Principles of Contemporary Corporate Governance

510 Pages·2011·2.32 MB·English

by  Jean Jacques du Plessis

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PrinciplesofContemporaryCorporateGovernance
Secondedition
Followingthesuccessofthefirstedition,PrinciplesofContemporaryCorporate
GovernanceSecondEditionmaintainsthedelineationofcoreprinciplesofcorpo-
rategovernanceandprovidesaconcisepresentationofvitaltopicsandemerging
themesincorporategovernancewithintheprivatesector.Thisdefinitivebook
notonlyexposesthefundamentalprinciplesofcorporategovernance,itbuilds
uponthembyillustratinghowtheyareapplied.Itincludesseveralprominent
casestudies,anddirectors’dutiesandliabilitiesareillustratedbydrawingonthe
mostrecentAustraliancourtcases.
AlthoughgroundedinAustraliancorporategovernance,thebookwillappeal
topractitionersandstudentsoflawandbusinessmanagementinternationally.
Principles of corporate governance are explicated for readers in all jurisdic-
tions,withspecificreferencetotheglobalfinancialcrisisandtheimplications
forcorporategovernancedevelopmentsinthefuture.TheOECDPrinciplesof
CorporateGovernanceareaddressed,andspecificchaptersoncorporategover-
nancedebatesintheUnitedStates,UnitedKingdom,Canada,Germany,Japan
andChinahavebeenprovidedbyexpertcontributorsforthisnewedition.
JeanJacquesduPlessisisProfessorintheSchoolofLawatDeakinUniversity.
AnilHargovanisAsso ciateProfessorintheSchoolofBusinessLawandTaxation
attheUniversityofNewSouthWales.
MirkoBagaricisProfessorintheSchoolofLawatDeakinUniversity.

Principles of Contemporary
Corporate Governance
Second edition
JeanJacquesduPlessis
AnilHargovan
MirkoBagaric
Contributors
VivienneBath
ChristineJubb
LukeNottage
cambridgeuniversitypress
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FirstpublishedbyCambridgeUniversityPress2005
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Secondedition2011
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AcataloguerecordforthispublicationisavailablefromtheBritishLibrary.
NationalLibraryofAustraliaCataloguinginPublicationdata
DuPlessis,JeanJ.
Principlesofcontemporarycorporategovernance/JeanJacquesduPlessis,MirkoBagaric,
AnilHargovan.
2nded
ISBN9780521138031(pbk.)
Includesindex.
Corporategovernance–Lawandlegislation.
Corporategovernance–Australia.
Directorsofcorporations–Australia.
Bagaric,Mirko.
Hargovan,Anil,1962–
346.94066
ISBN978-0-521-13803-1paperback
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Contents
Contributors xv
Tableofcases xvii
Tableofstatutes xxi
Preface xxiii
Prefacetothefirstedition xxv
PART ONE BASIC CONCEPTS, BOARD STRUCTURES AND
COMPANY OFFICERS 1
1 Theconcept‘corporategovernance’and‘essential’principlesof
corporategovernance 3
1.1 Themeaningofcorporategovernance 3
1.1.1 Generally 3
1.1.2 Originsofthecorporategovernancedebateandthestakeholder
debate 5
1.1.3 Definitionof‘corporategovernance’ 10
1.2 ‘Essential’principlesofcorporategovernance 11
1.3 Is‘goodcorporategovernance’importantanddoesitaddvalue? 14
1.4 Arecorporategovernancemodelsconverging? 18
1.5 Conclusion 19
2 Stakeholdersincorporategovernanceandcorporatesocial
responsibility 20
2.1 Introduction 20
2.2 Stakeholdersinthecorporation:Anoverview 22
2.2.1 Whatisastakeholder? 22
2.2.2 Discussionofdifferentstakeholders 24
2.2.2.1 Shareholders 25
2.2.2.2 Employees 25
2.2.2.3 Creditors 29
2.2.2.4 Customers 30
2.2.2.5 Thecommunity 31
2.2.2.6 Theenvironment 31
2.2.2.7 Government 35
2.2.2.8 Allstakeholdershavevestedinterestsinthesustainabilityof
corporations 35
v
vi CONTENTS
2.3 Stakeholders’interestsandthecorporation:Theroleofthelaw 36
2.3.1 TheAustralianposition 36
2.3.2 Overseasposition:Asnapshot 40
2.3.2.1 OECD 40
2.3.2.2 EuropeanUnion(EU) 41
2.3.2.3 UnitedStates 43
2.3.2.4 UnitedKingdom 45
2.3.2.5 Canada 49
2.3.2.6 NewZealand 49
2.3.2.7 SouthAfrica 51
2.4 Stakeholderinterests,goodgovernanceandtheinterestsofthe
corporation:Amutualrelationship 53
2.4.1 Generalanalysis 53
2.4.2 CasestudyofJamesHardie’sasbestoscompensationsettlement 56
2.5 CSRanddirectors’duties 65
2.6 Conclusion 69
3 Boardfunctionsandstructures 71
3.1 Highercommunityexpectationofdirectors 71
3.1.1 Initiallylowstandardsofcare,skillanddiligenceexpectedof
directors 71
3.1.2 Legalrecognitionofchangedcommunityexpectationofdirectors 73
3.2 Theorgansofgovernance 75
3.3 Boardfunctions 77
3.4 Boardstructures 83
3.5 Boardstructuresinthebroadercontextofagoodcorporate
governancemodel 90
3.5.1 Overview 90
3.5.2 Effectiveboardstructure 91
3.5.3 Effectivesupportmechanismstoassisttheboardinproperlyfulfilling
itsfunctions 93
3.5.4 Effectivestatutoryprovisions 93
3.5.5 Effectiveregulators 94
3.5.6 Effecti vecharters,policiesandcodesofbestpracticeandconduct 96
3.5.7 Corporategovernanceratingsystemsforcompanies 98
3.6 Conclusion 100
4 Typesofcompanydirectorsandofficers 101
4.1 Overview 101
4.2 Definitionof‘director’ 102
4.2.1 Dejureanddefactodirectorscovered 102
4.2.2 Shadowdirector 103
4.2.3 Nomineedirectors 104
4.3 Definitionof‘officer’ 106
4.3.1 Statutorydefinition 106
4.3.2 Senioremployeesandseniorexecutivesas‘officers’ 107
4.3.3 Middlemanagementas‘officers’? 108
CONTENTS vii
4.4 Typesofcompanyofficers 109
4.4.1 Executiveandnon-executivedirectors 109
4.4.2 Independentnon-executivedirectors 110
4.4.3 Connectednon-executivedirectors 116
4.4.4 Leadindependentdirectorsorseniorindependentdirectors 117
4.4.5 Themanagingdirector,managingdirectors,thechiefexecutiveofficer
andexecutivedirectors 117
4.4.6 Chairperson 118
4.4.7 Alternatedirector 120
4.4.8 Secretary 120
4.5 Trainingandinductionofdirectors 122
4.5.1 Training 122
4.5.2 Inductionofnewdirectors 124
4.6 Ethicalbehaviourbydirectors 125
4.7 Remunerationofdirectorsandexecutives 127
(withcontributionsbyChristineJubb)
4.7.1 Acontroversialissue 127
4.7.2 DisclosureofremunerationandemolumentsinAustralia 128
4.7.3 Investigationsintoexcessiveremunerationofdirectorsand
executives 128
4.8 Conclusion 129
PART TWO CORPORATE GOVERNANCE IN AUSTRALIA 131
5 CorporategovernanceinAustralia–backgroundandbusiness
initiatives 133
5.1 BackgroundtothecorporategovernancedebateinAustralia 133
5.2 TheBoschReport 136
5.2.1 Background 136
5.2.2 TheBoschReport(1991) 137
5.2.3 TheBoschReport(1993) 139
5.2.4 TheBoschReport(1995) 141
5.3 DivergencefromUKpractice:1995toearly2003 142
5.4 TheHilmerReport 142
5.4.1 Backg round 142
5.4.2 TheHilmerReport(1993) 144
5.4.3 TheHilmerReport(1998) 145
5.5 ThevirtuesofgoodcorporategovernanceinAustraliabetween1991
and1998 146
5.6 TheIFSABlueBook 146
5.7 StandardsAustralia 152
5.8 Conclusion 154
6 Regulationofcorporategovernance 156
6.1 Overview 156
6.2 Regulationgenerally 157
6.3 Objectivesinregulatingcorporategovernance 159
viii CONTENTS
6.4 SourcesofregulationinAustralia 161
6.4.1 ‘Hardlaw’ 162
6.4.1.1 Statutoryregulation–corporatelaw 162
6.4.1.2 Statutoryregulation–otherthancorporatelaw 165
6.4.1.3 ‘Corporategovernanceandthejudges’–theplaceof
judge-madelaw 165
6.4.2 ‘Hybrids’ 166
6.4.2.1 ASXListingRules 166
6.4.2.2 ASXCorporateGovernancePrinciplesand
Recommendations 168
6.4.2.3 Accountingstandards 169
6.4.2.4 Auditingstandards 169
6.4.3 ‘Softlaw’ 170
6.4.4 Theroleofmarketforces 172
6.5 Towardsaneffectivesupervisionoffinancialmarketsregulatory
frameworkinAustralia–analysis 174
6.5.1 OECD’sguidelinesforachievinganeffectivegovernance
framework 174
6.5.2 DivisionofresponsibilitiesbetweenASXandASIC 176
6.6 Conclusion 178
7 Theroleoftheregulators:ASICandASX 179
7.1 Introduction 179
7.2 TheAustralianSecuritiesandInvestmentsCommission 180
7.2.1 Overview 180
7.2.2 StatutorypowersundertheASICAct 181
7.2.3 TheroleofASICincorporategovernance 182
7.2.4 ASICenforcementpatterns 185
7.3 TheAustralianSecuritiesExchangeLtd 187
7.3.1 Slowtogetoutoftheblocks 187
7.3.2 Rapidchangeinattitudesincetheendof2002 189
7.3.3 ASXCorporateGovernanceCouncil’sPrinciplesofGoodCorporate
GovernanceandBestPracticeRecommendations 190
7.3.3.1 Changesin2007 190
7.3.3.2 Structure 190
7.3.3.3 Recommendations 191
7.3.3.4 TherolesandrelationshipbetweenASXandASIC 193
7.4 Conclusion 195
8 Accountinggovernance 198
8.1 Overview 198
8.2 BackgroundtotheCorporateLawEconomicReformProgramand
somelaterdevelopments 199
8.3 TheCorporateLawEconomicReformProgram 200
8.4 ImpetusforCLERP9:Respondingtocorporatecollapses 202
8.5 ExplanationofkeyCLERP9reforms 205
8.5.1 Auditreform 205