Corporate Governance Principles And Recommendations: A Case Study Of Tabcorp Holdings Ltd

ASX Principles and Recommendations of Corporate Governance

Corporate governance refers to a set of rules, relationships, processes and systems through which authority and managed in corporations. It promotes a system of accountability, thereby improving the investor confidence. A high investor confidence increases the competitiveness of an ASX listed entity for capital in the market.ASX principles and recommendations were introduced first in the year 2003.The revised edition was released in 2007. A second edition was produced in 2010 and it included recommendations on composition of a remuneration committee and the issue of diversity. The latest edition of the ASX principles and recommendations is the 2014 third edition. Following the continuous negative media and public perception in regard to the corporate governance, the Board of directors through its chairperson commissioned this independent review of the company’s compliance to corporate governance principles and recommendations. This follows a court case filed by the the financial intelligence unit AUSTRAC first on July 2015 (Tabcorp Holdings Ltd, 2017). This has since caused consternation of spirits. The principles and recommendations are applicable to ASX listed entities that are likely to attain good governance in the councils view and as such are able to meet the expectations of the investors in those entities. The council however is cognisant of the fact that the various entities may adopt different governance practices based on a range of factors such as corporate culture, the entity size, the history and complexity of the entity. The principles and recommendations are not compulsory and in this view don’t seek to provide corporate governance practices listed entities must adapt.

Tabcorp is an ASX listed entity and as such is subject to part of the recommendations but may create variations based on its environment of practice as well as corporate culture, entity size and history. In the year 1999 it acquired several ventures which included; hotel, keno, casino, other games and wagering systems, and racing interests in New South Wales, Queensland and Victoria. In 2017 March Tabcorp was fined a hefty sum of 45 million dollars for contravening the corporate governance practices on anti-money laundering and counterterrorism (News Limited Network, 2017). Based on the court case and the outcome, the Chief Executive Officer (CEO) of AUSTRAC commented by saying that Tabcorp had shown a consistent and extensive failure in corporate governance as reflected by the amount of the penalty fine. In failing to meet the terrorism and money laundering financing practices the CEO insisted on the far-reaching outcomes of this such as putting the community at risk of organised crimes by organised crime groups and serious criminals. This can also attract those who offer their criminal wealth to black market to finance drug trafficking and terrorist acts (Williams, P, 2017). Certainly these are very serious matters of community interest and Tabcorp has admitted that its failure was due to insufficient processes for consistent management oversight, assurance and operational execution of the money laundering program. Its money laundering, terrorism and financing function was at times under resourced and senior managers did not get regular reports on all matters that were arising (Tabcorp Holdings Ltd, 2017 ).

Method/Technique

The principles and recommendations of corporate governance focuses around 8 core principles. These include the following:

1.  Laying solid fundamentals for management and oversight in the entity:The Roles and Responsibilities of board of directors and management should be made public and monitored regularly as necessary.

1. Structure the board in a manner that adds value:Listed entities should have a board of directors of a suitable size, structure, skills and obligations to enable it to discharge its duties and mandate effectively and efficiently.
2. Act ethically and responsibly:A listed entity should act ethically and responsibly.
3. Safeguarding integrity in corporate reporting in the entity:Any prudent listed entity should have formal way coupled with a rigorous processes which independently ascertains and safeguards the integrity of the entity’s corporate reporting.
4. Making balanced and timely disclosure:Listed entities should make timely and balanced disclosure of all necessary matters that concerns and that any reasonable person can anticipate to have a material effect on the prices or values of the entity’s securities.
5. Respect for the rights of security holders: Listed entities should respect the rights of the security holders through provision of appropriate information and facilities to them and in this way allow them to exercise the said rights effectively.
6. Risk recognition and management:Listed entities should create a proper risk management framework and there is need to periodically review the efficiency of the framework that has been set in place.
7. Fair and responsible remuneration: Listed entities should pay their directors remuneration enough to draw and maintain high value directors and design its executive pay to attract, retain and encourage high quality executive directors.

The Tabcorp group of companies has in place a process that handles anti-money laundering and counterterrorism (AML/CTF) programs especially its Wagering and Gaming Services businesses. These programs are enhanced by continuous training and communication that allows the employees to be able to understand and keep abreast with the needs of their obligations as outlined in the Tabcorp’s AML/CTL programs and its applicable legislation. The regulatory team at Tabcorps handles these programs with the oversight role being provided by the Board Audit, Risk and compliance Committee (Tabcorp, 2014).

In the financial year of 2014, Tabcorp began a project to comprehensively review the risk management assessment, AML/CTF programs, and the related systems and procedures. The project initially focused on the company’s TAB business and will later be broadened to encompass Luxbet and finally the TGS businesses. Furthermore, the company has a number of integrity agreements in place signed by the major racing and sports bodies across the country in Australia (Tabcorp, 2014).

In this pilot study, comparison was made to help compare the ASX principles and recommendations guideline against the corporate governance statement of Tabcorp holdings Group. As stated earlier in this piece, the corporate governance principle focuses around 8 central principles. Under each of the 8 principles are recommendations. The principles are numbered 1-8 while the recommendations are numbered based on the principle number. For example Principle 1: Lay solid foundation for management and oversight has recommendations 1.1, 1.2, 1.3, 1.4, 1.5, 1.6, 1.7. The Tabcorp’s Recommendations for 2014 were still in place until 2016, when the new Chief Risk Officer was created in the risk and management team. This had minimal effect to the overall compliance to the recommendations under risk and management. The impact would have been seen if there had been an improved control and oversight in the risk and management team. As at 2014 the company was compliant to all the ASX recommendations on risk and management. This however, did not help as the company was adversely mentioned by AUSTRAC in 2015 on its failure to comply with the anti-money laundering and counter-terrorism procedures. This study compared all the ASX recommendations with the Group’s 2014 and 2016 corporate statements to assess the degree of compliance in percentage form.

Table 1.1

Table showing the comparison of principles and recommendations of corporate governance as recommended by ASX council and that of Tabcorp.

Results

Table 1.2

Table showing the results of comparison of principles and recommendations of corporate governance as recommended by ASX council and that of Tabcorp.

The Tabcorp’s Recommendations for 2014 were still in place until 2016, when the new Chief Risk Officer was created in the risk and management team.  As evidenced in the results, the Group complied with six main principles recommended by ASX council in totality at 100% compliance except two principles. The two principals were respect the rights of security holders with a 50% compliance to ASX guideline and laying solid foundations for management and oversight at 28.57 compliance to ASX guidelines on corporate governance. Despite this high rate compliance the company was adversely mentioned by AUSTRAC in 2015 on its failure to comply with the anti-money laundering and counter-terrorism procedures.  This shows the high rate of 100%on the recognition and management of risk as a principle of good corporate governance had minimal effect to the overall compliance to the recommendations under risk and management. The impact would have been seen if there had been an improved control and oversight in the risk and management team with proper updates and communication of any unusual activities in the financial activities. As at 2014 the company was compliant to all the ASX recommendations on risk and management. However both the 2014 and 2016 corporate governance statement are not fully compliant with certain principles and recommendations of ASX.

Recommendations And Conclusion

The Group can therefore strengthen its control processes, policies and programs to help make their financial programs water-tight against infiltrations by organised criminal groups that facilitate money laundering and terrorist’s activities. These can be enhanced by proper communications and update within the Risk, Audit and Compliance Committee on any unusual financial activities. For example recommendations can be created to help fast track any suspicious activities and take immediate action against such activities by establishing a more pragmatic and simple procedures to handle the process. The company will also benefit immensely by adopting the following ASX council recommendations not yet in its corporate governance statement of 2016. These recommendations if adopted in the 2017 corporate governance statement will help bolster the Group’s reputation and integrity in corporate affairs and practices. The recommendations not yet adopted that may be beneficial include:

• Recommendation 1.4:Provides for a company secretary who should be accountable to the board through chairperson on matters regarding efficient functioning of the board. The roles of the secretary include among others ; advising the board and committees on governance issues.
• Recommendation 1.5: Provides for creation and disclosure of a diversity policy that aims to achieve gender diversity in the board and the various committees.
• Recommendation 1.6: This recommendation helps provide a system for periodical assessment of the performance of the board, the committees and individual directors as well as providing disclosures as to whether the evaluation is done in the reporting period in alignment with the process.

• Recommendation 6.3:Provides that a listed entity should have procedures and policies set in place to help facilitate and enhance participation at the meeting of security holders.
• Recommendation 6.4:Provides that the listed entity should provide a platform that enables the security holders to send and receive information from the entity electronically.

Reference List

Tabcorp. (2014). Tabcorp Concise Annual Report 2014. Sydney, Australia. Available from

https://www.tabcorp.com.au/getattachment/375d6bfa-e9f4-478c-ac3e-8888221a1ce2/2014-Corporate-Governance-Statement   

Tabcorp. (2016). Tabcorp Corporate Governance Statement 2016. Sydney, Australia. Available from

https://www.tabcorp.com.au/getattachment/1446c9e5-71b6-4637-af86-66369d691239/Corporate-Governance-Statement

News Limited Network .(2017). Tabcorb Fined 45 million for breaching money laundering and terrorism finacing laws. 4.47, Available from https://www.news.com.au/finance/business/tabcorp-fined-45-million-for-breaching-money-laundering-and-terrorism-financing-laws/news-story/a2fd3064f5d87086acb25c73ff0e70d7 March 17,2017.

Tabcorp Holdings Ltd Media Release.(2017). AUSTRAC Proceedings Resolves (Subject to Court Approval).Sydney ,Australia. Available from : https://www.asx.com.au/asxpdf/20170216/pdf/43g1bfc2dpy9w0.pdf 16 February, 2017.

Williams, P.(2017) .Gaming Gian Tabcorp Faces Ne”Dirty Money” Claims from Government Regulator, The Sydney, Australia. Available from:https://www.smh.com.au/business/gaming-giant-tabcorp-faces-new-dirty-money-claims-from-government-regulator-20160420-goarbe.html Morning Herald, April 20, 2017.

 ASX Corporate Governance Council. (2010).Corporate Governance Principles and Recommendations 3rd Edition. Available from:

https://www.google.com/search?q=PRINCIPLES+AND+RECOMMENDATIONS+OF+GOOD+CORPORATE+GOVERNANCE&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-beta&channel=nts pg8-32

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