Introduction
Corporate governance generally refers to a set of rules and systems or processes that are used by corporate organisations to control business operations. It is also regarded as a means of managing organisations. Generally, corporate governance is all about providing direction and control for the operations of corporate organisations. Corporate governance presents organisations with a useful framework for holding leaders and managers accountable. In addition, it plays an important role during the formulation of objectives and risk management among others. Arguably, the presence of an effective structure for corporate governance leads to value creation and growth in any organisation.
For any corporate governance structure to succeed, it is imperative to clearly outline the responsibilities of management. Ostensibly, effective corporate governance forms a strong foundation for the future growth of corporate entities. A good corporate governance framework also makes it possible for corporate organisations to trust that stakeholders will perform their responsibilities as expected for the good of the organisation.
Importance of Corporate Governance in Australia
By and large, effective corporate governance makes it possible for organisations to establish the cost of capital in a global market. For developing nations, corporate governance is considered to be an important requirement for the development of capital market. In Australia, the importance of corporate governance springs from the belief that all Australian companies are faced with stiff competition globally. Sound corporate governance is thus needed to ensure healthy international competition. All companies in Australia are consequently expected to embrace good corporate governance practices in order to gain a competitive advantage internationally. Therefore, while it is important to ensure a strong local presence, every company in Australia must do so without neglecting the need to establish a strong global presence.
Based on past studies, sound corporate governance practices serves to attract serious investors. Apparently, most investors are afraid of investing in corporate organisations that lack strong corporate governance structures. To a certain extent, effective corporate governance may be used as a powerful strategy to overcome competition. People will always desire to be associated with organisations that have sound corporate governance practices in place.
Laws that Govern Corporate Governance in Australia
The corporate governance framework that controls the operation of Australians companies is made up of a set of legislations, Australian stock exchange rules and guidelines, well established accounting standards, and self-regulatory codes of practice. Both the rights and responsibilities of directors and managers of corporate entities are, for example, strongly embedded in corporate law as well as common law. Similarly, the requirements of financial reporting are included in corporate law and accounting standards. Voluntary self-regulatory codes of practices on the other hand are meant to address different aspects that touch on the internal management of corporate organisations.
A number of laws are in place to reinforce corporate governance in Australia. Australian Securities and Investments Commission Act 2001 (ASIC Act) is one of the laws used to ensure that corporate governance is given priority by all companies operating in Australia (Plessis, Hargovan & Bagaric, 2010). Basically, ASIC undertakes three important roles in promoting corporate governance in Australia. First, the ASIC Act is responsible for ensuring that corporate bodies comply with the requirements of corporate governance. ASIC is also charged with the responsibility of educating the public. Finally, the Act permits ASIC as a body to contribute in reforms that relate to corporate governance. The Financial Services Reform Act 2001also plays a critical role of improving corporate governance in the insurance industry.
Relationship between Law and Corporate Governance
An important association exists between corporate governance and the law. Typically, the law exists to ensure that corporate bodies conduct their business affairs in a manner that adheres to the requirements of the operating business environment.
The law also promotes good relations among shareholders, partners, directors, consumers and other important business associations. Ostensibly, corporate governance may be regarded as part of corporate law and ensures that the affairs of corporate entities are undertaken in a certain way. As earlier explained, corporate governance provides organisations with a means to evaluate leaders and managers and to ensure that they carry out business operations as expected by shareholders. It is a vital tool for ensuring that managers remain accountable to the owners of the business.
From the above explanations, it is obvious that the goal of both the law and corporate governance is to see to it that corporate entities conduct their affairs legally guided by what the shareholders and authorities expect to happen. However, corporate governance has an even greater responsibility of ensuring that a corporate entity distinguishes itself in a competitive environment. Apparently, the competition may be local or global.
Through effective corporate governance, it is possible for a corporate organisation to improve its pubic image and an organisation of for being outstanding. Ordinarily, law ensures that a corporate entity is compliant with state requirements and performs its business operations without digressing from set rules and regulations. In spite of the notable difference in focus, both the law and corporate governance aim to make a corporate entity better. Sticking to the requirements of the law and having an effective corporate governance structure in place are key ingredients for the success of any corporate entity. Among other things, this enables organisations to effectively deal with the ever increasing competition.
Key Bodies that Enforce Governance in Australia
As pointed out earlier, one of the bodies with a responsibility to enforce corporate governance in Australia is the Australian Securities and Investments Commission. Besides reinforcing the corporate law, ASIC is also responsible for setting appropriate business standards and providing guidelines for best practice. The Australian Stock Exchange (ASX) also plays an important role in enforcing corporate governance in Australia. Through various listing rules, ASX ensures that corporate organisations are compliant. Failure to comply automatically triggers a disciplinary action by ASX.
One of the critical requirements by ASX is that all corporate organisations must disclose relevant information regarding its corporate governance practices for any given operational year. By doing this, ASX seeks to ensure that every corporate entity has a corporate governance structure in place. All corporate organisations are thus compelled to see to it that a corporate governance structure exists for every year of operation.
Media Articles that are Examples of Good Corporate Governance in Australia
The article by McConvill (2005) looks at positive corporate governance and its implications for executive compensation in Australia and other places around the world. The Australian Institute for Corporate Responsibility (AICR) also wrote an article to discuss the importance of practicing good corporate governance in Australia (AICR, 2008).
Benefits of Good Corporate Governance in an Organisation
There are quite a number of benefits that an organisation can enjoy by implementing n effective corporate governance structure. Drawing from the article by McConvill (2005), good corporate governance can save a corporate organisation from collapsing. In order to address the problem corporate organisations collapsing, it is advisable to have a solid corporate governance structure in an organisation. Arguably, this goes hand in hand with a good remuneration package for executive in large corporate organisations. It beats logic to remunerate executives lowly while expecting them to give their best and ensure that corporate organisations remain competitive and relevant to the needs of customers.
Arguably good corporate governance requires an organisation to do various things that include hiring highly qualified individuals to take charge of important operations. To function effectively, it is imperative for the board of directors to be provided with quality information. According to AICR (2008), good corporate governance creates an opportunity for corporate entities to increase their share prices. In addition, good corporate governance makes it possible for corporate organisations to attract new investors, retain qualified employees, delight customers as well as to win the confidence of shareholders and that of the entire public. Having a well defined corporate governance structure enables an organisation to operate and succeed in a very competitive business environment.
Media Articles that are Examples of Bad Corporate Governance in Australia
According to an article by LongDog & Associates (2011), the collapse of OneTel and HIH Insurance are two examples of Australian companies that demonstrate what bad corporate governance can lead to. The article by AICR also points out important issues regarding bad corporate governance in Australia (AICR, 2008).
Consequences of Bad Corporate Governance in an Organisation
Without a doubt bad corporate governance can affect an organisation very negatively. The articles by LongDog & Associates (2011) and AICR (2008) look at the terrible outcomes of unhealthy corporate governance practices. Arguably, it is the desire by both companies to go after unrewarding business opportunities and refusal to put aside enough capital to caution themselves against liabilities that resulted in their demise. To a large extent, the situation was made worse by the laxity on the part of management and board of directors to effectively monitor operations and ensure that due diligence was followed in every undertaking.
Generally, good corporate governance is achieved by having a number of requirements in place including rules and regulations, a code of best practice, and the existence of corporate charters about ethics or corporate governance (LongDog & Associates, 2011). Apparently, these are very critical requirements for ensuring that corporate organisations are able to deliver as expected. Without a doubt, it appears that the two companies did not have effective mechanisms to enforce best practice. In view of what happened to OneTel and HIH Insurance companies, it is clear that good corporate governance is needed regardless of the position of an organisation in the society. Despite being well respected companies in Australia, they failed as a result of bad corporate governance.
Among other things, bad corporate governance lowers the reputation of a corporate body and drives investors and customers away. In the same way, partners become careful when it comes to dealing with organisations that are not well managed. Because of bad corporate governance, employees also lose confidence in an organisation and become demoralized. Consequently, the performance of employee goes down and they start thinking of leaving the organisation. Unfortunately, an organisation may lose seasoned employees and getting other experienced ones may not be easy. In the long run, an organisation may suffer great loss in terms of performance.
Customers may also get affected by the poor performance of the organisation which may cause them to seek alternatives for sourcing equivalent goods or services. As a result, the ability of the organisation to effectively deal with competition goes down and competitors eventually take over. In a worst case scenario, bad corporate governance and poor management may finally lead to the death of an organisation.
Website for a Western Australian Organisation with a Corporate Governance Program in Place
The organisation chosen is Siemens Australia. Throughout the world, the organisation is known for its prowess in the technological sector. One of the strengths of the organisation is its ability to focus on quality and ensuring that all its products meet a given set of requirements (Siemens, 2014). The production of goods and provision of services in enhanced through continued training and ensuring that employees receive the support that is necessary for them to deliver appropriately.
To realize its objectives, the organisation has put in place a number of tools. For example, the organisation has a strong financial infrastructure that is designed to ensure sound financial practices. The organisation has also committed to proving health solutions to its customers in order to promote good health and happiness for its customers and employees. The organisation also promotes mobility by networking various transport systems in Australia. In addition, Siemens provides its customers with an opportunity to receive goods that are customized to meet their specific needs.
To stay ahead of its competitors, the organisation has invested in a number of best practices. Through its research and development wing, Siemens sets aside a budget that is specifically meant to address all its research and development needs. The presence of the Siemens Innovation Forum also provides a platform for nurturing innovations. Through its caring Hands program, the organisation is also able to reach out to the less fortunate in the community. Under the organisation’s Health and Safety Policy, key action points are identified and addressed accordingly. In addition, the organisation is committed to being responsible, achieving high levels of performance, and being innovative. To a large extent, the organisation’s corporate governance strategy is responsible for its growth and development in Australia as well as other places in the world.
Summary of Media Article about Future Corporate Governance Trends
According to Dixon (2012), corporate governance failure is a major threat to the future of all organisations. Ostensibly, corporate governance is an important ethical issue that must be handled very carefully by every corporate organisation that desires to growth. Arguably, bad corporate governance is capable of bring down an organisation within a very short time span. Research findings indicate that corporate governance standards are constantly changing and corporate organisations are now expected to raise their standards of corporate governance (Dixon, 2012).
Consequently, corporate organisations are faced with the challenge of determining what they should do in order to get corporate governance to effectively work for them. There are concerns about a number of issues about such as who should take the blame when efforts to promote corporate governance in corporate entities fail to meet the expectations of shareholders, partners, and customers.
References
Australian Institute for Corporate Responsibility (AICR). (2008). Good Governance: Boosting Profits and Reducing Volatility through Better Governance. Web.
Dixon, P. (2012). The Future of Corporate Governance. Web.
LongDog & Associates. (2011). How the Collapse of Onetel and HIH Insurance Changed Corporate Governance in Australia. Web.
McConvill, J. (2005). Positive Corporate Governance and its Implications for Executive Compensation. German Law Journal, 6(12), 1777 – 1804.
Plessis, J. J., Hargovan, A. & Bagaric, M. (2010). Principles of Contemporary Corporate Governance. New York: Cambridge University Press.
Siemens. (2014). Products and Solutions. Web.