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* The impact on business of the recommendations
* Legislative reforms: the impact of CLERP 9
* Future directions: interventions from ASIC and the ALP
The ASX Corporate Governance Council (ASXCGC) recommendations (1) have become the received wisdom, the gold standard for corporate governance in this country. They describe the way things should be. If you don't comply, superannuation funds and other investors may be less inclined to invest in your company but, as long as the company continues to sail smoothly and happily, the consequences may not be enormous. However, if the corporate ship hits some rocks, a non-complying chairman and board will have opened themselves to severe criticism.
Impact on business
Let's look briefly at how business has been impacted by the ASXCGC recommendations. There are six areas which we think deserve brief comment.
Increased focus on procedure
Listed public companies have expended significant energy in preparing and reviewing the various board and committee charters, codes of conduct, letters of appointment and other documentation necessary to comply with the ASXCGC recommendations. Largely, we suspect, this has been seen as a compliance function and received by those most affected in a neutral to negative manner.
Changing patterns of use of auditors
There now exists a significantly heightened awareness that care should be exercised before appointing the company's auditor to perform consulting or other non-audit-related services. In some instances, a formal separation has been introduced. As a result, an adjustment is occurring among the major accounting firms as the advisory work previously performed for one firm's audit clients moves to a competitor and vice versa.
Significant increases have occurred in the fees payable to auditors for audit services. A survey conducted recently by the Australian Financial Review (2) indicated that audit fees paid by the top 100 listed companies in Australia had increased by an average 10 per cent. Possible reasons for this include:
* the need for increased interaction between auditors and audit committees
* clients' requirements for greater assurance
* early transition by clients to International Accounting Standards
* a premium for what may be perceived as the assumption of greater risk by auditors and
* the commercial need to fill the gap previously occupied by lucrative non-audit services. The same Australian Financial Review article pointed out that, on average during the preceding year, the ratio of non-audit work to audit and assurance work had declined from $1.35: $1.00 to $0.93.
There continues to be debate over the extent to which it is appropriate for auditors to conduct due diligence work. On the one hand, the auditor may be best placed to conduct due diligence activities. On the other, it is argued that it is not appropriate that the auditor audit an acquisition with which it has been involved.
Shifts in director remuneration and payments
The process of appointment of the chief executive officer (CEO), including, in particular, the negotiation of the remuneration package and other terms of employment, is becoming more complex and arduous. Trends include:
* the negotiation of a detailed and extensive contract of employment with the CEO designed to limit the potential for payouts on termination, particularly in the case of poor performance
* increased emphasis in remuneration packages on long-term incentives, with downward pressure on base salaries and
* the reduction or removal of retirement benefits for non-executive directors. However, there is significant pressure for increases in the fees payable to non-executive directors given the proliferation of committees and increased expectations of the time and effort required to meet the duties of a director (especially in the audit and risk management areas).
Highlighting the role of the chief financial officer (CFO) and Company Secretary
The ASXCGC recommendations give explicit recognition to the role of the Company Secretary in supporting the effectiveness of the board. In particular, it is said that the Company Secretary should be accountable to the board through the chairperson on all governance matters. In addition, the ASXCGC recommendations impose requirements on both the CEO and CFO (or their equivalents) to certify the company's financial reports and the soundness and effective operation of the underlying system of risk management and internal compliance and control.
The emergence of a 'chief financial officer function' is interesting in the light of the recent decision of the New South Wales Supreme Court in ASIC v Vines  (3), in which Austin J considered the question whether the predecessor to s 180(1) of the Corporations Act 2001 (Cth) (the Act) imposed on an officer of the company occupying a position such as CFO any objective standard of reasonable competence that might be measured by expert evidence as to what a reasonably competent officer of that designation would do in stated circumstances. His Honour took the view that there exists a standard of skill for executive officers who are appointed to positions requiring the exercise of skill, and that standard is reflected in the statutory formulation of 'care and diligence', notwithstanding the absence of the word 'skill'. …