Corporate governance codes in Australia and New Zealand: Propriety and prosperity

Overview of the central features of corporate governance codes, 'Principles of Good Corporate Governance and Best Practice Recommendations' (released by the ASX Corporate Governance Council) and 'Corporate Governance in New Zealand, Principles and Guidelines' (released by New Zealand Securities Commission) - whether the codes address the right problem - are the solutions of independence and disclosure conceptually and practically viable - whether codes pay sufficient attention to wealth creation.

The effect of national governance codes on firm disclosure practices : evidence from analyst earnings forecasts

This study examines whether voluntary national governance codes have a significant effect on company disclosure practices. Two direct effects of the codes are expected: 1) an overall improvement in company disclosure practices, which is greater when the codes have a greater emphasis on disclosure; and 2) a leveling out of disclosure practices across companies (i.e., larger improvements in companies that were previously poorer disclosers) due to the codes new comply-or-explain requirements. The codes are also expected to have an indirect effect on disclosure practices through their effect on company governance practices. The results show that the introduction of the codes in eight East Asian countries has been associated with lower analyst forecast error and a leveling out of disclosure practices across companies. The codes are also found to have an indirect effect on company disclosure practices through their effect on board independence. This study shows that a regulatory approach to improving disclosure practices is not always necessary. Voluntary national governance codes are found to have both a significant direct effect and a significant indirect effect on company disclosure practices. In addition, the results indicate that analysts in Asia do react to changes in disclosure practices, so there is an incentive for small companies and family-owned companies to further improve their disclosure practices.

An analysis of the corporate governance practices of smaller listed Australian companies

We examine the corporate governance environment of smaller listed Australian firms to investigate the factors that determine how firms respond to recommendations contained in corporate governance codes. We group corporate governance recommendations into three distinct categories and argue that differences in adoption costs between categories, together with firm specific factors, determine a firm’s decision to conform with the recommendation or to explain the reasons for non-conformance. Analysis of the conformance by smaller firms with governance recommendations highlights substantial differences in adoption rates between categories of recommendations. Our results also reveal that the cost of adopting specific recommendations, together with profitability, external audit quality, and ownership dispersion, jointly explain a firm’s decision to ‘comply or explain’. This study provides insights for policy makers and regulators regarding the appropriateness of corporate governance recommendations for smaller firms

Convergence in European corporate governance : the audit committee concept

This paper analyses recent corporate governance codes issued by 20 countries for evidence of convergence in corporate governance systems in Europe. The analysis shows that there has been a degree of convergence towards an Anglo-Saxon model of corporate governance as the audit committee concept is widely accepted in countries with both unitary and two-tier governance systems. Further, the latest audit committee recommendations in countries that have issued several governance codes show a strengthening of the recommendations for an audit committee over time in line with the Anglo-Saxon audit committee concept and convergence with the debate in the US and UK on issues such as the independence and financial expertise of members. However, consistent with the literature on the convergence of European corporate governance systems, at an operational level there is limited consistency in the recommended structure and role of audit committees.

Examining corporate governance disclosures of listed companies in Fiji

In 2009, the Capital Markets Development Authority (CMDA) - Fiji’s capital market regulator - introduced the Code of Corporate Governance (the Code). The Code is ‘principle-based’ and requires companies listed on the South Pacific Stock Exchange (SPSE) and the financial intermediaries to disclose their compliance with the Code’s principles. While compliance with the Code is mandatory, the nature and extent of disclosure is at the discretion of the complying entities. Agency theory and signalling theory suggest that firms with higher expected levels of agency costs will provide greater levels of voluntary disclosures as signals of strong corporate governance. Thus, the study seeks to test these theories by examining the heterogeneity of corporate governance disclosures by firms listed on SPSE, and determining the characteristics of firms that provide similar levels of disclosures. We conducted a content analysis of corporate governance disclosures on the annual reports of firms from 2008-2012. The study finds that large, non-family owned firms with high levels of shareholder dispersion provide greater quantity and higher quality corporate governance disclosures. For firms that are relatively smaller, family owned and have low levels of shareholder dispersion, the quantity and quality of corporate governance disclosures are much lower. Some of these firms provide boilerplate disclosures with minimal changes in the following years. These findings support the propositions of agency and signalling theory, which suggest that firms with higher separation between agents and principals will provide more voluntary disclosures to reduce expected agency costs transfers. Semi-structured interviews conducted with key stakeholders further reinforce the findings. The interviews also reveal that complying entities positively perceive the introduction of the Code. Furthermore, while compliance with Code brought about additional costs, they believed that most of these costs were minimal and one-off, and the benefits of greater corporate disclosure to improve user decision making outweighed the costs. The study contributes to the literature as it provides insight into the experience of a small capital market with introducing a ‘principle-based’ Code that attempts to encourage corporate governance practices through enhanced disclosure. The study also assists policy makers better understand complying entities’ motivations for compliance and the extent of compliance.

Behaviour and rationality in corporate governance

Marnet, Oliver, 'Behaviour and rationality in corporate governance', Journal of Economic Issues (2005) 39(3) pp.613-632 RAE2008

Security of employee entitlements : corporate governance issues

Following the collapse across the last decade of a number of large organizations such as Enron in the USA and several domestic organizations including Ansett Airlines, HIH Insurance and One.Tel, much discussion has ensued about the need to secure employee entitlements. However, tangible improvements in this area are elusive. Good corporate governance policies would suggest that deferred obligations as well as current debts should not be neglected and that appropriate arrangements be put in place to adequately fund employee entitlements. In this paper we consider recent Australian attempts to introduce better governance of employee entitlements.

Role of corporate governance in mitigating the selective disclosure of executive stock option information

We examine the nature and extent of statutory executive stock option (ESO) disclosures by Australian listed companies over the 2001 to 2004 period, and the influence of corporate governance mechanisms on these disclosures. Our results show a progressive increase in overall compliance from 2001 to 2004. However, despite the improved compliance, the results reveal managements’ continued reluctance to disclose more sensitive ESO information. Factors associated with good internal governance, including board independence, audit committee independence and effectiveness, and compensation committee independence and effectiveness are found to contribute to improved compliance. Similarly, certain external governance factors are associated with improved disclosure, including external auditor quality, shareholder activism (as proxied by companies identified as poor performers by the Australian Shareholders’ Association), and regulatory intervention.

Regulating corporate governance in China and Hong Kong : do Chinese values and ethics have a place in the age of globalization?

Much has been said about the convergence of corporate governance and regulations. The underlying assumptions of this phenomenon are driven by globalisation and the dominance of the Anglo-US model of corporate governance. Since the Asian crisis in 1997, Hong Kong and perhaps to a less extend Mainland China, had amended both Company laws and Stock Exchange Listing Rules obligations, arguably, mirroring provisions and rules in the UK and US. However, there has been a small amount of literature in law drawing from cross cultural management asking the question - is Western governance and regulation appropriate for the East? This paper will approach this issue from a different mindset, instead of drawing distinctions about East and West, a meta-regulatory framework will attempt to incorporate Western ‗hard‘ and ‗soft‘ laws with Asian ethical values. The aim is to combine laws and ethics thereby enhancing corporate governance and, improve compliance of those rules by adapting Chinese ethical values like Confucianism into the regulatory system. The overarching goal of this exercise is to adapt the wisdom of Chinese ethics into regulatory guidelines to suit the modern global market.

Conceptualising a Chinese corporate governance framework : tensions between tradition, ideologies and modernity

Reflects on the challenges facing China's efforts to reform its corporate governance framework, and the extent to which the modernisation can be reconciled with the country's cultural traditions. Examines the development of China's legal and economic reforms since 1978, the debate which these have generated ad the shortcomings of the current corporate governance regime. Discusses how Confucian principles might be applied to issues of director's duties and corporate governance, and explains the benefits of such an approach.

Corporate governance in China : the role of the state and ideology in shaping reforms

Examines the political and ideological influences on China's economic reforms since the early 1980s. Discusses the influence of the Chinese Communist Party and Confucianism on economic progress and assesses the effect of reforms. Outlines the requirement for new corporate governance laws to meet the needs of expanding private businesses and considers China's use and adaptation of some Western models of corporate governance. Comments on whether these fit easily with China's business culture. Criticises the shortcomings of China's corporate laws. Looks in particular at the telecommunications industry and at the Company Law 2006.

Rethinking corporate governance and law in China : the theories, rules and practices

Economic reforms have transformed China into a modern economy - this requires greater emphasis on regulating markets and governing corporations to ensure economic growth continues. Yet, legal reforms are not as straightforward as transplanting Western models; more modification to suit Chinese political land cultural considerations needs to be incorporated. Likewise privatisation of the telecommuications sector does not mean that government influence in the new corporations cease. This is not necessarily negative as long as safeguards are in place. Plainly further reforms to the law and governance will be needed. Given that Confucian philosophy continues to play a central role in Chinese society and values, developing laws and governance practices from Confucian principles will arguably be appropriate for modern China.