Executive SearchArticle in The Age: Governance not up to scratch
July 6, 2006
Publication: The Age
Section: Business
Page: 2
Date: 14/06/2006
By Leon Gettler,
MANAGEMENT REPORTER
SEVERAL Australian mid-cap companies may be exposing investors to serious governance risk, according to a study.
The study found that one in three of the listed mid-tier companies surveyed - ranked from 251 to 400 by market capitalisation - fell short in what is regarded as corporate governance best practice.
Corporate governance best practice is deemed to include boards that have a majority of independent directors and chairmen, and audit, nomination and remuneration committees run by independent directors. Other criteria for good corporate governance include independent external auditors and codes of conduct.
The 2006 Horwath Australia mid-cap corporate governance report found many mid-caps scored poorly in these areas.
According to the report, 50 of the 150 companies surveyed received two out of five stars for corporate governance.
The report, based on a study by the University of Newcastle, gave nine companies a lowly one-star ranking.
"Almost without exception, the board of directors and the associated companies (where they existed), contained no independent members," the report said.
"Overall, there was a scarcity of corporate governance structures."
Companies given one star were owner of Nine Network's Perth affiliate, Sunraysia Television, PAN Australian Resources, Amadeus Energy, ARB Corporation, Diversified United, Objective Corp, Troy Resources NL, Cromwell Corporation and ST Synergy.
The report gave the lowest ranking to ST Synergy because its board did not have an independent member and its chairman, John Athans, was also chief executive.
According to the report, the governance structures of 66 companies (44 per cent) could be described as good or better. But only four received the top ranking: Tasmanian Perpetual, Home Building Society, Coventry Group and Gallery Gold.
Only 28 per cent of the companies surveyed had a majority of independent directors.
But while the corporate governance structures of the companies were not as strong as those of the biggest companies, the differences were not as great as expected.
According to the report, the mid-caps stacked up well on main board independence, having an audit committee with independent directors, non-audit fees, and policies on codes of conduct, risk management and share trading.
The areas where they had some catching up to do were largely to do with remuneration and nomination committees.
