Australian Securities Exchange
Australian Securities Exchange Ltd, is a public company in Australia, through which Australia’s primary security exchange is operated. The company was known as Australian Stock exchange before the December 2006 and had been brought to existence in the on 1st April 1987. The company has been formed under the statue made by the Australian parliament in order to substitute the security exchange of six states. In 2006 the company had a merger with Sydney FutureExchange. The daily average turnover of ASX is of A$4.685 along with a market capitalization of A$1.6 trillion which secures its place in the top 15 listed exchange groups in the world. ASX is a payment system facilitator, clearing house and Market operator (Exchange 2014). This paper discusses the roles and functions of ASX in Australia along with any scope of improvement.
In the year 2002 the ASX conveyed the ASX Corporate Governance Council. Through the council a wide range of shareholders, businesses and industry groups are brought together, where each group offers individual perspectives and insights in relation to corporate governance. The council works under a charter which had been adopted in November 2012 (Basu and Forbe2014). The main role of the council is to issue and develop recommendations which are principle based with respect to corporate governance practices which the ASX listed companies have to adopt. Through the recommendations the council seeks to help the entities which are listed so that they can meet the expectations of the shareholders with respect to corporate governance along with enhancing the confidence of the investors. The corporate governance of the companies have to be benchmarked according to the recommendations provided by the council according to Listing Rule 4.10.3 where the fact and the reasons are not disclosed by them. Through the rules listed entities are effectively encouraged to adopt the recommendations of the council however the recommendations are not forcefully imposed on the companies. The listed corporate entities are also provided an opportunity by the rules to flexibly adopt different corporate governance practices in case they are found to be more beneficial and suitable with respect to its particular situation. However in such case it is mandatory for the board to provide an explanation to the ASX for not using the recommendations and choosing an alternative set of rules (Atif2016).
The first edition of the ASX CG&P had been released on March 2003. The council’s mission in relation to the release was to develop and provide a supported and supportable industry wide framework with respect to corporate governance so that a practical guide could be provided to listed companies along with the investors, the market and the Australian community as a whole (Coffee, Sale and Henderson 2015). The first edition of the CG&P consisted of ten principles to be used by the companies towards corporate governance. According to the first principle the companies have to lay a strong base for management and oversight. Through this principle the companies are provided a role to identify and impose the respective responsibilities and roles with respect to the board and the management. The second recommendation provides that the board has to be structured in such a way through which value is added. Through this recommendation the companies are required to effectively set the commitment, size and compositions of the board so that the duties and responsibilities can be adequately discharged. The third principle provides that responsible and ethical decision making has to be promoted actively by the company which would enhance accountability. The fourth principle provides for the financial reporting safeguard through independent structure incorporation for financial reporting verification. The fifth principle provides that the company has to make balanced and timely disclosure in relation to the material matters of the company. According to the sixth recommendation the rights of the shareholders have to be respected and the proper exercise of such rights also has to be facilitated by the company. According to the seventh recommendation risks have to be identified and addressed through the establishment of a risk management system. The eights principle instructs the companies to encourage better performance through the process of reviews feedback and appraisal. The employees and the managers of the organizations have to be remunerated responsibly and fairly. And lastly the legal rights if the stakeholders have to be identified by the companies (Bugeja et al 2013).
The role of ASX towards corporate governance
The second editions of the CG&P have been published on August 2007. There was not much support of the first edition of CG&P as the recommendations were subjected to high level of reporting by more than 2000 companies listed on the ASX. The second edition highlighted the flexible approach of Australia in relation to corporate governance. The ASX CG&P did not rewrite the principles but just referred them in order to make them more effective. The second edition had been made to make the entities more transparent in relation to their corporate governance practices which would make the investors to do informed decision making. The council realized that corporate governance is a dynamic area where evolution is inevitable and thus the challenge is to provide relevant recommendations and principles to Australian companies. The new editions are a part of the flexible process which reflectsthe significant contribution of 100 public submissions. It had also been promised by the edition that this is not the final word and the document would be subjected to reviews and revisions in the future. The document also provided that good corporate governance policies are not limited to the recommendations and additions and alternations are not forbidden by the council. There are various entities which have adopted a separate framework which equally accounts to good practices in corporate governance. The concern of the council is to ensure that good governance practices are followed by business entities in Australia. The council assures that the wordings may change from time to time but the basic theme in relation to corporate governance would be same. In contrast to the first edition this edition only consisted of eight principles. It does not contain the recommendations related to financial reporting by the organization along with provisions relate to identifying the legal rights of the stakeholders (Council 2014).
The second edition of the CG&P was not subjected to a much criticism which was faced by the 1st edition. The focus of the world in relation to corporate governance had increased considerably with respect to the events which has led to and raised during the financial crisis. In order to respond new legislations with respect to corporate governance have been adopted by different jurisdictions. Thus, the comprehensive review in the year 2012-2013 led to the an agreement between the 21 members of the ASX CG&P Council that a third edition is required which would reflect global changes with respect to CG after the second edition was introduced. Global developments have been reflected through the third edition. The third edition makes the structure of the recommendation even more simplified along with inclusion of greater flexibility related to disclosure by listed companies. The latest edition had been introduced by the council in March 2014 before which it had been amended once in june 2010 after the second edition (Grosse, Kean and Scott 2015).
The Board of directors or the body which is in charge of the governance utilizing care and diligenceis allowed to choose a structure for the purpose of the corporate governance of their listed entities. In case it is identified by the board or any such body that the recommendations provided by the councils are not appropriate in the circumstances in which the company operates, then the board or such body may reject the recommendations. According to the if not why not approach in case the recommendations are rejected the companies must ensure that they provide an explanations to why the recommendations are not suitable for the business to the ASX CG&P Council. Through this approach and explanation it is ensured by the council that a reasonable level of data in relation to the corporate governance arrangements of the company is available. This is ensured so that stakeholders of the company may a reasonable say and discussion with the board of the company in relation to its governance policy. Moreover shareholders can take the decision of the management in order to determine how they should vote on specific resolutions and the investors may know whether or not to make investment in the company based on its governance policies. The “If not, why not”approach is fundamental to proper imposition of CG&P. The concept is really effective as on one hand the council does not have to make the recommendations necessary to achieve business interest and on the other hand the listed companies have to provide explanation which is available to its stakeholders as to why the framework is not been followed (Rose 2014).
The two strike rule had been introduced in Australia in the year 2010. The level at which the executives are being paid has created a public outcry. The two strike rule had been initiated to limit the payments made to the executives by including the shareholders with respect to the remunerations of the executive. The aim of the rule is to increase the accountability of the directors with respect to bonuses and salaries. The full board of the company may be subjected to the process of re-election in case there is a disagreement between the shareholders and the board in relation to remunerations. The first strike comes into existence when the remuneration report provided by the directors had been provided “no vote” by a minimum of 25% of the shareholders (Monem and Ng 2013).
In case the subsequent report published by the board in relation to remunerations is rejected by the shareholders following the same criteria in relation to the first strike the full board of the company has to go through re-election in case a spill resolution is initiated with 50% votes. This rule has been imposed so that increased accountability of the directors along with transparency is assured to the stakeholders.
The occurrence of the two strikes in Australia has been a rare phenomenon. There have been no majorly reported cases where spill and re-election process has been required. However many instances have been identified where the rules has forced the executives to enhance their accountability about remunerations to the shareholder as soon as the first strike has taken place. The subsequent reports published by the company for remunerations have been appropriate for the shareholders to pass without dissent. For instance with respect to Woodside petroleum Ltd the reports were changed after the first strike had been initiated by the shareholders. However the effectiveness of the rule is under question as after the first strike the directors are providing unjust benefits to the shareholders so that no second strike takes place (Holub and Mitchell 2017).
The ASX provisions in relation to the governance of companies is limited only to entities which have are listed. However if the same provisions are applied on the non listed companies such as private proprietary companies the result may not be very beneficial for the owners. This is because the companies which are listed comprises of comprises of public investment and thus need strict governance which may not be required in case of private companies. Furthermore the law may incorporate corpora governance into it as far as they are consistent with the statutory principles such as those provided by the Corporation Act 2001 if case ASX is provided an enhanced role. A few recommendations which have been provided in relation to this paper are
- ASX has to be provided with an enhanced role towards supervising the management of the listed companies and such roles has to be incorporated into statues.
- Private companies has to be kept out of the provisions of the ASX
- The two strike has to be supervised strictly in order to eradicate unethical practices
- The flexibility in relation to the recommendations and principles provided by ASX has to be marinated in the same way along with the efficient use of the “if not, why not” approach.
References
Atif, M., 2016. CEO Compensation and Firm’s Cash Holding: A Pitch. Browser Download This Paper.
Basu, A.K. and Forbes, B., 2014. Does fundamental indexation lead to better risk?adjusted returns? New evidence from Australian Securities Exchange. Accounting & Finance, 54(3), pp.699-728.
Bugeja, M., da Silva Rosa, R., Shan, Y., Walter, T.S. and Yermack, D., 2016. Life after a Shareholder Pay’Strike’: Consequences for ASX-Listed Firms.
Coffee Jr, J.C., Sale, H. and Henderson, M.T., 2015. Securities regulation: Cases and materials.
Council, A.C.G., 2014. Corporate Governance Principles and Recommendations, 3rd edn (ASX, Sydney).
Exchange, A.S., 2014. Corporate Governance Council, 2014. Corporate Governance Principles and Recommendations. Available at: https://www. asx. com. au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn. pdf.
Grosse, M., Kean, S. and Scott, T., 2015. Shareholder say on pay and CEO compensation: three strikes and the board is out. Accounting & Finance.
Holub, M. and Mitchell, J., 2017. Overseas Buybacks on the ASX: Disclosure Requirements and Signalling Impact. AUSTRALIAN BUSINESS LAW REVIEW, 45(1), pp.28-60.
Monem, R. and Ng, C., 2013. Australia’s ‘two-strikes’ rule and the pay-performance link: Are shareholders judicious?. Journal of Contemporary Accounting & Economics, 9(2), pp.237-254.
Rose, A., 2014. The informational effect and market quality impact of upstairs trading and fleeting orders on the Australian Securities Exchange. Journal of Empirical Finance, 28, pp.171-184.
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