Ranking the Key Principles of Corporate Governance

1579 Words May 5th, 2011 7 Pages
This essay will present an opinion on ranking of the key principles of corporate governance. The topic will be covered from the perspective of Australian listed companies, which are subject to regulation by the Australian Securities Exchange (ASX).

The ASX Corporate Governance Council defines corporate governance as “the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations” (ASX 2007 p3). The latest ASX Corporate Governance Council report (ASX 2007) articulates eight core principles, which the report states are of equal importance. Although primarily targeted at listed companies, the ASX principles are being taken into account by other types of organisations
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According to the OECD reports (2008 p2 & 2009) “when they were put to a test, corporate governance routines did not serve their purpose to safeguard against excessive risk taking in a number of financial services companies.” This relates solely to ASX principle 7 – Recognise and manage risk.
• Governance of the remuneration process. Again according to the OECD reports (2008 & 2009) remuneration systems were not always related to the company’s strategy and risk plans, or were not in the company’s longer term interests. This relates directly to ASX principle 8 – Remunerate fairly and responsibly, plus again to principle 7 – Recognise and manage risk.
• Board practices. The OECD reports (2008 & 2009) found weaknesses in board composition, competence and consequential performance. Further, problems with the non-independence of directors and the sharing of the CEO/Chairman roles were raised. This relates to ASX principle 1 – Lay solid foundations for management and oversight, and principle 2 – Structure the board to add value.
• The exercise of shareholder rights. The OECDs report (2008 & 2009) stated that companies should engage with their shareholders better and encourage more shareholder to vote. A concern about the increasing power of institutional investors was raised. This relates to ASX principle 6 – Respect the rights of shareholders.

Whilst it is true that
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