Governance Reporting Award
These Awards seek to 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 (NFP) sectors.
There have been a number of guidelines published on disclosure of corporate governance practices and some statements of suggested “best practice” put forward by professional advisers, market operators and industry bodies.
The reporting of corporate governance practices should not just reflect a checklist approach. Entities should be willing to disclose and discuss, where appropriate, not only those practices which are in place, but also areas where shortcomings have been identified and any plans to address the shortcomings.
The ability of entities to meet published standards will always be subject to their individual resources and circumstances, and their culture of transparency and accountability, but clear communication of their position is vital. This Award encourages and rewards full and open disclosure.
The frontier of expectations upon governance is continuing to advance, and Adjudicators may bring contemporary issues into consideration that lie beyond the scope of the guidance sources referenced here. Entrants for the Governance Special Award are expected to be familiar with the latest concept and challenges for governance.
Private Sector Guidance
For the private sector, the ARA has chosen the Corporate Governance Principles and Recommendations of the Australian Stock Exchange (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 not have prepared their reports to reflect specifically the ASX guidance. However, the nature of that guidance provides the principles that our Adjudicators will seek to identify in private sector Reports. Non-Australian companies entering the Governance Special Award are strongly 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 & For-Purpose Sector Guidance
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/resource-management/managing-performance/
New South Wales: https://www.treasury.nsw.gov.au/information-public-entities/annual-reporting
It is not expected that ARA Adjudicators for public sector entries will be checking for compliance with relevant jurisdictional legislation and mandated guidance. That is an agency obligation and will be assumed. Instead, public sector reports will be adjudicated against broad principles, such as those advocated by the Auditor-General of NSW (Governance Lighthouse) and the Governance Institute of Australia.
The Auditor-General of NSW has adapted the ASX corporate governance principles for application in the public sector. Called the “Governance Lighthouse” model, it 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
Public sector entities can enhance transparency and accountability in their annual reports by disclosing how they have performed against each of the Governance Institute of Australia Public Sector Governance Principles in a manner tailored to the complexity and scale of their operations. These Principles are outlined below.
Principle 1: Clarify and document the public sector entity’s relationship with the government
It is good governance for the annual report of a public sector entity to:
identify the relevant constituting legislation
identify to whom the agency is directly accountable and how it is governed (noting that a range of governance arrangements may apply within the public sector)
include the governance charter (if applicable)
set out the purpose of the report
include the organisational structure which shows the lines of internal and external authority and accountability
describe the extent of any non-mandatory reporting which has been adopted
define the relationship between the public sector entity and the Minister and refer to the method of recording and monitoring delegations of authority
disclose (where applicable) the oversight responsibilities of the board.
Principle 2: Ensure that governance arrangements add value to the community and other stakeholders
It is good governance to include the following information in the annual report:
the long-term strategy of the public sector entity, how the entity is managing this strategy, and any aspects that may not be being fulfilled with an explanation of why this is so
current priorities, goals and the strategic plan, and how those priorities, goals and strategies are established, communicated and reported against
the processes that inform the structure and composition of the governing body (where applicable), or other governance mechanism
the expertise of those with responsibility for governance and of the senior management team
the processes for evaluating the performance of the governing body (where applicable) and management
information on the most recent formal performance review of the governing body (where applicable)
how the remuneration of the senior management and governing body (where applicable) is determined and reviewed, including reference to performance incentives (where applicable)
how the leadership team builds workforce capability within the entity
the leadership programs in place for the governing body (where applicable) and senior management
codes of conduct for the governing body and employees
senior management contracts and review mechanisms and outcomes.
Principle 3: Embed ethical behaviour and integrity and promote community wellbeing and trust
It is good governance for the annual report to disclose:
the public sector entity’s processes to develop, document and implement an ethical framework using appropriate codes, policies and practices, including the induction and ongoing training of staff and members of the governing body (where applicable)
the approach used to monitor conduct and professional behaviour
the entity’s processes for managing conflicts of interest and related party transactions.
Principle 4: Oversee effective stewardship of resources
It is good governance for the annual report to detail:
the internal governance framework which measures how the entity is tracking in relation to its objectives and performance targets
its success (or failure) against stated objectives and performance indicators in a balanced manner
significant projects, particularly those in the public interest
how it manages its knowledge and information, human and other resources and the stewardship of its assets
the period of engagement, method of selection and appointment process of its external auditor, and the operation and performance of the audit committee (where applicable), including an overview of the committee’s membership, member skills and oversight of its external reporting and audit activities.
Principle 5: Protect the public interest through effective risk management
It is good governance for the public sector entity’s annual report to:
articulate its approach to risk management, including fraud risk management and risk culture
include an overview of the results of risk reviews throughout the current reporting period and responsibility for risk management oversight
detail the use of an internal audit function (where applicable) and the approach to controls assurance, fraud and operational effectiveness.
Principle 6: Engage openly and honestly with stakeholders
It is good governance to include in the annual report:
reference to stakeholders and how the entity takes their interests into account
how stakeholder participation and feedback is encouraged
the results of stakeholder satisfaction surveys and complaints resolution schemes together with the entity’s responses to and action taken on the results
the system for handling grievances and whistleblowing.
Principle 7: Make timely and balanced disclosure
It is good governance to include in the annual report:
details of how stakeholders access performance information and make freedom of information requests
the annual financial statements which have been certified by management and the independent auditor in a timely manner.
Members of the Governance Institute of Australia can access the full suite of resources at https://www.governanceinstitute.com.au/resources/resource-centre/