Corporate Governance and Non-Listed Companies

This assignment delves into the crucial role of corporate governance in both listed and non-listed companies. It examines the principles of good corporate governance and analyzes their application to organizations not publicly traded on stock exchanges. The document highlights the positive impacts of effective corporate governance on factors like accountability, transparency, and stakeholder satisfaction. While acknowledging potential drawbacks such as increased administrative costs, the emphasis is placed on the ethical and legal framework that fosters sustainable growth and prosperity.

Running head: CORPORATE LAW
Corporate Law
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction......................................................................................................................................2
Corporate governance and its importance in corporate sector.........................................................2
ASX Principles and Recommendations of Corporate Governance.................................................3
ASX ‘if not, why not’ approach......................................................................................................4
Monitoring implementation and change..........................................................................................5
History and the evolution of the ASX governance principles and Recommendation.....................6
Linkage between the ASX principles and Listing rules..................................................................7
Disclosures regarding implementation of corporate governance principles....................................7
Corporate social responsibility and ASX........................................................................................8
ASX Principles for Non-listed public companies............................................................................9
Conclusion.......................................................................................................................................9
Reference List................................................................................................................................10

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Introduction
Corporate governance is defined as a system that directs and exercise control over the
companies. The Board of Directors is accountable for governing the companies. The
shareholders of the companies play a significant role in appointing auditors and directors of the
company to their satisfaction of an appropriate organizations structure in place. The board of the
company is responsible for establishing the strategic aims and objectives of the company and
supervises the business operations of the company with his expertise and effective leadership
skills (ArAs 2016).
Corporate governance and its importance in corporate sector
The concept of corporate governance defines the way in which companies are governed.
A good corporate governance framework have a positive impact on every aspect of an
organization right from communication to strategic decision-making, communication and
leadership. However, the concept entails the control that the board of directors exercise over the
organization to enhance its performance.
The significance of corporate governance in the corporate sector lies in the fact that it
enables the Board to comprehend the role of the management. Such framework should have
characteristics that contribute to effective governance and acts as tools that address government
risk. Although there may be difference in the inner working strategies of corporate governance,
but the business practices are uniform in nature (Clapp and Rowlands 2014). One of the many
roles that corporate governance play include the strategic decisions made for the welfare of those
with a stake in the successful outcomes of the business organizations. Apart from the importance

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that is given to the shareholders, the Boards have increasingly laid more emphasis on the welfare
and interests of the stakeholders such as potential customers, customers, and non-customers who
are affected by the decisions taken by the company. The emergence of corporate governance has
enhanced accountability and transparency of the organizations towards its stakeholders as well.
ASX Principles and Recommendations of Corporate Governance
Purpose of the Principles and recommendations
The Principles and Recommendations stipulates the corporate governance that are
recommended to be used in business practices by entities listed on ASX because these principles
shall enable the companies to achieve good governance consequences and fulfill the expectations
of the investors in several circumstances (Larcker and Tayan 2015). The main purpose of using
these principles and recommendations is to build confidence of the investor about an
organization, as this is the most important essential factor for the ASX listed companies to
compete for capital.
The ASX Corporate Governance Council Principles and Recommendations [Principles
and Recommendations] have identified that various entities are legally entitled to adopt distinct
forms of government practices depending on their complexity, history, size and corporate
culture. This forms the reason why Principles and Recommendations do not stipulate any
particular corporate governance related practices that must be adopted by the ASX listed entities.
Structure of Principles and Recommendations
The structure of the Principles and Recommendations strives to promote eights essential central
principles:

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 A listed entity must disclose and establish responsibilities and relevant roles of the
management and board of the organization. They must establish rules that monitors
performance;
 A listed entity is required to act responsibly and ethically;
 A listed entity must have rigorous and formal processes that aims at safeguarding and
verifying the veracity of the corporate reporting.
 A listed entity is required to respect the rights of the security holders by enabling them
have access to proper facilities and information to effectively exercise such rights.
 A listed entity is required to establish an effective risk-management framework that
reviews the efficacy of the structure periodically.
 A listed entity should pay sufficient compensation to the director to draw attention of
highly qualified and experienced directors and senior executives to ensure alignment of
their interests with that of the security holders.
ASX ‘if not, why not’ approach
The government practice that is adopted by a listed entity is the responsible of the board
and the body who is conferred with the legal responsibility for managing the business with care
and due diligence. Therefore, such legal authority must ensure that the organization has the
appropriate governance structure (Moriarty 2014).
As per the Principles and Recommendations, if a Board of Directors of any listed entity
believes that any particular recommendation and principles is not appropriate for any specific
circumstance, the entity is not obligated to adopt such recommendation. However, if it adopts

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such recommendation, it is required to explain adopting such recommendation, thus, applying
the ‘if not, why not approach’.
This explanation of the ‘if not, why not approach’ shall provide adequate information about
the governance arrangements of the corporate entity:
 to enable the stakeholders and the security holders have a discussion with the board
management regarding governance matters;
 to assist the security holders take into consideration such information while voting on
specific resolutions;
 to assist the investors in considering such information while determining whether to
invest in the securities of the entity;
Thus ‘if not, why not’ approach is essential to the operation of the Principles and
Recommendations under the ASX Corporate governance Principles and Recommendations.
Monitoring implementation and change
The ASX Corporate Governance Council is committed to conduct a persisting review of
these principles to ensure that they are effectively implemented in the business practice. The
review of the implementation of such principles shall take into consideration of all the
international and local developments and continue to demonstrate international best business
practice (Tai and Chuang 2014). The review regarding the implementation of such Principles
and Recommendations shall enable the investors and companies to provide feedback about such
implementation and the impact that such principles had on the business organizations. Such
feedback is provided to the ASX Corporate Governance Council either directly or to any of the
member bodies of the Council. In regards to the implementation of such Principles and

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Recommendations, ASX Corporate Governance Council shall continue to conduct such review
of the impact of the principles and recommendations. The review shall be followed by
examination and collation of disclosures made in annual consideration and reports regarding the
feedback received.
History and the evolution of the ASX governance principles and Recommendation
The ASX Corporate Governance Council Principles and Recommendations emerged in
2003. The second edition was released in 2007 and a new recommendation on composition and
diversity of the remuneration committee were added in the year 2010. The purpose of the
emergence of the corporate governance Principles and Recommendations aims at meeting the
reasonable expectations of the investors in most of the situations.
The Principles and Recommendations have been developed to produce result that is of
high quality and is effective ensuring integrity. These Principles and recommendations do not
require a ‘one size fits all’ approach’ to corporate governance instead it asserts that the design
that is most appropriate for the business practice which will help to maximize the performance of
the company and enhance the accountability for the welfare of the braider economy and
shareholders of the company (Tricker and Tricker 2015). The Principles and Recommendations
acts as guidance for the companies enabling them to determine the amount of benefits it has
undergone after the change in the business approach considering the specific circumstances of
the company.

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Linkage between the ASX principles and Listing rules
Every ASX listed entity is obligated to include in its annual report either of the corporate
governance statements that qualifies the requirements of that rule as stipulated under Listing
Rule 4.10.3. The corporate governance statement must reveal the extent to which the business
entity has abided by the recommendations set out by the Council during the reporting period.
The requirements of the AS listed companies to evaluate their corporate governance
practices with that of the recommendations of the Council to disclose the reasons if such
governance practices differs from each other. As mentioned earlier that the recommendations of
the ASX Council does not follow the ‘if not, why not’ approach, Listing Rule 4.10.3 encourages
all the listed companies to adopt the recommendations mentioned under the Councils’ corporate
governance principles and recommendations but it does not obligate such listed companies to
adopt any particular design or practice (Suliman et al. 2016).
This rule stipulated under the Listing Rule formed the basis of the ‘if not, why not
approach’ that forms the fundamental rule of the Principles and Recommendations which also
serves to ensure that the market is subjected to an proper level of disclosure regarding the
governance practices adopted by the business organization.
Disclosures regarding implementation of corporate governance principles
According to the Listing Rule, 4.10.3 requires a business entity to publish about
corporate governance in its annual report. The Recommendations and Principles also suggest that
any information regarding the business entity should be mentioned in the annual report of the
entity. Such governance disclosures of the business entity should be mentioned under the
‘corporate governance’ section of such annual report. The corporate governance statement of a

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business entity may incorporate material by reference if material is freely available and the
statement indicates clearly, where the interested parties can obtain a copy of such material. As
per Listing Rule 4.10.3, a business entity is required to mention about the fact that it follows all
the principles and recommendations of the Council in its corporate governance statement. The
corporate governance statement must also include all the policies and practices that the company
follows in its practice (Crane and Matten 2016).
Corporate social responsibility and ASX
The Corporate Social Responsibility enables an organization to contribute to sustainable
development by ensuring the best interest of the stakeholders along with the shareholders of the
company. The corporate social responsibility of a company enables the company to carry out its
business operations in a manner that meets the legal, commercial, ethical and public expectations
that is expected from the business organizations by the society. During the Parliamentary Joint
Committee (PJC) on Corporations and Financial Services Inquiry, it recommended that ASX
Governance Recommendations should be enlarged so as to incorporate CSR sustainability
reporting guidelines (Korschun, Bhattacharya and Swain 2014).
In response to the recommendation made by the PJC, the ASX Council stated that it has
been proposing changes with respect to Principle 7 of the Principles and Recommendations of
the Council dealing with Risk Management. The proposed changes have considered the
corporate social responsibilities to be undertaken with respect to the principle of risk
management (ArAs 2016). The principle shall include factors that consider best interest of the
stakeholders and the welfare of the society. The ASX’s brand and culture is reflected from the
behaviors and values of the Board Management. The implementation of ASX principles and

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recommendations ensures diversity and inclusive work environment where employees are
provided with equal access to training, benefits and opportunities. Therefore, as corporate social
responsibility requires an entity to ensure social well being besides earning profits for the
company, the ASX Council has successfully developed Principles and Recommendations to be
implemented in business practice that ensures best interests of the stakeholders as well as the
community. Therefore, it would be effective if it monitored the corporate social responsibility
performed by the companies.
ASX Principles for Non-listed public companies
Corporate governance principles of ASX can be beneficial for the non-listed public
companies as it would contribute to long-term survival and its success. The governance
framework shall enhance the professionalism in the decision making process of such companies
enabling the companies to have access to variety of expertise. Shares in unlisted companies are
not liquid which makes it investment risk for the financiers and shareholders; hence, a proper
governance framework shall ensure the investors that the investments are well-managed and
safeguarded. Therefore, the principles and recommendations of ASX should also be beneficial
for the non-listed companies, if they are applicable to such companies (Larcker and Tayan 2015).
Conclusion
To conclude corporate governance has certain limitations such as Increased costs
resulting from higher administration expenses. Nevertheless, the positive impact of good and
effective corporate governance on the companies that are not listed as corporate governance is all
about enhancing accountability and transparency in the prevailing organizational structure. The
main purpose of implementing corporate governance principles is to earn wealth ethically and

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legally which results in high level of satisfaction to the five factors of the organization-
employees, investors, vendors, customers and the community.
Reference List
Andriof, J. and McIntosh, M. eds., 2017. Perspectives on corporate citizenship. Routledge.
ArAs, G., 2016. A handbook of corporate governance and social responsibility. CRC Press.
Carlos Pinho, J., Paula Rodrigues, A. and Dibb, S., 2014. The role of corporate culture, market
orientation and organisational commitment in organisational performance: the case of non-profit
organisations. Journal of Management Development, 33(4), pp.374-398.
Clapp, J. and Rowlands, I.H., 2014. Corporate social responsibility. The Essential Guide to
Global Environmental Governance. Routledge: London, pp.42-44.
Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate
governance. Cambridge University Press.
Korschun, D., Bhattacharya, C.B. and Swain, S.D., 2014. Corporate social responsibility,
customer orientation, and the job performance of frontline employees. Journal of
Marketing, 78(3), pp.20-37.
Larcker, D. and Tayan, B., 2015. Corporate governance matters: A closer look at organizational
choices and their consequences. Pearson Education.

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Lorek, S. and Spangenberg, J.H., 2014. Sustainable consumption within a sustainable economy–
beyond green growth and green economies. Journal of cleaner production, 63, pp.33-44.
Moriarty, J., 2014. The connection between stakeholder theory and stakeholder democracy: An
excavation and defense. Business & Society, 53(6), pp.820-852.
Saeidi, S.P., Sofian, S., Saeidi, P., Saeidi, S.P. and Saaeidi, S.A., 2015. How does corporate
social responsibility contribute to firm financial performance? The mediating role of competitive
advantage, reputation, and customer satisfaction. Journal of Business Research, 68(2), pp.341-
350.
Suliman, A.M., Al-Khatib, H.T. and Thomas, S.E., 2016. Corporate Social
Responsibility. Corporate Social Performance: Reflecting on the Past and Investing in the Future,
p.15.
Tai, F.M. and Chuang, S.H., 2014. Corporate social responsibility. Ibusiness, 6(03), p.117.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
Oxford University Press, USA.

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