Corporate Governance and Ethics: A Report on ABC International Ltd.

This report provides a comprehensive analysis of corporate governance and ethics, focusing on the case of ABC International Ltd. It begins with an executive summary outlining the scope of the report, which includes an examination of a director's duties, rights, and competencies, such as the requirements for directors, interpersonal relationships, and the director's awareness of the business and financial situation. The report then delves into the functions of committee work, particularly the audit committee, and its interactions with external auditors. Furthermore, it assesses board structure and styles, considering structure, independence, and board involvement. Finally, the report addresses issues of transparency and accountability, including compliance with listing requirements, shareholder reporting, and the importance of trust within the board. The report references the Australian Corporations Act and other relevant literature to support its findings, providing a detailed overview of the key aspects of corporate governance.

Corporate Governance and Ethics
CORPORATE GOVERNANCE AND ETHICS
The Authors Name
The Class Name
The Professors Name
The School Name
The city Name
The date

Corporate Governance and Ethics 2
Executive Summary
This report was engaged to provide a review of the scope of corporate governance. In
particular, the report intended to analyze the spheres of the duties, rights, and competences of a
director, the scope of committee work, the scope of board structure and styles, and the concept of
transparency and accountability of the company. Regarding duties, rights, and responsibilities of
a director, the report analyzed the requirements for directors in serving the company, inter-
personal relationship, availability for the directorship, and director’s knowledge business
financial situation along with issues of separation of roles and voting power.
On committee work, the report intended to analyze the scope of committee work, tasks,
and roles they owe to the company. Also, this part included areas of committee interaction with
external auditors. The scope of board structure and style intended to focus on board structure,
board’s involvement in governance. The concept of transparency and accountability focused on
areas of compliance with listing requirements, and trust among board members.
While looking at these areas, the report found that the stipulates a duty of care the
directors and a requirement for diligence while executing their duties. On the other hand an audit
committee is given a role of ensuring that there is integrity in the company’s financial reports
through their oversight work in auditing administration. The board structure and style involve
ensuring that the board has fitting size, has the required level of skills, and it is committed to the
organization development and one whose composition facilitates efficient discharge of duties.
From shareholders’ perspectives, transparency and accountability reports provide more
information regarding how the firm has been performing in both social and environmental
domains, and this puts it at an ideal position for attracting investors.

Corporate Governance and Ethics 3
Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
1) Duties, Rights, and Competence of a Directors.......................................................................4
The suitability to serves as Directors...........................................................................................4
Interpersonal relationship of a chairman and other directors.......................................................5
Availability for the directorship and financial situation of Company.........................................5
Corporate governance issues examples: separation of roles/voting power..................................6
2) Committee work.......................................................................................................................7
The actual task of the audit committee work...............................................................................7
3) Board Structure and Styles.......................................................................................................9
Board Structure............................................................................................................................9
Board style.................................................................................................................................10
4) Transparency and accountability of the company..................................................................11
Compliance with listing requirements and filing.......................................................................11
Shareholders reporting/Common Reporting Standards.............................................................12
Trust between board members...................................................................................................12
Conclusion.....................................................................................................................................13

Corporate Governance and Ethics 4
Introduction
This report intends to provide Mr. Y. K Chan with an analysis of the duties, rights, and
competences of a director. In this part, the paper would focus on the requirements for a director,
interpersonal relationship with the chairman, and director’s awareness of business and financial
situation. The second issue that this report would cover involves committee work. This area
would cover matters such as the audit committee work and their interaction with external
auditors. Thirdly, the paper would look at the issues of board structure and styles which would
involve concepts of structure, independence, and board involvement. Lastly, the issues of
transparency and accountability that would be covered entail matters of compliance with the
listing requirements, shareholder reporting, and trust within the board.
1) Duties, Rights, and Competence of a Directors
The suitability to serves as Directors
The law requires company directors to act and execute their duties for the best interest of
their companies. The Australian Corporations Act stipulates four foremost obligations for
directors. Firstly, section 108 requires the directors the exercise care and diligence (Corporations
Act, 2001). Under this duty, the directors must take reasonable care in protecting the interests of
the company. Section 181 requires the directors to act in good faith (Corporations Act, 2001).
Under this duty, acts of good faith while putting the company’s interests at the forefront should
be within the director’s scope of duty. Section 182 prevents directors from misusing their
position (Corporations Act, 2001). This duty prohibits actions that that can cause directors to use
their position for their advantage. Lastly, section 183 prohibits directors from misusing company
information (Corporations Act, 2001).

Corporate Governance and Ethics 5
Apart from duties, the position of director comes with some rights. For instance, directors
have a general right to access all information and documents that are under their company’s
possession. In addition, they also have the right to inspect company books and records. In
(Oswal v Burrup Holdings Limited, 2011), the Full Federal Court confirmed that directors have
the right to inspect books and records on receivership. Directors also have the right to delegate
duties. They also have a right to acquire insurance to protect the company against liability that
results from breached duties (Andrew, 2017). Regarding the director’s competence, the board
has a responsibility in ensuring that it has the right people with the required skills as the
directors.
Interpersonal relationship of a chairman and other directors
In the current corporate world, particularly in a multinational corporation such as ABC,
cultural differences are inevitable (Sungkar, 2013). Therefore, it requires corporate leaders such
as board chairs and directors to have effective interpersonal relationship skills. For instance, to
run the company effectively, the chair and the directors need to understand how words can
sometimes be easily misinterpreted in verbal communication. Additionally, they should practice
the use of good tones that promotes respect among them. According to (McShane and Von
Glinow, 2012) how deeply, quickly, and loudly people speak communicates differing meanings
that can ruin interpersonal relationships. As the chair is the company’s lead representative, he
must have good interpersonal skills in presenting the company’s policies and aims.
Availability for the directorship and financial situation of Company
Like mentioned above, the Corporation Act under section 108 requires company directors
to act with diligence. The law also puts directors to observe a duty of care which is equivalent to

Corporate Governance and Ethics 6
that of any other reasonable director. In this way, the director acts as the custodian of the
company and he is expected to act for the best interest of all corporate members. On the other
hand, directors do not owe any direct duty to individual members unless under special
circumstances such as when acting as a representative of a member. The duty of care of the
director extends to creditors. The director owes this duty to creditors in a way that he is supposed
to protect the company from going into insolvency. In the case of (Commonwealth Bank of
Australia v Friedrich, 1991), the director was held liable for the company debts because he failed
to protect the company from undergoing that debt.
Corporate governance issues examples: separation of roles/voting power
According to (Kakabadse and Kakabadse, 2009, p. 12), the board leadership structure
denotes whether the company has a separation of roles between the board chair and the CEO.
The work of (Kakabadse and Kakabadse, 2009, p. 68) further states that separation of these roles
and having a board led by an independent chair is one of the fundamentals principles that
Australian governance systems. In most cases, separation of powers attracts investors since they
look for an organization with board oversight on matters of risk management; independence of
the board and its skill sets; executive compensation; succession planning and board practices the
requirements which are only possible where there is a separation of roles (Kakabadse and
Kakabadse, 2009).
According to (Australian Institute of Company Directors, 2015), the Australian corporate
law is moving towards board supremacy where the board is accorded with major responsibilities
and powers for activation of the company performance. In this mode of leadership, the board
acquires most powers. However, sometimes such as during a takeover, shareholders may be
accorded more powers of deciding the company’s future. A situation like this one was explained

Corporate Governance and Ethics 7
in (Capricornia Credit Union Limited v ASIC, 2007) where shareholders acquired more powers
in deciding the fate of a takeover. According to (Yermack, 2010), the shareholders’ right to vote
is founded on various practices for the protection of corporate governance protections. Therefore,
when shareholders vote the kind of board they want, matters of acquisition, and equity issues
among others, they ensure the safety of their corporation.
2) Committee work
The audit committee
The actual tasks of the audit committees can be summarized as acting as the oversight
body. According to (Organisation for Economic Co-operation and Development[OECD], 2015),
productive audit committees help in ensuring that there is integrity in the financial reporting
integrity through their oversight work in the management and auditing. The (OECD, 2015)
further stated that a productive audit committees ensure that there is candid communication
which fosters discipline within the corporate culture, reasonable risk management, and
transparency. Some studies have also shown that there is a positive impact of having a
nonexecutive director (NED) on an audit committee as it enhances the credibility of financial
reports (Beasley et al., 2009; Al-Shaer, Salama and Toms, 2017).
According to (CPA Australia, 2019), the audit committees have important roles in the
detection and prevention of instances of fraud. Apart from the statutory duty of financial
reporting, the modern audit committees also have the duty to deal with issues of sustainability
reporting, analysis of the Chair and CEO’s, representing investors in the organization, and
continuous disclosures among others (CPA Australia, 2019). According to (Naciri, 2009), these
overall duties of the audit committee in dealing with matters of finances makes them act as the

Corporate Governance and Ethics 8
backbone of the organizations financial and internal systems control. Additionally, the audit
committees are also the body that nominates and helps in the selection of external auditors or the
certified public accountants (CPA).
There is a realm of literature that has proved that audit committees’ independence is
related with improvement of earnings quality and reduction earnings management. For instance,
in a study conducted in (Hamdan, Mushtaha and Musleh Al-Sartawi, 2013) that involved 50
Jordan industrial companies, the study found that there was a degree of the audit committees’
influence on earnings quality. Also, in (Amar, 2014), the study sort to understand the association
between audit committees’ independence and the performance of earnings management. The
results of the study found a positive link between the committees’ independence and earnings
management. Also, although the study of (Chang and Sun, 2009) found a nonsignificant result on
their analysis of the link between audit committee independence and earnings management, their
post-SOX analysis demonstrated a substantial positive association.
As mentioned, the audit committees have a role to play in the nomination of the external
auditors or the CPA. Even a change of the external auditors requires the direct intervention of the
audit committee. As audit committee have a duty to preserve and protect shareholders’ interests,
one of the ways they execute this role is overseeing the nature and approaches of external
auditors (Sori, Ramadili and Karbhari, 2009). The audit committees also assess the effectiveness
of external auditors and makes recommendations of the reasonable payments for them. Another
point of interaction between the audit committees and external auditor regards matters of
independence. It is within the scope of work for the audit committees to ensure the independence
of external auditors, and to eliminate probabilities for a conflict of interest which can weaken the
credibility of external auditors (He et al., 2016).

Corporate Governance and Ethics 9
Once the external auditors complete their evaluations, they have to submit that report to
the audit committees. Both the committee and external auditors later sit to discuss the results of
the evaluation and other critical issues, such as irregularities, fraud, management’s errors, issues
of financial statements, and obstacles facing internal control systems among others. The
(Australian Auditing and Assurance Standards Board[AASB], 2015) necessitates that the
external auditors formally communicate with the committee as a fundamental part of the
evaluation performance. According to the (AASB, 2015), it is important for external auditors to
provide supplementary information to the committee that could help them in improving their
oversight, disclosure, and the entire process of financial reporting. Once the audit committee
receives the report from external auditors, they also need to review it and pass the most relevant
information to the board. The committee also has a role on external auditors’ performance where
they review their work arrangements, plans, and ask them to report issues that may arise such as
disputes between the organization and them. In addition, the committee has a role of facilitating
communications between the board and external auditors, and this role entails relevant meetings
made between the board and external auditors (Plessis, Hargovan and Bagaric, 2010).
3) Board Structure and Styles
Board Structure
Due to the collapse of high profiled companies in Australia, businesses have focused their
attention on the structure of their boards. The (Australian Security Exchange[ASX], 2014)
report recommends companies to have boards that are of a fitting size, have a required level of
skills, committed to the organization development, and one whose composition facilitates
efficient discharge of duties. The section 201A of the Australian Corporation Act sets statutory
minimums for board structure as one director for a proprietary company who should be residing

Corporate Governance and Ethics 10
within Australia (Corporations Act, 2001). For a public company, the Act recommends a
minimum of three directors of whom two should be residing within Australia (Corporations Act,
2001).
Within the Board, the ASX recommends the presence of non-executive directors (NEDs
who should also be the majority on the board. A recent decision of (Jaques v AIG Australia Ltd,
2014), provided a summary difference between the executive directors(Eds) and NEDs. In the
ruling, the judge stated that EDs discharges their duty as the company’s management employees
while NEDs are independent of the company’s corporate management. The ASX also
recommends separation of the chair and the CEO and states that it is only NEDs who should
make up the audit committee and with a higher number of independent directors.
Board style
Australian companies adopt a single-tier style which allows the board to directly
intervene on matters of the operation of the company (Block and Gerstner, 2016). The board
involvement has been stated to play a pivotal role of corporate governance particularly when its
characteristics include; size, composition, diversity, frequent meetings, styles, committee
structure, gender diversity, and efficient interrelationship skills (Sifile, Suppiah and Chavunduka,
2015). The work of (Jan and Sangmi, 2016) further emphasize that involvement of the board in
supportive and advisory roles helps in ensuring smooth operations of the company. Looking at
the functions named above, it is evident that these roles entail the main roles under which board
evaluation entails.
4) Transparency and accountability of the company
Compliance with listing requirements and filing

Corporate Governance and Ethics 11
In Australia, listing refers to the process of transforming a company that has been owned
privately into a publicly-owned company. One of the main advantages of listing is that it allows
an organization to raise capital in a wider market than when it was privately-owned. In addition,
the company is able to expand its business through acquisitions or establishment of new
businesses. Besides, a listed company gives its shareholders an opportunity to trade and realize
the value of their shares in a larger market. Among other things, listed companies have higher
public recognition than their counterparts non-listed. Having public recognition means improved
commercial status and attracts more investors.
The recommendations provided in (Australian Security Exchange[ASX], 2014) listed
have to ensure their compliance with both listing and filing requirements. The main requirements
include timely preparation and submission of statutory documents, financial reports, board
reports, and auditing notices. There are three admission categories upon which companies are
listed on ASX. The first category is called general admission or ASX Listing. Companies for this
category are required to meet the assets test or the profit test (ASX, 2016). The second category
is foreign exempt. This category is left for foreign companies that seek to be listed with ASX
(ASX, 2016). The last category is called the debt issuer and its requirements require the company
to provide a quote of its debt and other requirements which include the minimum net tangible
asset and corporate form (ASX, 2016).
Shareholders reporting/Common Reporting Standards
Sustainability reports are increasingly becoming a new approach to corporate reporting.
The sustainability reports act as the best vessels of demonstrating an organization’s
accountability and transparency. From shareholders’ perspectives, sustainability reports provide
more information regarding how the firm has been performing in both social and environmental

Corporate Governance and Ethics 12
domains (Sisaye, 2011). According to (Parliament of Australia, 2019), Sustainability reporting
entails corporations demonstrating their responsibility by analyzing and reporting to the public
their economic, social and environmental contributions. The (Parliament of Australia, 2019) also
states that sustainability reports can be delivered in different forms such as being included within
the organization’s annual report, as a standalone report, an environmental report, or a social
impact report.
Trust between board members.
Regardless of the responsibilities of each board member, every board member must work
to his/her best capacity in the development of a good work relationship with other board
members. A strong working relationship contributes a collective trust with the board which
enables them to achieve a common goal (Australian Institute of Company Directors[AICD],
2016). However, the lack of frequent board sittings causes the process of relationship building to
take some time thus requiring more time to develop trust with each other. Despite that, the board
can always take special projects that create chances of more meeting which can act as a trust-
building moment. Also, other activities such as board dinners can be helpful in enhancing trust
board members.
Conclusion
This paper aimed to provide a report on matters of corporate governance that can be used
by company leaders such as Mr. Y. K. The main intention of this paper was to cover concepts
duties, rights, and competences of a director, the scope of the committee work, matters of board
structure and styles, and matters of transparency and accountability of the company. Under the
duties, the paper affirmed the duty of care owed by the directors as provided in the statutes.