Governance Reporting Award

The Governance Reporting Awards recognise the quality and completeness of disclosure and reporting of corporate governance practices in the annual reports of entities in the private and the public/for-purpose (including NFP) sectors.

An additional focus will progressively be placed (in the future) on addressing emerging issues of directorship effectiveness including value proposition, competencies, systems, cultures and decision-making. Director effectiveness transparency may provide greater confidence and enhanced certainty of organisational performance and trusted reputations for readers of governance annual reports.

Guidance on Corporate Governance Practices

There have been a number of guidelines published on disclosure of corporate governance practices, with recommendations of “best practice” put forward by professional advisers, market operators and industry bodies.

Reporting on corporate governance practices should reflect more than a checklist approach. Entities should disclose and discuss, where appropriate, those practices which are in place, any identified shortcomings and plans to address the shortcomings.

The ability of entities to meet published standards is subject to their individual resources and circumstances, their culture of transparency and accountability - clear communication of their position is essential. The Governance Reporting Award encourages and rewards full and open disclosure.

The frontier of expectations upon governance continues to advance, and Adjudicators may bring contemporary issues into consideration that lie beyond the scope of the guidance sources referenced here. Entrants to the Governance Reporting Award are expected to be familiar with the latest concepts and challenges for governance.

Private Sector

For the private sector, the ARA has chosen the Corporate Governance Principles and Recommendations (of the ASX Corporate Governance Council) as the guiding criteria for the private sector Governance Awards. The adjudication panel will follow the “if not why not” philosophy of the ASX guidance and look for reports that provide quality disclosures and clear explanations of how and why certain paths were followed.

We note that non-Australian companies that are not subject to ASX requirements may have prepared their reports without reference to the ASX guidance. Non-Australian companies entering the Governance Reporting Award are encouraged to review their report against the ASX guidance before entering.

The current version of the ASX guidance can be found at https://www.asx.com.au/documents/regulation/cgc-principles-and-recommendations-fourth-edn.pdf.

Public and For-Purpose Sector

For the public sector, there is no single source of guidance. Many jurisdictions have issued guidance and may have legislative requirements.

For example, current guidance for:

• Commonwealth: https://www.finance.gov.au/sites/default/files/2019-11/Resource%20Management%20Guide%20No.%20131.pdf

• New South Wales: https://www.treasury.nsw.gov.au/information-public-entities/annual-reporting

It is the obligation of the reporting entity to ensure compliance with relevant jurisdictional legislation and mandated guidance. It is an agency obligation and will be assumed. Public sector reports will be adjudicated against broad principles, such as those advocated by the Auditor-General of NSW and the Governance Institute of Australia.

The Auditor-General of NSW has adapted the ASX corporate governance principles for application in the public sector. Its “Governance Lighthouse” model provides a helpful commonality and comparability for considering governance arrangements. The Governance Lighthouse can be found at https://www.audit.nsw.gov.au/our-work/resources/governance-lighthouse.

The Governance Institute of Australia has issued Governance Principles for Boards of Public Sector Entities in Australia (2023) which adapts the ASX Corporate Principles from the private sector. The document can be found at https://governanceinstitute.com.au/app/uploads/2023/11/governance-principles-for-boards-of-public-sector-entities-in-australia-2023.pdf.

Good Governance Guides issued by the Institute may enhance transparency and accountability in annual reports. The guides can be found at https://www.governanceinstitute.com.au/resources/resource-centre/

Guidance on Director Effectiveness

Guidance on director effectiveness is an emerging area. It may be defined in terms of a value proposition and system for enhancing organisational performance while acting ethically and in compliance with legal requirements.

Organisations may adopt a model or system for directorship, such as the Tricker model, suggested by the Australian Institute of Company Directors: www.aicd.com.au/content/dam/aicd/pdf/tools-resources/director-tools/board/role-of-board-director-tool.pdf.

The scope of directorship may include environmental, social and governance responsibilities (ESG) to earn a ‘social licence to operate’.

Directorship effectiveness may include competencies, team dynamics, leadership of the chair and stakeholder relationships.

Competency assessments aligned to roles, structures and systems may help inform development, talent and succession planning to sustain directorship effectiveness which in turn may provide confidence in future ability to perform.

For example, the New Zealand Institute of Directors (IOD NZ 2015) and Governance Institute (ICSA 2018) have published competency frameworks defining knowledge, skills and attitudes:
https://www.iod.org.nz/resources-and-insights/guides-and-resources/director-competency-framework/#.
https://www.cgi.org.uk/assets/files/competency-framework/icsa-competency-framework-for-governance2.pdf.

Directorship effectiveness may be reflected in the quality of decision-making and soundness of professional judgments. In the USA, key accounting and auditing associations (COSO 2012) collectively provide guidance on a director judgment process and framework for decision-making. This aims to utilise an appropriate amount of relevant information and balance experience, knowledge, intuition, and emotion: https://www.coso.org/_files/ugd/3059fc_abf7f52e6ced492fbe183b62f50a21f9.pdf.

A board’s value proposition may be expressed in terms of benefits to costs of judgments to enhance and protect customer and organisational value for current and future performance and compliance.

There may be independent objective reviews on directorship effectiveness against relevant criteria to earn stakeholder trustworthiness.

Benefits of the Governance Reporting Award

The role of the ARA Adjudicators is to ascertain whether the level of transparency in reporting on governance, directorship and compliance is sufficient to demonstrate that the organisation is in safe hands. Governance reporting may need to balance confidentiality and sensitivity with transparency and accountability.

As directorship effectiveness and other corporate governance practices continue to develop, it follows that the associated disclosure and reporting requirements will also continue to increase.