Corporate governance calls for boards to be transparent to investors and stakeholders, and to be held accountable for their actions. The New Zealand law firm Chapman Tripp notes an “unequivocal” tendency to improved disclosure and clearer accountability at many listed companies, under the terms of the The Financial Markets Conduct Act and the 2017 version of the Corporate Governance Code.
For the Australian Institute of Company Directors (AICD), accountability is part of a board’s fiduciary responsibilities and transparency makes accountability possible.
Boards can fail at both these goals, of course, but when they do, they risk facing action from activist shareholders. Activism is seeing a sharp rise in Australia – the number of targeted companies is up 27.8% from 2017, according to the consultancy Activist Insight, and a similar increase in activity in New Zealand is noted by the Auckland-based law firm Russell McVeagh.
Lack of transparency can lead to disaster
Lack of transparency led to an embarrassing public stoush at the Melbourne-based investment management firm Praemium.
In 2017, after leading the company to strong growth over five years, Praemium’s CEO Michael Ohanessian was abruptly fired by the Praemium board. “Major shareholders had not been informed and the lack of transparency irreparably damaged the board’s reputation and relationship with those shareholders.” according to the consultancy Ethical boardroom.
Three major shareholders (Australian Ethical, Paradice and the Abercrombie Group) were so incensed by the board’s lack of transparency and accountability that they joined Ohanessian to form a shareholder bloc, and succeeded in spilling the incumbent board, and reappointing Ohanessian as CEO.
The board of Praemium might have been able to withstand the attack from the shareholder bloc had they accounted for their action in public. Failure to do that lost them the support of the majority of shareholders.
Managing Transparency and Accountability
The AICD recommends that boards consider certain issues in ensuring that they are managing transparency and accountability well.
The board should see that the company’s governing documents and policies relevant to its governance are available to all stakeholders (and stakeholders today include employees, supply chain partners, members of the local community, shareholders and ESG-related organisations). These documents should include:
- Information about the organisation’s purpose, vision, values and strategic goals
- Statements from the organisation’s leaders such as its CEO and chair
- Profiles of directors and information about the organisational structure
- Information about key organisational resources (such as employees and key partners)
- Information about the organisation’s activities within the reporting period, including key statistics and performance data
- All policies and thinking behind executive remuneration
- Any conflict of interest that engages directors or executives, and
- Financial statements and strategy and planning.
Corporate governance requirements for listed companies in both Australia and New Zealand provides for reporting on all of these issues, but it is important that boards communicate regularly with stakeholders in clear and accessible ways, outside of the format imposed by technical reporting requirements.
Transparency around remuneration policies is particularly important today, as shareholders in Australia are increasingly scrutinising its fairness. Australian law provides shareholders with say-on-pay: Should 25% of shareholders reject a remuneration package proposal for two years in a row, it becomes possible to spill the board. The best way to maintain shareholder support in this key area is to be detailed and transparent in reporting.
Modern Governance enables transparency and accountability for boards
Modern Governance is the practice of empowering leaders with the technology, insights, and processes required to fuel good governance.
Maintaining transparency and accountability requires documentation, the gathering of data that has informed board decisions. The entire decision-making process should be a matter of record, and this means that communications among board members, discussions, and background material should be available to all board members, the company secretary, and the chartered administrator at all times.
High quality board management software ensures that all of this documentation is always available, but that it is secure and that only those with the right to access can get hold of it.
Board management software of this type also provides secure means of communication, so that sensitive issues before the board are not leaked or hacked.
Diligent Governance Cloud provides tools for transparency and accountability
Diligent, the pioneer in Modern Governance, has created a set of tools to ensure that directors can provide a high level of transparency and show accountability.
Diligent’s Board Evaluation Tool positions boards to get their evaluations done early and build on past data and successes. Boards can easily set up various question types and monitor submission of the evaluations completely online. The tool makes it ultra-easy to review the results because it produces visual graphics and Excel reports for further analysis. Automatic averages reporting is available to simplify the analysis process.
The application provides your board with the same data used by activist investors and proxy advisors. In addition, the app provides boards with a database of over 125,000 executive profiles that your nominating committee can use to identify potential board and executive candidates and be completely transparent about it.
For more information contact firstname.lastname@example.org.
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