Conduct and Integrity: Companies are encouraged to promote ethical conduct, integrity, and responsible corporate behavior. This criterion includes establishing codes of conduct, implementing anti-corruption measures, and fostering a culture of ethical behavior throughout the organization.
7. Compliance with Laws and Regulations: Companies are expected to comply with applicable laws, regulations, and corporate governance guidelines relevant to their industry and jurisdiction. Regulatory bodies, such as ASIC and APRA, oversee and enforce compliance with these requirements.
8. Stakeholder Engagement: The model recognizes the importance of considering the interests of various stakeholders, including employees, customers, suppliers, and the broader community. Engagement with stakeholders is encouraged to inform decision-making and foster long-term relationships based on trust and mutual benefit.

These criteria are designed to promote sound governance practices and ensure the alignment of company objectives with the interests of shareholders and stakeholders. Adhering to these criteria helps build credibility, enhance reputation, and increase investor confidence in Australian companies.

CONCEPT
The Australian corporate governance system generally adopts a one-tiered board structure. In this structure, there is a single board of directors responsible for the overall management and decision making of the company. This board consists of a mix of executive and non-executive directors. The board of directors oversees the strategic direction of the company, monitors performance, and ensures compliance with legal and regulatory requirements. The non-executive directors bring independent perspectives and expertise to the board, while the executive directors are responsible for day-to-day operations. While the one-tiered board structure is predominant in Australia, some larger companies may have board committees or advisory boards in place to support specific functions or provide additional expertise. However, the overall decision-making authority remains with the single board of directors. The main concept of the corporate governance model in Australia is to promote transparency, accountability, and the protection of shareholder interests. This shareholder-oriented approach emphasizes maximizing shareholder value while considering the rights of shareholders. The model aims to ensure that directors act in the best interests of the company and shareholders and fosters trust, credibility, and investor confidence in Australian companies. The Australian model generally adopts a one-tier board structure, where both executive and non-executive directors serve on a single board. This model aligns with responsible investment principles, attracting investors who prioritize sustainability, environmental, social, and governance factors. The Australian model is not stagnant. It undergoes periodic reviews and updates to adapt to evolving business landscapes and global best practices. This commitment to continuous improvement ensures that the model remains effective and relevant. Moreover, the Australian corporate governance model has a set of principles to guide shareholders in exercising their voting rights. These principles aim to enhance shareholder participation, transparency, and accountability in corporate decision making processes. Finally, the introduction of an advisory vote in relation to listed companies’ remuneration reports is generally considered to have been an effective mechanism to enhance remuneration disclosure and improve board and management accountability. However, the desire to enhance transparency by regulating extensive categories of required remuneration disclosures has resulted in lengthy remuneration reports which are less comprehensible to the ordinary shareholder. In response to the opacity of the regulated remuneration disclosures, many companies have started voluntarily providing additional disclosure of ‘realized’ or ‘take home’ pay to provide greater clarity to shareholders concerning the remuneration actually received by key executives.