Principles of Contemporary Corporate Governance

by Jean du Plessis , James McConvill , Mirko Bagaric

• ISBN13: 9780521617833
• ISBN10: 0521617839
• Format: Paperback
• Copyright: 2005-10-24
• Publisher: Cambridge University Press

Summary

"This book demystifies corporate governance regulation. It explains the rules and principles that regulate corporate behaviour in Australia and a number of other jurisdictions, including the United States, the United Kingdom and Germany. As well as dealing with corporate governance regulation today, the book provides an extensive analysis of the wider moral and policy considerations underpinning corporate governance. It evaluates existing standards pertaining to corporate governance and suggests proposals for change and how this area of law and practice can be made more coherent and principled. The book suggests that corporate governance regulation and management is in need of fundamental reform and explains in detail the direction that these reforms should take."--BOOK JACKET.

Table of Contents

Table of cases	xiv
Table of statutes	xvi
Preface	xxi
PART ONE CORPORATE GOVERNANCE: AN OVERVIEW
The concept `corporate governance' and essential corporate governance principles	1	(13)
The meaning of corporate governance	1	(6)
Generally	1	(2)
Origins of the corporate governance debate and the stakeholder debate	3	(3)
Definition of `corporate governance'	6	(1)
Essential corporate governance principles	7	(6)
Generally	7	(1)
The King Report (2002)	7	(1)
The Australian Stock Exchange (ASX) Corporate Governance Council's Principles of Good Corporate Governance and Best Practice Recommendations	8	(3)
Is `good corporate governance' important and does it add value?	11	(2)
Concluding remarks	13	(1)
Stakeholders in corporate governance	14	(39)
Introduction	14	(2)
Stakeholders in the corporation: an overview	16	(12)
What is a stakeholder?	16	(2)
Discussion of different stakeholders	18	(1)
Shareholders	19	(1)
Employees	19	(4)
Creditors	23	(1)
Customers	24	(1)
The community	24	(1)
The environment	25	(3)
Government	28	(1)
Stakeholders' interests and the corporation: the role of the law	28	(16)
The Australian position	29	(4)
Analysis: the appropriate boundaries of corporate governance regulation	33	(2)
Overseas position: a snapshot	35	(1)
OECD	36	(1)
European Union (EU)	36	(1)
United States	37	(1)
South Africa	37	(1)
United Kingdom	38	(4)
New Zealand	42	(2)
Stakeholder interests, good governance and the interests of the corporation: a mutual relationship	44	(7)
General analysis	44	(3)
Case study on James Hardie's asbestos compensation settlement	47	(4)
Concluding remarks: a case for shareholder primacy	51	(2)
Board functions and structures	53	(17)
The organs of governance	53	(1)
Board functions	54	(4)
Board structures	58	(6)
The `unitary' and `two-tier' structures compared	58	(6)
Board structures in the broader context of a good corporate governance model	64	(6)
Overview	64	(1)
Effective board structure	65	(1)
Effective support mechanisms to assist the board in fulfilling its functions properly	66	(1)
Effective statutory provisions	66	(1)
Effective regulators	67	(1)
Effective charters, policies and codes of best practice and conduct	68	(2)
Types of company directors and officers	70	(18)
Definition of `director'	70	(2)
De jure and de facto directors covered	70	(1)
Shadow director	71	(1)
Definition of `officer'	72	(2)
Statutory definition	72	(1)
Senior employees and senior executives as `officers'	73	(1)
Middle-management as `officers'?	73	(1)
Types of company officers	74	(9)
Executive and non-executive directors	74	(1)
Independent non-executive directors	75	(4)
Lead independent directors or senior independent directors	79	(1)
The manager director or chief executive officer (CEO)	80	(1)
Chairperson	80	(1)
Alternate director	81	(1)
Secretary	82	(1)
Training and induction of directors	83	(2)
Training	83	(1)
Induction of new directors	84	(1)
Ethical behaviour by directors	85	(3)
PART TWO CORPORATE GOVERNANCE IN AUSTRALIA
Corporate governance in Australia -- background and business initiatives	88	(19)
Background to the corporate governance debate in Australia	88	(3)
The Bosch Report	91	(5)
Background	91	(1)
Bosch Report (1991)	91	(2)
Bosch Report (1993)	93	(2)
The Bosch Report (1995)	95	(1)
Divergence from UK practice: 1995 -- early 2003	96	(1)
The Hilmer Report	97	(3)
Background	97	(1)
Hilmer Report (1993)	98	(2)
Hilmer Report (1998)	100	(1)
The virtues of good corporate governance in Australia between 1991 and 1998	100	(1)
The IFSA Blue Book	101	(5)
Concluding remarks	106	(1)
Regulation of corporate governance	107	(24)
Overview	107	(1)
Regulation generally	108	(2)
Objectives in regulating corporate governance	110	(2)
Sources of regulation in Australia	112	(12)
`Hard law'	113	(1)
Statutory regulation -- corporate law	113	(3)
Statutory regulation -- other than corporate law	116	(1)
`Corporate governance and the judges' -- the place of judge-made law	116	(1)
`Hybrids'	117	(1)
ASX Listing Rules	117	(1)
ASX Best Practice Recommendations	118	(1)
Accounting standards	119	(1)
Auditing standards	120	(1)
`Soft law'	120	(2)
The role of market forces	122	(2)
Towards an effective corporate governance framework in Australia -- analysis and reform proposal	124	(5)
OECD's guidelines for achieving an effective governance framework	124	(2)
Proposed MOU on corporate governance between ASX and ASIC	126	(3)
Conclusion	129	(2)
The role of the regulators: ASX and ASIC	131	(16)
The Australian Stock Exchange Ltd (ASX)	131	(6)
Slow to get out of the blocks	131	(1)
Rapid-change in attitude since the end of 2002	132	(1)
ASX Corporate Governance Council's Principles of Good Corporate Governance and Best Practice Recommendations	133	(1)
Structure	133	(1)
Recommendations	134	(2)
A few concluding remarks	136	(1)
The Australian Securities and Investments Commission (ASIC)	137	(8)
History	137	(1)
Constitution and some statutory powers	138	(1)
Initial steps by ASIC after the HIH collapse	138	(1)
Actions instituted by ASIC against directors after the HIH collapse	139	(1)
Actions by ASIC	139	(1)
Court orders	140	(1)
Some considerations regarding the period of disqualification	140	(1)
Criminal prosecutions	141	(1)
ASIC's aim with high profile prosecutions	142	(1)
ASIC enforcement patterns	143	(1)
The role of ASIC in corporate governance	144	(1)
Limits of ASIC's powers and responsibilities?	145	(1)
Concluding remarks	145	(2)
CLERP 9 reforms to the Corporations Act	147	(34)
Overview	147	(2)
The Corporate Law Economic Reform Program (CLERP)	149	(5)
Impetus for CLERP 9: responding to corporate collapses	154	(6)
Explanation of key CLERP 9 reforms	160	(11)
Audit reform	161	(1)
Corporate disclosure	161	(1)
Remuneration of directors and executives	161	(1)
Financial reporting	162	(1)
Continuous disclosure	163	(1)
Shareholder participation	164	(1)
Whistleblowers	165	(1)
Disclosure rules	166	(1)
Miscellaneous	167	(1)
Managing conflict by financial services licensees	167	(1)
Register of relevant interests	168	(1)
Officers, senior managers and employees	169	(1)
Enforcement	170	(1)
Proportionate liability	170	(1)
Corporate law reform post-CLERP 9	171	(7)
Part One of Report	174	(1)
Part Two of Report	175	(3)
Concluding remarks	178	(3)
PART THREE CORPORATE GOVERNANCE IN PRACTICE
Implementation of the ASX Best Practice Recommendations: charters, policies and codes	181	(57)
Implementing the ASX Principles of Good Corporate Governance and Best Practice Recommendations	181	(4)
Best Practice Recommendations requiring charters and policies	185	(2)
Practical examples of implementation of ASX Best Practice Recommendations	187	(49)
Charters	188	(1)
The Board Charter	188	(1)
Charters of the main board committees	188	(4)
Nomination Committee Charter	192	(1)
Audit Committee Charter	192	(4)
Remuneration Committee Charter	196	(8)
Company Policies and Codes	204	(1)
Code of Conduct	204	(4)
Trading Policy	208	(9)
Disclosure Policy	217	(6)
Shareholder Communication Policy	223	(6)
Risk Management Policy	229	(2)
Remuneration Policy	231	(5)
Concluding remarks	236	(2)
Auditors and audits	238	(20)
Introduction: The audit role and where it fits into corporate governance	238	(3)
Overview of the audit role	238	(1)
The link between the audit role and corporate governance	239	(2)
Wholesale recent changes to audit role	241	(2)
Auditor independence	243	(5)
Overview of rationale behind independence requirement	243	(1)
General requirement for auditor independence	244	(1)
Meaning of `conflict of interest situation'	244	(1)
Disclosing and resolving conflicts	245	(1)
Specific independence requirements -- minimising conflict of interest through employment and financial restrictions	245	(2)
Auditor rotation	247	(1)
Disclosure of non-audit services	248	(1)
Auditors and the AGM	248	(1)
Auditors duties	249	(1)
Reducing the legal exposure of auditors	250	(4)
Overview of auditors liability	250	(2)
Registration of audit companies	252	(1)
Proportionate liability	252	(2)
Qualification of auditors	254	(1)
Uniform auditing standards	255	(1)
Audit oversight	256	(1)
Concluding remarks	257	(1)
Directors' duties and liability	258	(34)
Introduction	258	(2)
Part 9.4B -- Civil penalty provisions or pecuniary penalty provisions	260	(11)
Overview	260	(2)
The civil penalty provisions in particular	262	(1)
Section 180: Duty of care and diligence -- civil obligation	262	(1)
Section 181: Duty of good faith -- civil obligation	263	(1)
Sections 182 and 183: Duty not to use position or information to gain personally or cause detriment to the corporation	264	(1)
Part 2E: Duty relating to related party transactions	264	(2)
Part 2H: Duty relating to share capital transactions	266	(1)
Part 2M.2 and 2M.3: Duty relating to requirements for financial reports	266	(1)
Part 5.7B: Duty to prevent insolvent trading	266	(1)
Part 5C: Duties relating to managed investment schemes	267	(1)
Chapter 6CA: Duty relating to continuous disclosure	267	(1)
Part 7.10: Duty not to be involved in market misconduct and other prohibited conduct relating to financial products and financial services	268	(1)
Market manipulation	268	(1)
False trading and market rigging	268	(1)
Dissemination of information about illegal transactions	269	(1)
Insider trading	269	(1)
Subclause 29(6) of Schedule 4: Duty relating to disclosure for proposed demutualisation	270	(1)
Case study regarding civil penalty provisions or pecuniary penalty provisions: ASIC v Adler	271	(5)
Overview	271	(1)
Summary of the facts	271	(2)
Contravention of civil penalty provisions	273	(1)
Related party transactions (Chapter 2E)	273	(1)
Financial assistance (Part 2J.3)	273	(1)
Duty of care and diligence (s 180)	274	(1)
Duty of good faith (s 181)	274	(1)
Use of position to gain advantage for oneself or another or to cause detriment to the corporation (s 182)	275	(1)
Improper use of information (s 183)	275	(1)
Court orders	276	(1)
Enforcement of directors duties	276	(8)
Overview	276	(1)
The statutory derivative action: Part 2F.1A	276	(1)
The case to introduce a statutory derivative action	276	(1)
Eligible applicant	277	(1)
Cause of action	278	(1)
Leave of court required to institute the statutory derivative action	279	(1)
Oppressive conduct of affairs: Part 2F.1	279	(1)
Type of conduct covered by Part 2F.1	279	(1)
Who may apply for relief under Part 2F.1?	280	(1)
Nature of relief available under Part 2F.1	280	(1)
Section 1324 injunctions	281	(1)
Introduction	281	(1)
Section 1324(1)	282	(1)
Court's discretion	283	(1)
Remedies in particular	283	(1)
Criminal liability of directors	284	(7)
The importance of the criminal sanction in the corporations law	284	(5)
Selected criminal offences directors and other officers can commit under the Corporations Act	289	(1)
General	289	(1)
Specific offences for breaches of duties	290	(1)
Conclusion	291	(1)
PART FOUR CORPORATE GOVERNANCE: AN INTERNATIONAL PERSPECTIVE
Corporate governance in selected jurisdictions and the OECD principles of corporate governance	292	(28)
United States	292	(9)
Background to the corporate governance debate in the USA	292	(1)
The American Law Institute's involvement in the corporate governance debate	293	(1)
Basic aims of the project	293	(1)
Impact and importance of the project	294	(1)
Some of key aspects addressed	294	(2)
The Sarbanes-Oxley Act of 2002 - the US response to collapses such as Enron and WorldCom	296	(1)
Backdrop	296	(1)
Aims and objectives	296	(3)
NYSE: sections 303 and 303A -- corporate governance rules	299	(1)
Background	299	(1)
Summary of the most important NYSE corporate governance rules	299	(2)
United Kingdom	301	(6)
Background to the corporate governance debate in the UK	301	(1)
The Cadbury Report and the unfolding of the concept of `corporate governance' in the UK	301	(1)
Context of the Cadbury Report	301	(1)
Code of Best Practice	302	(1)
Further developments	303	(1)
The Greenbury, Hampel, Smith and Higgs Reports	304	(1)
The Greenbury Report (1995)	304	(1)
The Hampel Report (1998)	305	(1)
The Higgs Report (2003) and the Smith Report (2003)	305	(1)
The UK Combined Code	306	(1)
Germany	307	(8)
Background to the corporate governance debate in Germany	307	(3)
The German Corporate Governance Code	310	(1)
Background to its adoption	310	(1)
Structure and explanatory nature of the German Code	311	(1)
Employee participation at supervisory board level -- codetermination	312	(2)
The German board structure	314	(1)
OECD Principles of Corporate Governance	315	(5)
Background to the OECD Principles of Corporate Governance	315	(1)
Broad aims and application	316	(1)
Structure	316	(1)
Ensuring the basis for an effective corporate governance framework	317	(1)
Disclosure and transparency	318	(2)
PART FIVE CORPORATE GOVERNANCE: GOING FORWARD
The case for enhanced shareholder participation in corporate decision-making	320	(23)
Introduction	320	(4)
Overview	321	(1)
Outline of independence thesis	321	(1)
Outline of multiple shakeholder thesis	322	(1)
What is an independent director?	323	(1)
The primacy of shareholder interests: arguments in favour of greater shareholder participation in management	324	(3)
Shareholders own the company	324	(1)
Shareholder interests are most closely aligned with those of the company	324	(3)
The independence thesis	327	(3)
Does diverse ownership naturally lead to exclusion of owners from decision-making?	327	(1)
Does independence lead to better decision-making and higher profitability?	328	(2)
Multiple stakeholder thesis	330	(2)
The managerial quality argument	331	(1)
Independent directors care more about fringe players	331	(1)
Law reform in a climate where relevant empirical evidence is lacking	332	(2)
Where to now?	334	(7)
Non-independent directors	334	(1)
Shareholder committees	334	(1)
Composition	335	(1)
Functions	336	(2)
Powers	338	(2)
General	340	(1)
Concluding remarks	341	(2)
The ethical obligations of corporations	343	(20)
Introduction	343	(2)
The threshold issue: Is there a role for ethical considerations in business?	345	(6)
A short look at the short history of business ethics	345	(1)
The disunity between business and ethics arguments	346	(1)
Morality applies to business because moral judgements are universalisable	347	(1)
Exception to universalistion -- activities with internal settled rules?	348	(1)
Are moral norms too vague to apply to business?	349	(1)
Promise to shareholders to maximise profits as basis for rejecting application of moral principles to business?	350	(1)
Summary of the general link between business and ethics	351	(1)
Application of moral principles to business setting	351	(11)
Types of duties imposed on corporations -- proscriptions against causing harm, lying and environmental damage already legally enforced	351	(3)
Additional duties imposed on corporations -- a duty of benevolence?	354	(1)
Acts and omissions doctrine serves to minimise obligations on corporations	354	(2)
Principal duty is for corporations to comply with law-business is morally neutral	356	(1)
A more elaborate duty -- extreme wealth and a maxim of positive duty	357	(2)
Requirement to pay social dividend	359	(2)
Extreme wealth and duty not to frustrate access to justice	361	(1)
Summary	362	(1)
Reflections on contemporary corporate governance and its future direction	363	(24)
Introduction	363	(1)
Regulatory pyramid and the cycles of regulation: a perspective on contemporary corporate governance regulation	364	(4)
Interaction of cycles of regulation and `law and norms' discourse	368	(14)
The significance of norms	368	(6)
Norms, corporate governance and the utility of behavioural analysis	374	(8)
Concluding remarks: corporate governance regulation going forward	382	(5)
Index	387