Principles of Corporate Governance and Good Practice Recommendations
Good corporate governance structures encourage companies to create value and provide accountability and control systems commensurate with the risks involved.
1. Lay solid foundations for management and oversight
Recognise the respective roles and responsibilities of board and management.
The Company's framework should be designed to:
- enable the Company's Board to provide strategic guidance for the Company and effective oversight of management
- clarify the respective roles and responsibilities of the Company's Board members and senior executives in order to facilitate board and management accountability to both the Company and its stakeholders, and
- ensure a balance of authority so that no single individual has unfettered powers.
Recommendation to achieve good practice
The Company's Board should adopt a formal charter that details its principal functions and responsibilities and also a formal statement of delegated authority to management. Disclosing the division of responsibility assists understanding of the respective accountabilities and contributions of the Company's Board and management.
There should be an induction procedure for new directors, and all directors should be made aware of their legal duty to act in the best interests of the Company (whatever its exact corporate structure is) and provided a copy of the Company's constitution, the Company's Board charter and statement of delegated authority.
The Company's Board should ensure that it has input into, and final approval of, the Company's corporate strategy and performance objectives. The Company's Board should monitor implementation of the corporate strategy and ensure appropriate resources are available. The Company's Board should consider, and have final approval of, the proposed performance program and budget for the following year and be provided by management with sufficient information to be able properly to evaluate the risks (financial, artistic, contractual, health and safety, reputational) inherent in the proposal.
The Company's Board should receive and review regular comprehensive reports on all key business areas. The Company's Board should give prior approval to any material capital expenditure, or any material variation from budgeted expenditure.
Directors should be made aware of their duties to act under the Corporations Act 2001 in the best interests of the Company (whatever the actual corporate structure of the organisation).
2. Structure the board to add value
Have a company board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.
The Company's Board should be structured in such a way that it:
- has a proper understanding of, and competence to deal with, the current and emerging issues of the business, including the management of risk, and
- can effectively review and challenge the performance of management and exercise independent judgment.
Recommendation to achieve good practice
The Company's Chair is responsible for leadership of the Company's Board, for the efficient organisation and conduct of the Company board's function and for the briefing of all directors in relation to issues arising at company board meetings.
Corporate performance is enhanced when there is a company board with appropriate competencies to enable it to discharge its mandate effectively. Therefore, there should be a formal and transparent process for selection and appointment of non-executive board members that evaluates skills, experience and expertise of potential members.
It is important that the board be of a size and composition that is conducive to making decisions expediently with the benefit of a variety of perspectives and skills. The size of the board should be limited to encourage effective decision-making.
Non-executive directors should be appointed for specific terms, subject to re-election. Reappointment should not be automatic. Boards may wish to consider a maximum period of tenure for non-executive directors and a fixed period of appointment for board office-holders.
3. Promote ethical and responsible decision making
Clarify standards of ethical behaviour required of company directors and key executives and encourage observance of these standards.
Recommendation to achieve good practice
Good corporate governance ultimately requires people of integrity. Confidence in the Company can be enhanced if it clearly articulates the practices it intends directors and executives to follow. Therefore, companies should establish a code of conduct.
4. Safeguard integrity in financial reporting
Have a structure to independently verify and safeguard the integrity of the Company's financial reporting.
The structure should include review and consideration of the accounts either by the audit committee, which should report to the Company's Board, or by the Company's Board itself.
Recommendation to achieve good practice
To ensure truthful and factual presentation of a company's financial position, the Company's Board should require the CEO and finance manager to attest in writing that the Company's financial reports present a true and fair view of the Company's financial condition and operational results and are in accordance with relevant accounting standards.
The Company's audit committee, if there is one, should have a formal charter and should include at least one member with financial expertise (as demonstrated by relevant qualifications and financial management experience at senior management level in the public or private sector). If the Company's Board itself is the audit committee, then at least one non-executive board member should have financial expertise.
The audit committee, if there is one, or the Company's Board if it is the audit committee, should on a regular basis consider the effectiveness of the external auditors and the implications for succession that may arise from that consideration.
5. Recognise and manage risk
Establish a sound system of risk oversight and management and internal control. Systems should be designed to identify, assess, monitor and manage risk.
Recommendation to achieve good practice
The Company's Board should establish policies on risk oversight and management. The policies should cover oversight, risk profile, risk management, compliance and control, and assessment of effectiveness.
The Company's Board may wish to retain responsibility for risk management, or delegate it to the audit committee, or establish a separate "risk committee".
The effectiveness of the Company's implementation of its risk management system should be reviewed at least annually.
The Company's Board should recognise the inherent potential conflict between the CEO and artistic director in managing day-to-day issues and establish an appropriate system for controlling and managing this issue.
6. Encourage enhanced performance
Fairly review and actively encourage enhanced board and management effectiveness.
Individual and collective performance should be regularly and fairly reviewed.
Recommendation to achieve good practice
Develop and implement a process for performance evaluation of the Company's Board, its committees, individual directors and key executives. This performance evaluation should be undertaken at least annually.
The Company should implement induction procedures designed to allow new company board appointees to participate fully and actively in board decision making at the earliest opportunity.
The Company's Board should be provided with the information it needs to efficiently discharge its responsibilities. This includes artistic information, financial information, audience and market information, and risk analysis.
7. Remunerate fairly and responsibly
Ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to corporate and individual performance is defined.
Recommendation to achieve good practice
Companies should adopt remuneration policies that attract and retain talented and motivated employees to encourage enhanced company performance.
Remuneration levels should be fairly based with reference to industry norms and should take into account KPI outcomes.
The Company's Board should have input into remuneration levels for the CEO, the Artistic Director and any executive reports whose responsibilities materially influence the Company's strategy, operations and financial performance.
8. Recognise the legitimate interests of stakeholders
Legal and other obligations to all legitimate stakeholders.
Recommendation to achieve good practice
Companies have a number of legal and other obligations to stakeholders, such as employees, clients/customers, governments and the community as a whole. The Company's Board should establish procedures to guide compliance with legal obligations (eg. OH & S) and other stakeholder obligations.
To ensure the Company's legal obligations to government funding agencies are met, the Company's Board should establish procedures to ensure timely provision of the required information, which includes the Company's financial situation, its performance and its governance. The material should be factual, and presented in a clear and balanced way, i.e. disclosing both positive and negative information.
The Company's Board should also ensure it has an effective communication strategy for advising government funding agencies about any material changes in the Company's circumstances.