Corporate Governance Handbook for Company Directors and …

1 Improving the lives of AustraliansCorporate Governance Handbook for Company Directors and Committee MembersA Reference Guide to Understanding the Serious Commitment of being a Company Director or Committee MemberSecond edition June 2010iiCorporate Governance Handbook Commonwealth of Australia 2010 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth available from the Commonwealth Copyright Administration, Attorney-General s Department. Requests and inquiries concerning reproduction and rights should be addressed to the:Commonwealth Copyright Administration Attorney-General s Department Robert Garran Offices National Circuit Canberra ACT 2600or posted at expressed by the contributors to this resource are those of the National Disability Services New South Wales or the Department of Families, Housing, community Services and Indigenous Affairs give any guarantees as to the accuracy or currency of the information contained in this resource.

2 Those using the resource as a reference should always check the information with an appropriate authority prior to acting. Neither National Disability Services New South Wales or the Department of Families, Housing, community Services and Indigenous Affairs accepts any liability for any loss or damage incurred as a result of a user of this resource relying upon its contents. Those using this resource should also not rely upon it as a source of legal for National Disability Services by WalterTurnbull, Chartered Accountants and Management Consultants A business unit of PricewaterhouseCoopersWalterTurnbull Building 44 Sydney Avenue BARTON ACT 2600 GPO Box 1955 CANBERRA ACT 2601 Phone (02) 6247 6200 Fax (02) 6162 9292 Corporate Governance HandbookiiiCompanies There is nothing in the [.]

3 Companies ] to suggest that the standard to be expected of a part-time non-executive director of a Company not for profit is different from the standard expected of any other director of a profit-making Company : both are exercise a reasonable degree of care and diligence in the exercise of their powers and the discharge of their duties. (Justice Tadgell, Commonwealth Bank of Australia v Friedrich & Ors, 9 ACLC 946, 5 ACSR 115, australian Company Law Cases , CCH Australia Limited, 1991)Incorporated Associations .. an incorporated association has certain statutory obligations in relation to the rules as well as a statutory obligation to call meetings, keep accounting records and to keep a register of The [..Associations Incorporation Act.

4 ] also creates an offence where a member of the committee fails to take all reasonable steps to secure compliance with the association s obligations under the has been said that, in relation to an association, the committee members are in the same position as a director toward a Company . (Justice Johnson, LAI v TIAO [No 2] [2009] WASC 22 (22 May 2009) with australian Chinese Confucius Mencius Saint Tao Centre Inc as Second Defendant, paras 55 and 84.)ivCorporate Governance HandbookCorporate Governance HandbookvTable of Contents1 Overview Purpose of this Handbook Target Audience Handbook Limitations 22 Concepts of Corporate Governance What is Corporate Governance ? Why is Corporate Governance Important? Achieving the Balance between the Pursuit of community Service Objectives and Maintaining Financial Capacity 43 Roles and Responsibilities of Board Members Governance Responsibilities under the Corporations Act 2001 Governance Responsibilities under the various State and Territory Associations Incorporation Acts Other Legal Requirements 154 Features of Good Corporate Governance Strategy Performance Compliance Accountability 23viCorporate Governance Handbook5 Useful Guides and Checklists Suggested Better Practice Corporate Governance Checklist Sample Code of Conduct for a Board Outline of an Operational Policies and Procedures Governance Manual or Charter Strategic and Business Planning Processes Risk

5 Management Key Questions to Consider in Tackling each Board Agenda Item 356 Glossary of Key Terms 377 Useful Resources 41 Corporate Governance Handbook11 OverviewCompany Directors and Committee Members1 need to demonstrate both educative and technical prowess and moral fibre. Individuals holding these positions require an understanding of what it means to be a Company Director or a Committee Member and the significant legal responsibilities in relation to fulfilling Governance obligations on behalf of their the purposes of this Handbook , from time to time, the Handbook will refer collectively to the above titled positions Company Directors and Committee Members as the Board or the Board Members or equivalent. Your organisation may use various terminologies such as the Board, Committee, and Committee of Management, Directors , Board of Directors , Governing Committee or other variations.

6 In addition consistent with common business language the terms Company and association , may also from time to time be used interchangeably within this Handbook with the terms, corporation , entity or organisation .Being a Company Director or Committee Member is a professional occupation, even though in many cases for funded Not-For-Profit organisations such individuals perform their roles voluntarily. Individuals who pursue this profession need to acknowledge and accept the serious nature of the responsibilities and duties that they have given an undertaking to and maintaining a sound Corporate Governance framework requires a thorough knowledge of legal requirements and better practice combined with a practical and defensible approach in order to fulfill those requirements.

7 Purpose of this HandbookThe purpose of this Handbook is to provide a handy reference guide, to aid readers in understanding the serious commitment of being a Company Director or Committee Member. This Handbook provides the following information: A broad overview of key Governance legislative requirements for Board Members of companies and incorporated associations; An overview of features of good Corporate Governance practices; and Practical ideas and tips for Board Members to consider in fulfilling Corporate Governance In this context a Committee Member typically means a member of the Committee of Management or equivalent of an Association registered under the relevant State or Territory Associations Incorporation Governance Target AudienceThe focus of this Handbook is to assist Company Directors and Committee Members of organisations supported by disability service support and advocacy programs2 administered by the Commonwealth Department of Families, Housing, community Services and Indigenous Affairs.

8 Specifically: Directors of companies3 incorporated under the Commonwealth Corporations Act 2001; and Committee Members of associations incorporated under the various State and Territory Associations Incorporation legal requirements apply regardless of whether or not a Board Member or another Officer performs their roles voluntarily or in a paid Officers including the Chief Executive Officer or equivalent, Chief Financial Officer or equivalent, other members of senior management and other employees who support Company Directors and Committee Members may also find the Handbook helpful to assist in carrying out their recent report4 by the australian Government Productivity Commission noted the following: There is a push for greater accountability by NFPs5 from governments and the community .

9 Business and other major donors increasingly want evidence of the effectiveness of the activities, and prefer NFPs that can provide robust business cases for the investments they NFPs agree that significant financial support warrants accountability (such as audited accounts and business plans) and demonstrable results. In addition the report noted: to develop their Governance skills as their tasks have become more complex with delivery of government funded services and demands by donors, members and clients for greater accountability. Handbook LimitationsThis Handbook is not intended to replace existing mechanisms used by Company Directors , Committee Members and other Officers to monitor and act on requirements set down in Statute Law, Common Law (including Equity Law) and Contract Law.

10 Rather, it is a tool to facilitate improved understanding of Corporate Governance legal obligations and better practices, and present some ideas and resources to contribute to the implementation of effective Corporate Governance within organisations. The contents of this Handbook are based on legislative requirements and relevant better practice at the time of the preparation of the At the date of this Handbook the two main disability services programs funded by the Commonwealth Department of Families, Housing, community Services and Indigenous Affairs are australian Disability Enterprises and the National Disability Advocacy Not-For-Profit entities incorporated under the Corporations Act 2001 are registered as Companies Limited by Guarantee and therefore do not have the power to issue Contribution of the Not-for-Profit sector , Research Report, australian Government Productivity Commission, January 2010, (roman numerals)