Anything to declare? A report examining disclosures about board reviews, identifying good practice and encouraging progress Published by Chartered Secretaries Australia and Boardroom Partners Pty Ltd © 2012 Chartered Secretaries Australia Ltd and Boardroom Partners Pty Ltd The information and material supplied and presented as part of this report is the subject of copyright, the property of which vests with Chartered Secretaries Australia Ltd and Boardroom Partners Pty Ltd, other than the extracts from disclosure statements, as detailed. Unauthorised reproduction in both oral and written form is not permitted. All rights reserved. Contents Acknowledgments ii Foreword iii Executive summary iv Introduction 1 Background 3 Recent research This research Key findings 7 Detailed findings 11 Conclusions 25 Disclosure statements 27 Appendices 65 Appendix 1 — Top 200 companies by name as at January 2012 Appendix 2 — Companies by rating Appendix 3 — Research methodology Appendix 4 — Interview questions Appendix 5 — Experiences of interviewees Appendix 6 — Examples of best practice UK FTSE 100 Disclosures References 78 Anything to declare? Page i Acknowledgements We would like to thank the following for their valuable input. Directors and chairs Jillian Broadbent, Elizabeth Bryan, Carol Holley, Belinda Hutchinson, Irene Lee, Catherine Livingstone, Anne McDonald, Emma Stein and one director who chose not to be identified. Company secretaries Tim Hartin, Amanda Harkness FCSA, Caroline Waldron FCSA and two company secretaries who chose not to be identified. Boardroom Partners research team David Band, Senior Consultant Jane Bridge, Managing Partner Emma Lambert, Research Associate Spyridon Revithis, Manager, Data Gail Walsh, Executive Assistant CSA research team Judith Fox, Director, Policy Amyn Nathwani, Policy Adviser Foreword Boardroom Partners and Chartered Secretaries Australia It must be acknowledged that many companies conducted (CSA) are pleased to have conducted this first-ever audit of board performance reviews well before the ASXCGC’s the disclosure of board performance reviews of ASX guidelines were published and they continue to do 200 companies. so. But is must also be acknowledged that, for too many companies, there is still a long way to go. Good Both organisations are committed to improving the governance can have a dramatic impact on the culture of governance practice of Australian companies and see this an organisation and disclosure of governance practices report as assisting companies in their understanding of the can add to investors’ confidence that the culture of the practices other listed companies are using. We have built company they invest in accords with their expectations. upon similar research undertaken in 2009 by the Institute of Chartered Secretaries and Adminstrators (ICSA) in the Our research has highlighted the need to clarify what United Kingdom. Because of this, readers can gain an various stakeholders require in terms of effective disclosure insight into the practices of Australian companies as well as about board reviews. those in the United Kingdom using a similar methodology. We hope that this report will be a useful addition to As stated, in addition to reviewing annual reports, we were Australia’s corporate governance landscape. The ASXCGC’s able to meet with a number of organisations that gave guidelines have had a positive impact on governance their time and accordingly enabled a much more detailed reporting and we see comparative analyses such as this review. We are grateful for the cooperation we received as critical in improving the guidelines, boardroom practice from them. These in-depth interviews enabled the research and investor confidence in the market. to go beyond published information to add a greater depth to the findings. Disclosure is the cornerstone of an efficient market and is the essence upon which the ASX Corporate Governance Council’s (ASXCGC) Corporate Governance Principles and Recommendations (the guidelines) are based. The Council’s Tim Sheehy FCSA guidelines have had a significant impact on the quality Chief Executive and extent of governance disclosure since their inception Chartered Secretaries Australia in 2003. The guidelines have encouraged companies to introduce governance practices, such as board performance reviews, that have no doubt improved board effectiveness and given investors greater confidence about the companies in which they invest. Jane Bridge As the research has highlighted, the ASXCGC’s guidelines Managing Partner have had a positive influence in encouraging an Boardroom Partners increasing number of boards to undertake detailed board performance reviews. More than half of all companies met or exceeded the ASXCGC’s requirements. Not surprisingly companies in the ASX top 50 generally exceeded requirements. Nevertheless there were examples of misunderstanding or of reporting that was boilerplate in nature. We noted that the smaller the company, the greater the tendency to under-disclose. Anything to declare? Page iii Page iv Chartered Secretaries Australia and Boardroom Partners Executive summary In the world of corporate accountability in Australia, Public companies in the UK are further advanced in this there have been significant developments in recent times. area of disclosure of board review practice. They provide Nowhere is this truer than in the area of board reviews, some excellent examples of good practice, which are which are now more common than ever before. Indeed, as included in Appendix 6 of this report. However, as our this report shows, reviews of board performance are now report shows, several Australian companies are excellent almost a universal phenomenon among leading exemplars as well. public companies. We hope that this report will reach a wide corporate It is one thing to conduct a review. It is another thing audience and that our research findings provide helpful to disclose information publicly about that review. The comparative information for board members and company recommendation of the ASXCGC is that ‘Companies secretaries. Just as importantly, we hope that an additional should disclose the process for evaluating the performance outcome of the report will be an explanatory or additional of the board, its committees and individual directors.’ note from the ASXCGC, clarifying that disclosures are to include the fact of review rather than merely an intention This report finds that, among Australia’s leading public or standard policy. companies, there is considerable variety in both the practice and the disclosure of board reviews. From their own public information, it is apparent that many companies are making a genuine effort to follow both the letter and the spirit of the recommendation. They are using disclosure to demonstrate to their various stakeholders the seriousness with which they take their boards’ performance. Indeed, it is apparent that the effect of the recommendation has been to encourage an increasing number of boards to undertake detailed board reviews. More than half of all companies met or exceeded the ASXCGC’s requirements. Nevertheless, a number of companies still disclose only minimal information about their board reviews. There is clearly a widespread and genuine concern about confidential issues being made public. Given that a significant number of large listed companies have been able to overcome that concern, it would appear that others either do not understand the recommendation or are unable to meet it. Anything to declare? Page v Page vi Chartered Secretaries Australia and Boardroom Partners Introduction Reviewing the performance and contribution of corporate In Australia, where the recommendation is: ‘Companies boards has been recommended as ‘good practice’ for some should disclose the process for evaluating the performance years now.1 In Australia, evaluation methodologies are of the board, its committees and individual directors’5, the well developed and there are many options available today same variety exists. for boards wishing to consider how they ‘add value’ or compare with other boards. With this in mind, Boardroom Partners and CSA have partnered to investigate the evolving approaches to Board evaluation is a key element of corporate governance, disclosure of board review in this country. While others have although it is apparent that there is a wide range of looked at aspects of this issue, we offer this report as the approaches to this potentially highly sensitive area. At best, first comprehensive analysis of the disclosures of Australia’s a review will provide a board with meaningful information leading 200 corporations. for development and the future; at worst, it will be a waste of time and resources. This report includes complete (board review) disclosure statements from 200 annual reports; our assessments of Research in Australia2 and the UK3 has already explored each statement as either meeting, exceeding or failing the form, content and practice of board evaluations, and to meet the disclosure requirements; and discussion with identified what makes for a worthwhile review. Industry board directors and company secretaries of some of these bodies, institutional investors and regulators all reinforce companies regarding the relationship between disclosures the need for rigorous reviews and guidelines are becoming and the practices of review. increasingly specific. The latest UK Guidance on Board Effectiveness4 includes highly detailed recommendations for board use. In 2009,