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ABOVE BOARD
Winter Edition
OUR NEWSLETTER IS BACK!
You will no doubt remember receiving our monthly Newsletter (E-bulletin) from us in the past when we were Queensland Directors Pty Ltd. We advised you just over one year ago that we would cease the monthly Newsletter as we restructured the business and renamed it Directors Australia Pty Ltd. We indicated that we would get back to you eventually with another format of Newsletter and it has taken us almost a year to do so, due to the pressure of work.
So welcome to the first edition of our quarterly Newsletter “Above Board”. I hope to keep you up to date every three months with Corporate Governance information and facts, and my own comments on issues of interest to you as a Director. As always, I will welcome feedback or comment or contributions from you and you are welcome to send those to us at info@directorsaustralia.com at any time. At the start of each season of the year we will email you automatically to let you know that a new update has arrived in the Newsletter series. It will remain available for three months until the next edition is published. The email reminder will direct you back to our website and you simply click on the button which leads you to our Newsletter. Subscription is absolutely free and you and any of your colleagues may subscribe or unsubscribe at any time at the place shown on our website homepage.
It was pleasing to see how many enquiries we’ve had in the last 12 months since we stopped writing our free Newsletter, to ask when it was coming back again, as readers found it informative and interesting. I hope that you enjoy reading the first of these once again.
SME CONCERNS
With the start of the new financial year, it seems that small to medium sized businesses are increasingly optimistic about the economic outlook. This is according to a survey recently conducted by the Institute of Chartered Accountants. 67% believe the next twelve months will see improved economic conditions. However, on the down side 95% called for action against the level of red tape strangling small business. The survey said the biggest threat to the economy was identified as wage increases, while State taxes of most concern were land tax (75%), payroll tax (75%), and stamp duty (72%).
BOARD DIVERSITY
It seems there is a greater awareness now of the value of Board diversity in improving shareholder returns. Diversity of course can come through a mixture of age, experience and backgrounds. However, the most prominent form of diversity of course is gender. It seems that only about 8% of all Australian Directors are women, and that number hasn’t varied much in the last five years to my knowledge. A recent study by Catalyst looking at Fortune 500 companies, came up with an interesting result. The group of companies with the largest number of women on Boards or senior management had a 36% higher return on investment than the quartile with the lowest female representation. If that was the same result in Australia, I’m sure more shareholders would be keen to see women on their Boards.
ASX POSITIVE REVIEW
It’s nearly three years now since the ASX introduced their “Principles of Good Governance and Best Practice Recommendations”. It seems the latest report card shows that reporting levels by public listed companies shows a much higher adoption of recommended practices. In respect of the ten principles, it appears that the majority of Boards have adopted 90% of them and provided thorough explanations of any exception reporting. Results seem to indicate that these Boards listed on the ASX are quite serious about attempting to adopt most of best practice guidelines, and not simply complete a “tick the box” exercise. The report can be seen at www.asx.com.au.
RIGHTS ISSUES
As you may know, the Corporations Act prohibits the acquisition of interest in a company where such an acquisition increases the acquirers voting power to more than 20%. An exception to that rule has always been shares acquired following a rights issues. Now it seems that the takeovers panel is concerned about the improper use of rights issues to alter the control of the company. Guidance notes issued by the panel may now result in its intervention in rights issues resulting in unacceptable circumstances. This is not to question the motive of any rights issue but rather the results in respect to any change in control of the Share Register.
The panel recommends that where a rights issue is being considered, the Board takes all reasonable steps that will result in a change of control of that company. Full and frank disclosure of possible control issues should be given to all shareholders before any rights issue. Alternatively the Board may consider other options apart from rights issues if it achieves an unacceptable circumstance in the eyes of the takeovers panel.
GETTING INSOMNIA
It seems that some Directors and managers are not sleeping well at night according to the Aon 2006 Risk Management Survey. It seems that the key risk concern this year reflects the heavy regulatory burden facing Directors and executives. There does however appear to be a swing back to growth related risk and resulting concerns that there is a significant lack of innovation emerging in corporate Australia. A further risk is the ability to attract and retain key staff together with an aging workforce and stress as an increasing OH&S issue. A further risk identified in the survey was the potential outcomes of the ongoing trend towards offshoring and outsourcing.
All of this of course is on top of the Board and management trying to make a profit for its shareholders. No wonder some people have trouble sleeping at night!
UK LEGISLATION
Last month the Company Law Reform Bill was introduced by the government in the UK. The Bill has not yet been finalised or passed but has some interesting objectives in the new legislation that impact on Directors’ duties. Do have a look at this particular section of the proposed legislation at www.iod.com for the UK Bill.
CONFLICT OF INTEREST
Quite often when I am consulting or lecturing, I am asked for examples of things that will create a conflict of interest for a Director. I thought it might be useful to provide some examples for you. Keep in mind that it’s the degree of materiality which the Board and the individual Director should consider in relation to any declared conflict of interest. Some are all relatively insignificant, while others are glaringly obvious with major impact on the company.
Some examples include:
I trust these few examples will give you some assistance in understanding whether you ever have a conflict of interest.
BOOK OF THE SEASON
In our previous E-bulletin Newsletters, we used to review a book each time. We will continue this practice in “Above Board”.
For those of you in the role of Chairman of your Board, or with a view to becoming a Chairman, a new book published by the AICD makes useful reading – “Chairman of the Board: A Role in the Spotlight”. It contains advice and thoughts from Chairmen of major public listed companies in Australia and also contains checklists and suggestions put together by the AICD’s Corporate Governance Committee. It’s not a prescriptive rule book but a useful guide to help Chairmen use their particular skills to lead an effective Board. As with most books we review, you can buy it through the “Book Section” at www.companydirectors.com.au.
A FINAL SMILE
I don’t propose to attempt to inject a little humour into these newsletters every issue but if I find something that brings a smile to your face, then I’ll include it. Here is the latest Stock Market Report (thanks to Business Acumen).
Until next time.
Warren Tapp
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