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Page 1 of 3

Principles of Contemporary Corporate Governance
  • 5th edition
  • Jean Jacques du Plessis, Anil Hargovan, Beth Nosworthy
  • Coming soon
  • Expected online publication date:
    October 2024
    Print publication:
    27 June 2024
  • Corporate governance plays a key role in ensuring that companies act responsibly and legally in the pursuit of long-term, sustainable growth. Now in its fifth edition, Principles of Contemporary Corporate Governance offers a comprehensive introduction to the rules and regulations of corporate governance systems. It takes an inclusive stakeholder approach to examine how companies apply corporate governance principles in the private sector. The four-part structure has been consolidated and streamlined to provide logical coverage of fundamental contemporary themes and issues. The text has been updated to include new case studies and discussion of recent developments, such as the impact of the Covid-19 pandemic and the destruction of a sacred rock shelter at Juukan Gorge. A new section on corporate governance in Singapore offers insight into corporate governance internationally. Written by an expert author team, Principles of Contemporary Corporate Governance remains an indispensable resource for business and law students studying corporate governance.

  • 10 - Shareholder Engagement and Voting in Australia

  • from Part II - Australia and North America
  • Edited by Harpreet Kaur, Chao Xi, The Chinese University of Hong Kong, Christoph Van der Elst, Tilburg University, The Netherlands, Anne Lafarre, Tilburg University, The Netherlands
  • Book:
    The Cambridge Handbook of Shareholder Engagement and Voting
    Published online:
    10 September 2022
    Print publication:
    15 September 2022, pp 191-213

  • Summary

    Legal means of shareholder engagement in Australia vary considerably, ranging from reliance on shareholder rights conferred under the Corporations Act 2001 (Cth) to reliance on class actions seeking the collective enforcement of legal rights arising from corporate conduct. This chapter offers an introduction to Australia’s corporate governance framework in the context of corporate decision making and the exercise of shareholders voting rights. The balance of power between shareholders and the board of directors, and its legal impact on shareholder engagement, is highlighted. Insights are provided into the legal means of shareholder engagement in Australia and the manner in which votes are exercised. There is growing evidence of shareholder apathy and the dominance of institutional investors and proxy advisors. The chapter charts the recent trend towards active shareholder engagement on ESG and human rights issues at Annual General Meetings, notwithstanding the limited opportunities to propose advisory or non-binding resolutions at meetings.

  • 12 - Corporate governance in the EU, the G20/OECD Principles of Corporate Governance, and corporate governance in Germany, Japan, China and Indonesia

  • from PART III - CORPORATE GOVERNANCE IN INTERNATIONAL AND GLOBAL CONTEXTS
  • Jean Jacques du Plessis, Deakin University, Victoria, Anil Hargovan, University of New South Wales, Jason Harris, University of Technology Sydney UTS
  • Book:
    Principles of Contemporary Corporate Governance
    Published online:
    21 June 2018
    Print publication:
    02 February 2018, pp 310-400

  • Summary

    Nothing so concentrates the mind as an urgent and complex problem.

    Frederick G Hilmer, Strictly Boardroom: Improving Governance to Enhance Company Performance (Hilmer Report (1993))

    Introduction

    In Chapter 11 we discussed corporate governance in the US, the UK, New Zealand, Canada, South Africa and India. They are some of the major traditional Anglo-American corporate governance jurisdictions. There are among them some fundamental differences in approach. In this chapter the focus is on corporate governance developments in countries where the two-tier board system is used. The number of EU member states with different corporate law systems makes corporate governance harmonisation quite difficult, but also leads to very interesting and dynamic discussion within the EU. The OECD Principles cover board structures. Germany has a two-tier board structure with employee representatives forming part of the supervisory board. Elements of the German corporate governance model influenced the original Japanese corporate governance model, but Anglo-American influence emerged after World War II. China has a unique corporate governance model because Chinese corporations were traditionally state-owned and many major corporations are still either state-owned or statecontrolled. Nevertheless, elements of both the German model and the Anglo-American model, especially as far as independent, non-executive directors for listed companies are concerned, have influenced the Chinese corporate governance model. Indonesia also has a two-tier board model, originally based on the Dutch model, but is now developing its own corporate governance principles based on international best practices. Indonesia is of course important for Australia, because of its close proximity and the potential for expanding economic and commercial ties between the countries, especially in light of the extensive ongoing negotiations regarding the Indonesia-Australia Comprehensive Economic Partnership (IA-CEPA).

    European Union (EU)

    Enhancing corporate governance

    The European Commission (EC) represents the interests of the EU as a whole. It proposes new legislation to the European Parliament and the Council of the European Union, and it ensures that EU law is correctly applied by member countries.

  • 8 - Auditors and audits

  • from PART II - CORPORATE GOVERNANCE IN AUSTRALIA
  • Jean Jacques du Plessis, Deakin University, Victoria, Anil Hargovan, University of New South Wales, Jason Harris, University of Technology Sydney UTS
  • Book:
    Principles of Contemporary Corporate Governance
    Published online:
    21 June 2018
    Print publication:
    02 February 2018, pp 174-192

  • Summary

    Audited financial statements are an important part of the financial information that is available to the capital markets and an important part of effective corporate governance.

    Ian M Ramsay, Independence of Australian Company Auditors: Review of Current Australian Requirements and Proposals for Reform, Report to the Minister for Financial Services and Regulation, Department of Treasury (October 2001) [4.01]

    Introduction: The audit role and where it fits into corporate governance

    Overview of the audit role

    Auditing is defined as an assurance service that objectively gathers evidence and communicates it to third parties. Companies that are required to prepare a financial report for a financial year must have their financial report audited and obtain an auditor's report. Thus all large proprietary companies and public companies must appoint an auditor. Small proprietary companies, and small companies limited by guarantee, are not required to prepare a financial report in normal circumstances and hence need not appoint an auditor. However, they must do so in a limited range of circumstances, namely where members holding at least 5 per cent of the votes in a general meeting require preparation of accounts and ask for an auditor.

    Broadly, the function of an auditor is to conduct a review and verification of the financial affairs of the company and to ascertain whether the financial report provided by the company complies with relevant legal requirements and accounting principles, and gives a true and fair account in all material respects of the company's financial affairs. The audit role has several objectives. The main one is to provide reasonable assurance that the financial information reported by the company is free from material misstatement. In the process, auditors provide a barrier of protection against careless or dishonest company officers. In order to fulfil this role, the auditor must have suitable skills and expertise, and must be independent of the company.

    The main auditing requirement is to provide a report to the members, within the financial report, for a financial year. This is laid before the annual general meeting and lodged with the Australian Securities and Investments Commission (ASIC).

    It is important to note that the auditor's role is essentially procedural, not substantive, in nature. More particularly, pursuant to sections 307 and 308 of the Corporations Act 2001 (Cth), the auditor's report to members must set out a number of matters in relation to the financial report for a financial year.

  • 3 - Board functions and structures (with contributions by Jeanne Nel de Koker)

  • from PART I - BASIC CONCEPTS, BOARD STRUCTURES AND COMPANY OFFICERS
  • Jean Jacques du Plessis, Deakin University, Victoria, Anil Hargovan, University of New South Wales, Jason Harris, University of Technology Sydney UTS
  • Book:
    Principles of Contemporary Corporate Governance
    Published online:
    21 June 2018
    Print publication:
    02 February 2018, pp 71-87

  • Summary

    There is now overwhelming evidence that the board system is falling well short of adequately performing its assigned duties. Without fundamental improvement by individual boards, the entire board system will continue to be attacked as impotent and irrelevant and the boards of troubled and failing companies will, with good reason, increasingly become the targets of not only aggrieved and angry shareholders but also employees, creditors, suppliers, governments, and the public.

    David SR Leighton and Donald H Thain, Making Boards Work (1997) 3

    Unless they served on a board, people may well imagine that directors behave rationally, that board level discussions are analytical, and that decisions are reached after careful consideration of alternatives. Not often. Experience of board meetings, or of the activities of any governing body for that matter, shows that reality can be quite different. Directors’ behaviour is influenced by interpersonal relationships, by perceptions of position and prestige, and by the process of power. In fact, corporate governance is more about human behavior than about structures and strictures, rules and regulations. Corporate governance involves the use of power. It is a political process.

    Bob Tricker, Corporate Governance: Principles, Policies and Practices (2012) 327

    Higher community expectations of directors

    Initially low standards of care, skill and diligence expected of directors

    Directors’ statutory duties and liability are discussed in greater detail in Chapter 9. It is, however, important to first make a few observations regarding the higher community expectations of directors.

    Based on antiquated English precedents, it has been accepted that directors are not liable for a breach in their duty of care, skill and diligence if they merely acted negligently. One of the first indications that more than ordinary negligence was required is found in an English case decided in 1872, where it was held that directors are liable only for a breach of their duty of care, skill and diligence if they acted with crassa negligentia (gross negligence). This rule was confirmed in a later case (1899) by Lord Lindley MR, one of the most famous English commercial Lords:

    The inquiry, therefore, is reduced to want of care and bona fides with a view to the interests of the nitrate company.

  • 10 - Enforcement of directors' duties

  • from PART II - CORPORATE GOVERNANCE IN AUSTRALIA
  • Jean Jacques du Plessis, Deakin University, Victoria, Anil Hargovan, University of New South Wales, Jason Harris, University of Technology Sydney UTS
  • Book:
    Principles of Contemporary Corporate Governance
    Published online:
    21 June 2018
    Print publication:
    02 February 2018, pp 231-244

  • Summary

    There are no qualifications for being a company director. Even directors of listed companies do not have to take any examinations … In principle, anyone can become a director. One might therefore think that the duties of an office so unexacting in its qualifications would be simple and easy to ascertain. In fact, this is far from the case. In fact, the duties of directors can be discovered only by examining at least three different sources which lie like strata one above the other. The bedrock is the duties which directors owe at common law, or more precisely in equity, simply because they are managing other people's property. Over that layer has been imposed a number of specific statutory duties intended to reinforce the duties at common law. And over that layer has been imposed still further duties under various self-regulatory codes, which are also intended to reinforce the common law duties in areas not thought suitable for legislation.

    Lord Hoffman, ‘Duties of Company Directors’ (1999) 10 European Business Law Review 78

    The governance of a public company should be about stewardship. Those in control have a duty to act in the best interests of the company. They must use the company's resources productively. They must understand that those resources are not personal property. The last years of HIH were marked by poor leadership and inept management. Indeed, an attitude of apparent indifference to, or deliberate disregard of, the company's underlying problems pervades the affairs of the group.

    Report of the HIH Royal Commission (Owen Report), The Failure of HIH Insurance – Volume I: A Corporate Collapse and its Lessons (Commonwealth of Australia, 2003) xiii–xiv

    Introduction

    The Australian Securities and Investments Commission (ASIC), as the primary corporate regulator, has had some spectacular successes, as well as failures, in enforcing the civil penalty provisions underpinning breach of directors’ duties under the Corporations Act 2001 (Cth) (Corporations Act). ASIC has played an active role in enforcing civil penalty provisions against directors and officers.

Principles of Contemporary Corporate Governance
  • 4th edition
  • Jean Jacques du Plessis, Anil Hargovan, Jason Harris
  • Published online:
    21 June 2018
    Print publication:
    02 February 2018
  • Now in its fourth edition, Principles of Contemporary Corporate Governance offers comprehensive coverage of the key topics and emerging themes in private sector corporate governance. It explains both the principles of corporate governance systems and their real-world application in an authoritative and engaging manner. This fully revised and updated text has four parts: basic concepts, board structures and company officers; corporate governance in Australia; corporate governance in international and global contexts; and shareholder activism and business ethics. The coverage of international contexts includes sections on the US, the UK, Canada, South Africa, the EU, the OECD, Germany, Japan, China and Indonesia, plus new sections on New Zealand and India. A new chapter on business ethics and corporate governance presents contemporary discussions on the topic and explores some of the broader legal issues. Principles of Contemporary Corporate Governance is an indispensable resource for business and law students, academic researchers and practitioners

  • 14 - Business ethics and corporate governance (by Suzanne Le Mire)

  • from PART IV - SHAREHOLDER ACTIVISM AND BUSINESS ETHICS
  • Jean Jacques du Plessis, Deakin University, Victoria, Anil Hargovan, University of New South Wales, Jason Harris, University of Technology Sydney UTS
  • Book:
    Principles of Contemporary Corporate Governance
    Published online:
    21 June 2018
    Print publication:
    02 February 2018, pp 418-451

  • Summary

    Companies have proved enormously powerful not just because they improve productivity, but also because they possess most of the legal rights of a human being, without the attendant disadvantages of biology: they are not condemned to die of old age and they can create progeny pretty much at will.

    John Micklethwait and Adrian Wooldridge, The Company: A Short History of a Revolutionary Idea (Modern Library, 2005) xv.

    The greatest trade scandal in Australian history started over lunch. Domenic Hogan was there, which was as much a surprise to him as to anyone. To look at Hogan is not to think: well, here is an international man of mystery. Here is a player in a grand plot to funnel hundreds of millions of dollars to Saddam Hussein's brutal regime … No. On the contrary, to look at Hogan is to think: now here's an ordinary guy.

    Caroline Overington, Kickback: Inside the Australian Wheat Board Scandal (Allen & Unwin, 2007)

    Introduction

    One only has to scan the daily newspaper or follow a newsfeed to find plentiful examples of corporations being criticised for unethical conduct. It would take little more time to find businesses or business leaders who have suffered significant reputational damage, enforcement actions or damages claims. Since the 1970s, a considerable academic and practical literature has developed that considers and explores the field of business ethics, drawing on theory, practice and empirical data. Subjects that consider business ethics have become standard within university business courses. There can be no doubt that the conduct of corporations attracts considerable public interest. For a corporation, the consequences of perceived unethical activity can be profound: they include significant penalties for breaches that amount to regulatory infringements. It can also lead to calls for enhanced regulation and broader scrutiny of corporate activity. In this context the management of a corporation's ethical climate and conduct is increasingly seen as critical to its success, and a matter with which the senior management and the board should be deeply concerned. No book on corporate governance would, therefore, be complete without canvassing this topic.

  • Preface

  • Jean Jacques du Plessis, Deakin University, Victoria, Anil Hargovan, University of New South Wales, Jason Harris, University of Technology Sydney UTS
  • Book:
    Principles of Contemporary Corporate Governance
    Published online:
    21 June 2018
    Print publication:
    02 February 2018, pp xxi-xxiii

  • Summary

    The modern corporation knows few bounds – its widespread use in business and the corporatisation of essential services means that it permeates almost every aspect of our daily lives. It is companies, small and large, that drive economies and that can create economic prosperity for countries. However, all is not bright and shining; companies, especially large multinational public companies, have been the cause of considerable harm to the environment and society generally because of pollution, exploitation of employees and not providing safe working environments. There are too many examples in too many countries to name them all, but as this book originated in Australia, the James Hardie case, where many suffered tremendously because of exposure to asbestos, with little or no respect by the company for those who suffered, is a prime example of why it is of considerable importance that companies are governed properly. We discuss the James Hardie case in detail in Part 2.4.2, as well as in Part 14.2.3 from a business ethics perspective. Principles of corporate governance have a vital role to play in protecting consumers, shareholders, creditors, the environment and society, and in ensuring that companies act responsibly as well as legally.

    Since the appearance of the first edition of Principles of Contemporary Corporate Governance in 2005, developments have gained velocity, and the volume of materials on corporate governance has grown exponentially. This made the appearance of a second edition in 2011 inevitable. The global financial crisis that emerged in about 2008 and global financial uncertainties in the European Union (since 2008) made us predict in 2011 (in the Preface to the second edition of this book) that the discipline of corporate governance would retain its prominence in future. That has indeed been the case, and it was a main motivation for us to bring out the third edition and now this fourth edition of Principles of Contemporary Corporate Governance.

    Again we looked at the book in its entirely and asked how we could keep it relevant and contemporary. We decided not to simply add more materials to the book and make it a monstrous work. Rather, we decided to stick to our original approach of focusing on the fundamental and contemporary principles of corporate governance. However, we also wanted to include more of the corporate governance themes and issues that have become particularly prominent in recent years.

  • 6 - The role of the regulators: ASIC and the ASX

  • from PART II - CORPORATE GOVERNANCE IN AUSTRALIA
  • Jean Jacques du Plessis, Deakin University, Victoria, Anil Hargovan, University of New South Wales, Jason Harris, University of Technology Sydney UTS
  • Book:
    Principles of Contemporary Corporate Governance
    Published online:
    21 June 2018
    Print publication:
    02 February 2018, pp 148-162

  • Summary

    [HIH Insurance Ltd's collapse] is a tale of scoundrels – crooks even, who jockey and grasp and concoct the most ingenious ways to pocket HIH's cash while they still can. Well-placed mates help well-placed mates … Mortgages are forgiven, bonuses awarded, dodgy invoices are fast-tracked and cheques are somehow cleared after the banks have closed. But policy-holders get nothing because that is the new policy, and shareholders might as well not exist.

    The Australian, 15 January 2003

    The regulators failed in their duty to protect the interests of investors in Forrest v ASIC (2012). The ASX failed to enforce timely compliance with the continuous disclosure regime to ensure that the market was properly informed … ASIC failed to succeed in the High Court because of the way it pleaded its case … From the perspective of investor protection, the combined effect of the approaches taken by the regulators, ASX and ASIC, and the High Court [in this case] … has resulted in a ‘perfect storm’.

    John Humphrey and Stephen Corones ‘Forrest v ASIC: “A Perfect Storm”’(2014) 88 Australian Law Journal 26, 37

    Introduction

    This chapter highlights the roles of and relationship between the twin regulators, the Australian Securities and Investments Commission (ASIC) and the Australian Securities Exchange (ASX) in the Australian corporate governance regime. The exercise of ASIC's powers is reviewed and enforcement patterns are commented upon. The chapter sketches the role of the ASX in corporate governance and concludes with remarks addressing the broad philosophical debate on the role of the regulator in light of the carnage (the widespread corporate collapses or near collapses) arising from the Global Financial Crisis, and the pressure on ASIC to be more proactive and to perform to a higher standard. The reasons for the parliamentary inquiry into ASIC's performance are captured in the following passage:

    The emerging revelations about the misconduct of financial advisers in Commonwealth Financial Planning Limited (CFPL), part of the Commonwealth Bank of Australia Group and ASIC's failure to provide satisfactory answers in relation to this matter to the Economics Legislation Committee was the main catalyst for the inquiry.

  • 2 - Stakeholders in corporate governance and corporate social responsibility

  • from PART I - BASIC CONCEPTS, BOARD STRUCTURES AND COMPANY OFFICERS
  • Jean Jacques du Plessis, Deakin University, Victoria, Anil Hargovan, University of New South Wales, Jason Harris, University of Technology Sydney UTS
  • Book:
    Principles of Contemporary Corporate Governance
    Published online:
    21 June 2018
    Print publication:
    02 February 2018, pp 23-70

  • Summary

    What we are witnessing is a shift in the content of the shareholder value norm, so that it comes to represent the idea that shareholders exercise their powers not as representatives of the market, but as agents of society as a whole. The corporate governance of the future will be centrally concerned with how this idea is worked out in practice.

    Simon Deakin, ‘The Coming Transformation of Shareholder Value’ (2005) 13 Corporate Governance: An International Review 16

    To create an enduring society we need a system of commerce and production where each and every act is inherently sustainable and restorative. Business will need to integrate economic, biologic, and human systems to create a sustainable method of commerce. As hard as we may try to become sustainable on a company-by-company level, we cannot fully succeed until the institutions surrounding commerce are redesigned.

    Paul Hawken, The Ecology of Commerce (Harper Business, revised edn, 2010) xii

    Introduction

    As touched upon in Chapter 1, contemporary commentary on corporate governance can, in general terms, be divided into two main camps: those who consider corporate governance as being about building effective mechanisms and measures to satisfy the expectations of the variety of individuals, groups and entities (collectively, ‘stakeholders’) that inevitably interact with the corporation, and those who focus on it in relation to the narrower expectations of shareholders (shareholder primacy).

    This chapter focuses on the first of these objectives, with attention being given to the stakeholders of the company, how the law influences corporations to recognise and protect the interests of these stakeholders, and the relationship between these stakeholders and the underlying objective of companies of achieving and maintaining good corporate governance.

    Steve Letza, Xiuping Sun and James Kirkbride explain the difference between the two corporate governance paradigms, ‘shareholding’ and ‘stakeholding’, as follows:

    Such a division hinges on the purpose of the corporation and its associated structure of governance arrangements understood and justified in theory. On one side is the traditional shareholding perspective, which regards the corporation as a legal instrument for shareholders to maximise their own interests – investment returns. A three-tier hierarchical structure, i.e. the shareholder general meeting, the board of directors and executive managers, is given in company law in an attempt to secure shareholders’ interests …

  • 9 - Directors' duties and liability

  • from PART II - CORPORATE GOVERNANCE IN AUSTRALIA
  • Jean Jacques du Plessis, Deakin University, Victoria, Anil Hargovan, University of New South Wales, Jason Harris, University of Technology Sydney UTS
  • Book:
    Principles of Contemporary Corporate Governance
    Published online:
    21 June 2018
    Print publication:
    02 February 2018, pp 193-230

  • Summary

    A director is an essential component of corporate governance. Each director is placed at the apex of the structure of direction and management of a company. The higher the office that is held by a person, the greater the responsibility that falls upon him or her. The role of a director is significant as their actions may have a profound effect on the community, and not just shareholders, employees and creditors.

    Justice Middleton in Australian Securities and Investments Commission (ASIC) v Healey [2011] FCA 717 at [14]

    Those responsible for the stewardship of HIH ignored the warning signs at their own, the group's and the public's peril. The culture of apparent indifference or deliberate disregard on the part of those responsible for the well-being of the company set in train a series of events that culminated in a calamity of monumental proportions.

    Report of the HIH Royal Commission (Owen Report) (Department of the Treasury, 2003) Vol.1, xiii–xiv

    Introduction

    As a general rule, directors owe their duties to the company as a whole, not to individual shareholders. Historically, directors’ duties and liability were discussed under general law duties (duties at common law or in equity); more recently, they were added to under statutory duties. Under general law duties, most courts and commentators usually draw a distinction between equitable duties based on loyalty and good faith, with a particular focus on fiduciary duties, and the duty to act with due care and diligence (the duty of care). The duty of care may arise under principles of equity and at common law. Fiduciary duties in Australian law are proscriptive, not prescriptive. That is, the duties prohibit the fiduciary from engaging in particular conduct rather than prescribing what the fiduciary must do in particular situations. The failure to act in a reasonable manner has traditionally fallen within the domain of the duty of care, rather than fiduciary duties in equity. The range of equitable duties that are owed by company directors are generally recognised as follows:

  • the duty to act honestly and in the company's best interests;

  • the duty to act for a proper purpose;

  • the duty not to fetter their discretions;

  • the duty to avoid a conflict of interest; and

  • the duty not to act so as to obtain a private profit.

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