Corporate Governance

Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. In the Australian business landscape, it is the framework that defines the relationships between a company’s management, its board, its shareholders, and other stakeholders.

Effective corporate governance provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. For Australian organisations—whether ASX-listed public companies, private entities, or non-profits—governance is not merely about compliance; it is a critical driver of accountability, risk management, and long-term value creation.

The Australian Corporate Governance Framework

Unlike some jurisdictions that rely heavily on prescriptive black-letter law, Australia utilises a "hybrid" model. This combines mandatory requirements found in legislation with voluntary "if not, why not" principles for listed entities.

The primary pillars of the Australian governance framework include:

1. The Corporations Act 2001 (Cth)

The Corporations Act 2001 is the primary legislation regulating companies in Australia. It sets out the legal duties of directors and officers, including the duty to act with care and diligence, the duty to act in good faith, and the duty to avoid Conflict of Interest. Failure to comply with these statutory duties can result in severe civil and criminal penalties enforced by the regulator.

2. The Australian Securities and Investments Commission (ASIC)

ASIC is Australia’s independent corporate regulator. They are responsible for enforcing the Corporations Act and ensuring that company directors and officers carry out their duties lawfully. ASIC plays a central role in maintaining market integrity and investor confidence.

3. The ASX Corporate Governance Principles

For public companies listed on the Australian Securities Exchange (ASX), the ASX Corporate Governance Council publishes the Corporate Governance Principles and Recommendations. While these are not law, ASX Listing Rules require listed entities to disclose the extent to which they have followed these recommendations during the reporting period. If they have not followed a recommendation, they must explain "why not."

The ASX Corporate Governance Principles and Recommendations

The current benchmark for governance in Australia is the 4th Edition of the ASX Corporate Governance Principles and Recommendations. These principles are widely adopted as best practice even by non-listed companies and large non-profits.

There are eight central principles:

  1. Lay solid foundations for management and oversight: A listed entity should clearly delineate the respective roles and responsibilities of its [Board of Directors] and management and regularly review their performance.

  2. Structure the board to be effective and add value: The board should be of an appropriate size, composition, skills, and commitment to enable it to discharge its duties effectively.

  3. Instil a culture of acting lawfully, ethically, and responsibly: A listed entity should instil and continually reinforce a culture across the organisation of acting lawfully, ethically, and responsibly.

  4. Safeguard the integrity of corporate reports: The entity must have appropriate processes to verify the integrity of its corporate reports.

  5. Make timely and balanced disclosure: All investors should have equal and timely access to material information concerning the entity.

  6. Respect the rights of security holders: A listed entity should provide its security holders with appropriate information and facilities to allow them to exercise their rights effectively.

  7. Recognise and manage risk: The board should establish a sound risk management framework and periodically review the effectiveness of that framework.

  8. Remunerate fairly and responsibly: Remuneration should be sufficient to attract, retain, and motivate high-quality directors and senior executives, aligned with the creation of value for security holders.

Key Roles in Corporate Governance

Governance is ultimately delivered by people. The following roles are critical to the governance ecosystem.

The Board of Directors

The Board is the primary governing body. It bears the ultimate responsibility for the company's performance and compliance. The Board appoints the CEO, approves the strategic direction, and ensures that appropriate risk management systems are in place.

The Chair

The Chair (or Chairperson) leads the Board. In Australia, it is considered best practice for the Chair to be an independent [Non-Executive Director] to ensure a clear separation of power between the board’s oversight role and management’s executive role.

The Company Secretary

Once viewed as administrative, the modern Company Secretary is a Chief Governance Officer. They advise the Board on governance matters, ensure compliance with the Corporations Act and ASX Listing Rules, and manage the flow of information between the Board, committees, and management. They are also responsible for accurate Meeting Minutes, which act as the legal record of board decisions.

Governance for Non-Profits and Charities

For the Not-for-Profit (NFP) sector, the Australian Charities and Not-for-profits Commission (ACNC) acts as the primary regulator. Charities must comply with the ACNC Governance Standards to remain registered.

The ACNC Governance Standards require charities to:

  • Operate lawfully.

  • Be accountable to members.

  • Ensure "Responsible People" (directors/committee members) are suitable and understand their duties.

  • Maintain their not-for-profit nature.

While the specific regulations differ from the ASX, the underlying principles of transparency, accountability, and prudence remain the same.

Modern Governance Challenges in Australia

Corporate governance is not static. As of 2025, Australian boards are facing evolving challenges that require dynamic governance frameworks.

ESG and Climate Reporting

Environmental, Social, and Governance (ESG) factors have moved from "nice to have" to "license to operate." Australian regulators are increasingly focused on "greenwashing" and the accuracy of climate-related financial disclosures. Boards are now expected to have a deep understanding of their organisation’s sustainability risks.

Cyber Security and Data Governance

Following several high-profile data breaches in corporate Australia, cyber resilience has become a core governance issue. It is no longer just an IT problem; it is a Board-level risk. Directors are expected to verify that management has robust frameworks to protect data and respond to cyber incidents.

Digital Transformation

Governance bodies are increasingly overseeing major digital transformation projects. Boards must balance the risk of digital disruption with the risk of investing in unproven technologies.

The Role of Board Management Software

In the modern Australian governance landscape, the days of printing, binding, and posting "board packs" are largely over. Board Management Software, like BoardCloud, has become an essential tool for Good Governance.

Here is how board software supports the governance framework:

  • Security: It ensures that sensitive board papers are distributed via encrypted channels, mitigating the risk of data leaks (Governance Principle 7).

  • Access to Information: It provides directors with instant access to historical archives, policies, and the constitution, ensuring they have the information required to make decisions (Governance Principle 2).

  • Efficiency: It streamlines the [Meeting Agenda] creation and distribution process, allowing the Company Secretary to focus on advisory duties rather than administration.

  • Compliance: Features like digital signatures and traceable voting records ensure that a clear audit trail exists for all decisions and Resolutions.

Conclusion

Corporate Governance in Australia is a sophisticated blend of statutory obligations and voluntary principles. Whether for a massive ASX-listed entity or a growing non-profit, the goal remains the same: to ensure the organisation is managed in a way that protects the interests of stakeholders and ensures long-term sustainability.

By adhering to frameworks like the ASX Principles and leveraging modern tools like BoardCloud, organisations can build a culture of integrity that drives performance and minimizes risk.

Frequently Asked Questions (FAQ)

What is the "if not, why not" approach?

The "if not, why not" approach is central to the ASX Corporate Governance Principles. It means that listed companies are not legally compelled to follow every recommendation in the ASX Principles. However, if a company chooses not to follow a specific recommendation (perhaps because it is too small or the recommendation doesn't fit its structure), it must explain why it has not done so in its annual corporate governance statement. This allows for flexibility while maintaining transparency.

What are the main duties of a director in Australia?

Under the Corporations Act 2001, the primary duties of a director include:

  • Duty of care and diligence: Acting with the degree of care a reasonable person would in that position.

  • Duty of good faith: Acting in the best interests of the corporation and for a proper purpose.

  • Duty not to misuse position or information: Not using their role or inside information to gain an advantage for themselves or others.

  • Duty to prevent insolvent trading: Ensuring the company does not incur debt if it is unable to pay its bills.

How does the ACNC affect corporate governance?

The Australian Charities and Not-for-profits Commission (ACNC) regulates registered charities. It enforces a set of Governance Standards that charities must meet to maintain their registration and tax concessions. These standards effectively replace some of the ASIC requirements for charities, focusing on the suitability of directors (Responsible People), accountability to members, and adherence to the charity's purpose.

Is a Company Secretary required for all Australian companies?

Public companies in Australia must appoint at least one Company Secretary. Proprietary (private) companies are not legally required to have a Company Secretary under the Corporations Act, but many choose to appoint one to ensure governance obligations are met. If a private company does not appoint a secretary, the directors usually assume the responsibility for the secretary's statutory duties.