BEATTIE GOVERNMENT RETURNED

As you know, we’ve just had the Queensland State Election that we had to have, with the Beattie Labor Government returned for another three years. A lot of that election was decided on issues of infrastructure, or lack of it, in Queensland and I think a lot of people forget the impact of infrastructure on the economy and our companies. At least the South East Queensland Infrastructure Plan and Program goes some way to giving us some strategic overview of infrastructure for the State. There is no doubt that those of us in business have a keen interest in infrastructure development as it impacts on the profitability of our companies directly. Services provided by infrastructure contribute to industry productivity and the growth of our companies. Linking these two together obviously influences the overall economic growth of the region. The dictionary defines infrastructure as those essential services which are required for the efficient functioning of a community, region or country. Such things as road, rail, water, energy, airports, health and eduction assist in maintaining and improving our living standards and business growth. Services provided by infrastructure, we should remember, can assist firms to produce more efficiently by:

• Facilitating resource flows to their highest valued use
• Reduce costs inputs which are used to produce outputs and,
• Improving the responsiveness of production to changes in production costs.

With the new State Government elected, it has an obligation now to add to our infrastructure framework which allows private enterprise to grow and prosper. This can only be good not only for individual company shareholders but for all Queenslanders. I’m sure a lot of Directors are hoping that the Government now gets on with the job.

ONLINE LAW

You may remember the Australian legal case of Dow Jones v Gutnick in relation to defamation for an online article. This seems to indicate that any article on the internet is considered to be published in the jurisdiction where it is down-loaded. However, more recent cases in the United States and Canada have muddied the waters for those using the internet for business. There are a growing number of e-commerce disputes, as well as intellectual property cases and defamation matters. We suggest that Directors watch this space in relation to further clarity on the legal jurisdiction in relation to online information.

CORPORATE GOVERNANCE BENEFITS

A recent survey of the institutional investors in Australia and overseas has found a shift away from mere compliance to using Corporate Governance as a business advantage. This appears to be more evident in developing economies where investors place a premium on companies with good Governance. Three out of every four Australian institutional investors take Corporate Governance seriously because of possibility of enhanced investment returns or improved risk management. Some of the concerns raised from the survey included:

CORPORATIONS ACT CHANGES

It should be during the current session of Federal Parliament that the Corporations Amendment Bill comes into force. At present, a company must call a meeting if 5% of eligible shareholders or 100 shareholders call for a meeting to be held. Under the new rules, this will be limited to 5% of the voting power. It will also ensure the voting intentions of members are carried out by appointed proxies by prohibiting the cherry picking of proxy votes. It will also amend the requirements relating to the disclosure of proxy votes. It is interesting to note that Australia was the only country in the world which had a 100 member style rule, rather than a test based on the level of shareholder equity as will now be the case.

IFRS RULES

With the reporting season in full swing, balance sheets for Australian companies will now reflect the new IFRS rules, particularly the treatment of mergers and acquisitions or business combination standard will cause some confusion and much larger annual reports. How companies present those numbers is critical, although the Chairman of ASIC has indicated that they will allow some leniency this year where there is genuine dispute with ASIC about how the changes affected the bottom line profits.

BOARD STATISTICS

A recent survey reports that 61% of new Directors appointed to the top 100 companies in Australia last financial year, were already or had been in the past a Director of a top 100 company. While the gene pool still seems limited, that’s a big increase over the 27% appointed from the top 100 companies in the previous year. Of the 57 women on top 100 Boards, 62% held multiple Board seats, while only 41% of the male top 100 Directors had multiple Board seats. Women however, still account for only 9.2% of all Directors. Remuneration for the last financial year for Non Executive Directors increased by 7.1% from the previous year, while Chairmen saw their pay increase by 6.6% in the same period.

WALLABIES v ALL BLACKS

It has been announced that the New Zealand Commerce Commission, and the Australian Competition & Consumer Commission have agreed to a Cooperation Protocol For Merger Review. This means that the two regulatory bodies across the Tasman will now work closely together where mergers are proposed between Australian and New Zealand companies. The aim is to reduce compliance costs and increase the effectiveness of competition laws on both sides of “the ditch”.

MORE SIGNOFFS

A recently released KPMG study showed that the number of companies disclosing CEO and CFO signoffs in annual reports rose by 25% up to 69% in total over the last year. This is in response to the recommendation 7.2 of the ASX Corporate Governance Guidelines. On top of this, there is an increasing number of companies providing investors with significant insight into their risk profile and risk management strategies. 95% of all companies surveyed provided details of the former and 50% disclosed their risk profile.

NEW AUDITORS?

As you may know, in Australia companies are required to inform the market when they have changed Auditors, however it does not require them to explain the reason why. A recent US report recommends that companies should be forced to disclose the reasons why they change Auditors, rather than have them shrouded in secrecy. We discovered that the most common reasons why companies switch Auditors included:

In Australia, Directors need to think long and hard about changing auditors as long as they maintain the level of independence required.

CORPORATE LAW REFORM

The Federal Government has announced commencement of the proposals aimed at reforming the Corporations Law to the largest extent since the CLERP program. It will be titled “The Simpler Regulatory System Bill”. There are a number of topics under review including the current Business Judgment Rule which is an important issue for Directors. Currently industry consultation is being conducted before any legislation is finalized and we will update you with more details as they come to hand.

DIRECTORS AND FINANCE

For those of you who are members of the AICD, can I put a plug in for their excellent online publication which has just been released. This new resource is titled “How to Review a Company’s Financial Reports – A Guide For Directors”. It is free of charge to AICD members and is available only in the log-on members only section. However, I believe non members can purchase the guide in electronic format from AICD’s publication services. It is very easy to read and presents some of the questions that Directors should be asking about their company’s financial reports. I’ve been through it myself and it’s a very handy checklist in this constantly evolving financial reporting environment.

ATO ON THE WARPATH

In recent weeks the Australian Taxation Office has released its compliance program and put Transfer Pricing and GST on its agenda. For those companies operating globally, the Tax Office says if you are looking to do business overseas, we’re coming with you. The ATO has also identified that a risk faced by growing SMEs is that their GST management practices may fail to keep pace with their growth. Companies with incomes of more than $20 million are currently being randomly audited for GST purposes. The ATO also plans to review the GST reporting of 50 SMEs which floated on the ASX in the last 12 months.

ASIC & REALITY

It is pleasing to see that ASIC Chairman Jeff Lucy has recognized that it’s no easy task for Directors to meet all of their legal obligations. This is on top of ensuring that management meets its legal obligations while trying to create wealth for their shareholders. Mr Lucy said that given the influx of regulation over the last 10 years or so, there is a perception of increased risk of personal liability for Directors. This has led to a range to risk averse behaviour. He pointed out that therefore Directors cannot take a minimalist approach when carrying out their corporate duties. Thank you Mr Lucy for your observations of the reality of life as a Company Director!

BOOK REVIEW

This book has some sentimental value for me as its author was my supervisor during my Corporate Governance studies at University. Professor John Farra has written “Corporate Governance: Theories, Principles and Practice”. This is a second edition of a book that’s been around for the last 20 years, and looks at Corporate Governance in a practical way but within an international setting with particular reference to Australia and New Zealand. At 304 pages it’s a big read and at $100 not a cheap book ($85 for AICD members) however, knowing the quality of John’s work and his vast knowledge on the topic, it could be worth some springtime reading.

SPECIAL OFFERS

1. It seems everyone wants the DVD version when they order my two training programs (the technology wave is with us!). As a result we have a limited stock of VHS format programs we would like to clear.

   The programs are:

   • Role of a Company Director
   • Role of a Not For Profit Director

   Normally $250 each, we are clearing them (in VHS form only) for $150 plus GST each. If you order 2 – 5 copies they are $100 plus GST each and 6 – 10 copies just $75 plus GST each until stock run out. You can order on our website or via Cynthia at 3120 0660 at our office.

2. We have developed a special Corporate Governance package for small companies and NFPs. It basically sets up your entire Governance system and includes onsite facilitation of a compliance review plus manuals to keep. It is $5,900 plus GST and payments can be spread over 3 months to assist your cashflow. Please contact me for details of the package and its benefits.

Until next time
Warren Tapp

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