CLAW314 Corporate Law: Analysis of ASX Principles and Governance

This essay provides an overview of corporate governance, focusing on the ASX Principles and Recommendations. It discusses the concept and significance of corporate governance in the corporate sector, the structure and purpose of the ASX Principles, and the 'if not, why not' approach. The essay ...Read More

Running head: BACHELOR OF ACCOUNTING
Corporate Law
Name of the Student
Name of the University
Author Note

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Table of Contents
Corporate governance: An Overview..............................................................................................2
Corporate governance: Concept and significance in corporate sector.............................................2
ASX Principles and Recommendations...........................................................................................3
‘If not, why not’ approach...............................................................................................................4
Monitoring of implementation and change in ASX Principles and Recommendations..................6
ASX Governance principles and Recommendation: The Evolution...............................................6
Relation between the ASX principles and Listing rules..................................................................7
Implementation of corporate governance principles: Disclosures...................................................7
ASX Monitoring of Corporate social responsibility........................................................................8
Need for ASX Principles in Non-listed public companies..............................................................9
Conclusion.......................................................................................................................................9
Reference List................................................................................................................................10

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Corporate governance: An Overview
In the modern era of global competition where there is lack of economic certainty, it is
imperative to understand the role played by the business corporations. The framework of
practices and rules by which a board of directors through which board of directors exercises
control or direct the company, is known as corporate governance framework. In other words,
corporate governance refers to the relations and the processes by which a corporation is directed
or controlled by the directors of the company (Rao and Tilt 2016). An effective corporate
governance framework aims at striking balance between the interests of several stakeholders of
the corporation. The market-oriented economy and globalization are significant factors that make
corporate governance quintessential for the corporations in the modern day.
Corporate governance: Concept and significance in corporate sector
Corporate governance refers to the approach in which a corporation is governed. It is a
technique or a mechanism that is used by the directors to govern the company. The corporate
governance framework refers to the interaction that takes place between several participants
including the stakeholders, shareholders, management and the board of directors of the company.
An effective corporate governance framework is significant in a corporate sector as it
assures the providers of finance of receiving a fair return on their investment. It does not
distinguish the tasks or functions of the managers and the owners rather ensure that their
functions are harmonized. Further, the framework of effective corporate governance ensures
accountability and transparency of the corporation towards the stakeholders as well as the
shareholders of the company (ArAs 2016). The concept ensures that the rights of the

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shareholders are safeguarded and that functions are carried out in the best interests of the
stakeholders and the community altogether. Good corporate governance encompasses both
institutional and social aspects that encourage a corporation that is trustworthy as well as
ethically and morally upright.
ASX Principles and Recommendations
Purpose of ASX Principles and recommendations
In order to promote good corporate governance, the ASX Corporate Governance Council
has set out Principles and Recommendations (Principles and Recommendations) in 2003 as
minimum standards to be followed by the corporations in order to achieve good governance
outcomes. The Principles and Recommendations have been stipulated in accordance to the ASX
Listing Rule 4.10.3 that required the listed entities to either publish on its websites about the
principles and recommendations that it has implemented in its practice or include the same in the
annual report of such listed entities (Clapp and Rowlands 2014).
However, the Principles and Recommendations are not mandatory but the Board of
Directors are not obligated to adopt such principles but they are required to provide explanations
if they do not adopt such principles and recommendations. The ASX Council stated that different
types of entities might legally adopt various governance practices depending on their
complication, size and corporate culture resulting which the ASX Principles and
Recommendations do not endow with any corporate practices that is binding upon the listed
entities to adopt.
ASX Principles and Recommendations: The Structure

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The structure of the ASX Principles and Recommendations includes eight essential
principles that are necessary for corporations to achieve good corporate governance outcomes:
 It is essential for a listed entity to act ethically and morally;
 It is essential for a company to include formal and rigorous procedures for safeguarding
and verifying the validity of the reports of the company;
 A listed entity must establish and disclose the relevant roles and responsibilities that are
conferred on the Boards and management of the organization. The entities must ensure
that such responsibilities are subjected to regular monitoring;
 It is necessary for a listed entity to compensate to the director for seeking the attention of
highly experienced and qualified directors and senior executives for ensuring that the
interests of the security holders are aligned with such directors and executives;
 An effective risk-management framework must be established to conduct a review
regarding the efficacy of the corporate governance structure from time to time;
 A listed entity must ensure balanced and timely disclosure of all the matters that must be
disclosed which any prudent personality would otherwise anticipate to have a significant
effect on the price or worth of its securities;
 A listed entity must comprise a board that is of an appropriate work, skills, size and
obligation to facilitate the Board perform their obligations effectively;
‘If not, why not’ approach
The ASX Principles and Recommendations persist to ensure that all the listed entities
are bound by the governance practices adopted by the corporations. Since the Principles and
Recommendations set out by ASX, do not mandate the governance practice that is appropriate

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for the type of listed entities, it is entirely dependent on the Board of Directors and body that is
entitled to discharge legal responsibility on behalf of the company with due care and diligence.
Thus, good corporate governance framework ensures that the corporation has appropriate
governance arrangements (Crane and Matten 2016).
Under the Principles and Recommendations, if the listed entity board considered that
any of the Principles and recommendations is not appropriate for any specific circumstances of
the corporations, the Board is not under any obligation to adopt any such principles or
recommendation. However, if the Board of Directors of any listed entity did not adopt the
recommendation, it was obligated to provide justification for not adopting the same. This
procedure is known as the ‘if not, why not’ approach where if a listed entity does not adopt any
principles or recommendation set out by ASX, it is mandatory for explaining why the company
has not adopted the principles or recommendations.
The advantage of this approach is that it enables the company to provide sufficient
information about the governance arrangements of such listed entity in the market so that
security holders and other stakeholders in the investment community can have a conversation
with the board regarding such matters. Again, such information shall assist the security holders
to consider such factors while voting on particular resolutions (Liang and Renneboog 2017). The
investors should also consider such information while determining whether investments should
be completed into the securities of the business entity. Thus, this ‘if not, why not’ approach is
crucial to accomplish the operations of the ASX Principles and Recommendations in the
business practice of the corporations.

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Monitoring of implementation and change in ASX Principles and Recommendations
Good corporate governance practice should be developing and be open to all the
information needs of the international as well as the local investors. The ASX Corporate
Governance Council is responsible for conducting regular review of the Principles and
Recommendations for ensuring that such recommendations or principles persist to remain
relevant to the business practice, thus, taking into consideration of the international and local
developments for demonstrating persistency in international business practice.
The ASX Council encourages investors and companies to provide feedback either to the
ASX Corporate Governance Council regarding the impact and implementation of the Principles
and Recommendations directly or through one of the member body of such ASX Council. The
ASX Corporate Governance Council shall go on with the review about the consequence and the
implementation of the Principles and Recommendations along with examination of disclosures
that the listed entities make in their annual reports considering the feedback received from the
companies (Lorek and Spangenberg 2014).
ASX Governance principles and Recommendation: The Evolution
The principles and recommendations related to corporate governance have been subjected
to significant modification since its inception in 2002. The ASX Council released the first edition
of the Principles and Recommendations in 2003 followed by its second edition in 2007. A new
proposal on diversity and composition of the Remuneration Committee introduced in 2010 was
incorporated as amendments to the second edition of such Principles and Recommendations.
In regards to the third editions, significant changes have been made with respect to the
description of the 8 Principles and the Recommendations stipulated by ASX. However, no

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amendments or changes have been made with respect to the description of ‘corporate
governance’, which remains intact as it was in the first two editions. Further, in regards to the
current edition 2014, a principle-based approach is maintained which emphasized on the
outcomes instead of the process (Poulton, Barnes and Clarke 2017). The latest version is flexible
like the previous ones, which is evident from the fact that it permits listed entities to adopt
various practices to achieve good corporate governance outcomes as per its composition and
size.
Relation between the ASX principles and Listing rules
According to the Listing Rule 4.10.3, every listed business entity must include its
corporate governance statement in its annual report or on its website. The corporate statement
must talk about the scope of the implementation of the ASX principles and recommendations
during the period when the report is made. The Listing Rule is related to the ASX Principles as
Rule 4.10.3 refrains from obligating listed entities to adopt the governance practices that is not
suitable to their business practices. However, applying the ‘if not, why not’ approach the entity is
free to adopt any governance practices appropriate for their business practice but must explain
reasons for not adopting such principles and recommendations in their business practice.
Implementation of corporate governance principles: Disclosures
The Principles and Recommendations proposes that any information related to the
business entity shall be disclosed in the annual report of the company as is also mentioned under
Listing Rule 4.10.3. The business entity must mention about all the recommendations and
principles in the corporate governance statement that it follows in its practice. The listed entity
must also mention about the policies and practices that a company follows while carrying out its

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business operations. If eh corporate governance of a listed entity is not provided in its annual
report, the entity is required to serve a copy of the corporate governance statement to the ASX
Council (Andriof and McIntosh 2017).
ASX Monitoring of Corporate social responsibility
The Corporate Social Responsibility is the obligation of a company to be accountable to
its key stakeholders while carrying out its operations with the objective of attaining sustainable
development from financial aspect as well as from environmental aspects. The corporations shall
be benefited with an effective corporate social responsibility framework, as it would improve
risk management resulting in balanced management decisions that carries out better business
operations (Larcker and Tayan 2015). The Parliamentary Joint Committee (PJC) on
Corporations and Financial Services Inquiry recommended that ASX Recommendations on
governance should be lengthened to include reporting guidelines on CSR sustainability.
The ASX asserted that Principle 7 of the Principles and Recommendation set out by the
ASX Council deals with Risk Management. The changes proposed entail corporate social
responsibilities that should be considered within the Risk Management framework. The
incorporation of CSR within this Principle shall ensure welfare of the community and best
interests of the stakeholders.
The implementation of the Principles and Recommendations guarantees diversity and
ensures that the work environment provides the employees with the accessibility to benefits,
training and opportunities. Therefore, the essential elements of corporate social responsibility
includes a business practice that entails welfare of community and the stakeholders which are
successfully achieved through the Principles and Recommendations set out by the ASX

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Council. Hence, the monitoring of corporate social responsibility could be effective if the ASX
performs the same, as it would be a part of the implementation of its Principles and
Recommendations.
Need for ASX Principles in Non-listed public companies
ASX Corporate governance principles can be useful to non-listed companies for its
success and long-term survival. The principles and the recommendations enable the non-listed
companies to maintain professionalism in its decision making process, giving them access to
variety of expertise (Clapp and Rowlands 2014). Further, the shares of the unlisted entities
cannot be liquidated thus, making it risky for the shareholders and financiers to make
investments in such entities. This risk can be reduced with a proper governance framework that
ensures the investors that investments are safeguarded and well managed.
Conclusion
There are certain limitations associated with corporate governance like higher
administration expense, increased costs etc. However, an effective corporate governance
framework within a corporation can enhance its transparency and accountability towards its
stakeholders and the community altogether. The most important purpose of implementing the
principles and recommendations of governance is to achieve the profit-earning objective of the
entities as well as to ensure paramount interest of the stakeholders and interests of the
community.

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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.
de Villiers, C. and Alexander, D., 2014. The institutionalisation of corporate social responsibility
reporting. The British Accounting Review, 46(2), pp.198-212.
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate
governance. Cambridge University Press.
Kent, P. and Zunker, T., 2015. A stakeholder analysis of employee disclosures in annual
reports. Accounting & Finance.
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.

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Larcker, D. and Tayan, B., 2015. Corporate governance matters: A closer look at organizational
choices and their consequences. Pearson Education.
Liang, H. and Renneboog, L., 2017. On the foundations of corporate social responsibility. The
Journal of Finance, 72(2), pp.853-910.
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.
Poulton, E., Barnes, L. and Clarke, F., 2017. The labyrinth of international governance codes:
The quest for harmonization. The Journal of Developing Areas, 51(3), pp.425-435.
Rao, K. and Tilt, C., 2016. Board composition and corporate social responsibility: The role of
diversity, gender, strategy and decision making. Journal of Business Ethics, 138(2), pp.327-347.