ASX Corporate Governance Council

Summary of Principles of Good Corporate Governance and Best Practice Recommendations March 2003

What is corporate governance?

• Corporate governance is the system by which companies are directed and managed. It influences … the objectives of the company … how risk is monitored and assessed, and how performance is optimised.

• Good corporate governance structures encourage companies to create value … and provide accountability and control systems commensurate with the risks involved.

Why is good corporate governance important to Australia?

It can lower the cost of capital.

It promotes investor confidence.

It is important for Australia to respond to global best practice.

How is good corporate governance achieved?

There is no single model of good corporate governance. The ASX Corporate Governance Council has recommended 10 core principles that underlie good corporate governance. These principles are of equal importance.

Their adoption is not mandatory.

The essential corporate governance principles

A compan y should: Page 1. Lay solid foundations for management and oversight 15

Recogn ise and pub lis h the respective roles and respons ibilit ies of board and manag ement.

2. Structure the board to add value 19

Have a board of an effective co mposit ion , size and commitm ent to adequa tely d is cha rge its respons ibili tie s and du ties.

3. Promote ethical and responsible decision-making 25

Actively promote ethical and respons ible decision-making.

4. Safeguard integrity in financial reporting 29

Have a structure to ind ependen tly ve rif y and safegu ard the integrit y of the company ’s finan cial r eporting.

5. Make timely and b alanced d isclosure 35

Promote tim ely and balanc ed disclosure of all material matters conc erning the co mpany .

6. Respect the rights of shareholders 39

Respect the rights of shareho lders and facil itate the effective exe rcis e of those rights.

7. Recognise and ma nage risk 43

Establi sh a sound system of risk over sight and manage ment and internal control.

8. En courage enhanced performance 47

Fair ly review and actively encou rage enhanc ed board and manage me nt effectivenes s.

9. Remunerate fairly and responsibly 51

Ensu re that the level and compositi on o f remuneration is sufficient and reasonab le and that it s relationsh ip to corporate and individu al performanc e is defined.

10. Recognise the legitimate interests of stakeholders 59

Recogn ise lega l and other obli gations to all legitim ate stakeho lders.

Principal 1: Lay solid foundations for management and oversight Formalise and disclose the functions reserved to the board and those delegated to management.

Adopt a … formal board charter that details the functions and responsibilities of the board … or a formal statement of delegated authority to management.

Principle 2: Structure the board to add value A majority of the board should be independent directors. An independent director is independent of management and free of any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with – the exercise of their unfettered and independent judgement.

Principle 2

• The chairperson should be an independent director.

• The roles of chairperson and chief executive officer should not be exercised by the same individual.

• The board should establish a nomination committee.

Principle 3: Promote ethical and responsible decision-making Clarify the standards of ethical behaviour required of company directors and key executives – establish a code of conduct Integrity is noted as fundamental, though not able to be achieved by regultion.

Principle 4: Safeguard integrity in financial reporting • Require the CEO and the CFO to state in writing to the board that the company’s financial reports present a true and fair view of its financial condition in accordance with relevant accounting standards.

• Establish an audit committee of at least 3, not chaired by chair of board and comprised of non executive directors, mostly independent.

Principle 5: Make timely and balanced disclosure Develop continuous disclosure policies and procedures.

Principle 6: Respect the rights of shareholders

Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings.

Principle 7: Recognise and manage risk

Establish a system to • identify, assess, monitor and manage risk • inform investors of material changes to the company’s risk profile.

The CEO and CFO should certify to the board that the company’s risk management and compliance systems are operating effectively.

Principle 8: Encourage enhanced performance

• Disclosure of performance evaluation of the board.

• Induction program for new directors.

• All board members to have direct access to company secretary.

• Board members to have access to independent advice at company expense.

Principle 9: Remunerate fairly and responsibly

• Disclose company’s remuneration policies including cash, fees and other benefits.

• The board should establish a remuneration committee

Principle 10: Recognise the legitimate interests of stakeholders • Public or social accountability is generally based on notions of legitimacy, fairness and ethics. The board has a responsibility to set the tone and standards of the company and to oversee adherence to these. • Establish a code of conduct to guide compliance with legal and other obligations & disclose to legitimate stakeholders.