AGMs - Be Prepared

Welcome to this edition of Corporate Governance Update - mid-October 2002.

This issue includes:

Article: Your Upcoming AGM - Top tips to being prepared.

In the News: The EY survey and when will Clerp9 finish?

Your Upcoming AGM - Top tips to being prepared

Annual General Meetings are a vital part of the corporate governance process and an essential forum for shareholders.

Too many AGMs fall far short of shareholders' expectations. This year, with the spotlight on corporate governance more than ever, it is critical that yours doesn't.

CGA's team of specialists have devised some simple guidelines to enable you to both manage and address governance-related issues at your AGM, and retain shareholder confidence and trust.

If you would like further assistance in preparing for your AGM, or have other questions, please contact us. You can request our suggested answers to corporate governance type questions at AGM's by emailing : AGManswers@corporate-governance.com.au

Regards
Vincent Sweeney and Danny Herceg
email: vincent.sweeney@corporate-governance.com.au or Danny.Herceg@corporate-governance.com.au

1. Be prepared.

Your shareholders will be ready to ask you questions such as:

• How do we know your corporate governance is in order?
• How do you protect against surprises?
• How will the board improve communication with shareholders?
• What corporate governance changes or policies are planned for the next year?

2. Be direct.

Despite popular opinion, providing vague or non-committal answers to shareholder questions will only undermine shareholder trust.

3. Be honest.

No company goes through a year without some failures. Shareholders are entitled to know what they were and what the board has learned. Discerning honesty will earn you respect and trust.

4. Keep it brief.

Don't bombard your audience with information in the hopes of avoiding awkward questions. Keep any presentations short and remain specific and focused.

5. Manage your PR effectively.

It is the responsibility of the Chairman and CEO to manage and control the PR 'spin-doctors’ before, during and after AGM's.

6. Be specific and selective.

Don't try and answer all shareholder questions yourself. Allow your senior executives to take questions that lie in their areas of specialty. Answering each question before taking another will give questioners a chance to clarify an answer or ask an additional question.

7. Encourage your auditors to be upfront and direct.

Your shareholders need to know that your auditors' top priority is protecting their interests.

8. Bring on third party governance specialists.

Tapping into the expertise of independent advisers will do more than give your company credibility at your AGM. Demonstrating that you are serious about best business practice and corporate governance issues will also preserve and increase shareholder confidence.

Simply put, well-run AGMs are an essential part of good corporate governance.

EY report - Australian Companies fail New York Stock Exchange revised rules

The new EY survey of Australia's Top 200 companies, asks the question of whether Australian companies and their Boards of Directors can meet the compliance standards of the new NYSE Listing Rules if suddenly required. Of the Top 200 surveyed, 18 were registered with the US Securities and Exchanges Commission (SEC), with a number of SEC registrants having a dual listing on the Australian Stock Exchange (ASX) and the NYSE.

"While SEC registered companies generally fared well, Australian non-SEC registered companies still have a long way to go if they were ever forced to comply," said EY. "The survey indicates Australian companies would fall significantly short if called upon to meet the NYSE requirements for all board committees to be comprised of independent directors . " said Ms Picker.
Also, according to the survey, Australian non-executive directors would likely fail to meet the strict new 'independence' standards established by the revised NYSE regime, with many of the Top 200 companies facing the possibility of having their boards of directors considered unsuitable.

The reason for this is twofold. Firstly, there are no Australian requirements for boards or board committees to comprise a majority of independent directors or be solely so comprised. Secondly, although a practice has emerged of majority non-executive directors on boards, there are no rules regarding the definition of "non-executive". This means that "non-executive" and "independent" are not necessarily the same. A company's failure to meet the required majority "independent" criteria for the board will also affect the "solely independent" criteria for the audit, nomination and compensation committees.

Ms Picker said, "The NYSE changes could force a company to reconstitute its board to fit US compliance needs, or at the very least, result in the Australian company having to report to its US stakeholders that it does not have a majority independent board. The reaction of shareholders to such disclosure would almost certainly be highly unfavourable."

Australia Unveils Overhaul Of Corporate Law - but when will it end?

Australian Federal Treasurer Peter Costello unveiled 41 recommendations aimed to enhance the country's corporate governance. Costello said the 200-page review, titled Corporate Disclosure: Strengthening the Financial Reporting Framework (also known as CLERP 9), is a "fundamental reshaping of Australia's financial reporting."

The timeline for this is longer than many think. It is highly unlikely that the final shape of Clerp9 will be known until February 2003 and possibly later. In the intervening period additional changes are being recommended in other jurisdictions and if common sense prevails about harmonisation around the world, CGA believes we should review and adopt some of these changes in Australia for the benefit of harmonisation.

A cross section of the recommendations includes: mandatory audit committees for the top 500 listed firms; the protection of whistle blowers; the cost of executive and director share options must be disclosed in annual reports; audit partners must change the companies they audit every five years; AUD1 million fines for market manipulation, insider trading, and failure to meet disclosure requirements; expanded role of the Financial Reporting Council to oversee audit independence and standards; auditors required to attend annual general meetings; shareholders voting proxies electronically; stockbrokers and analysts should disclose any personal financial interests they have in stock they recommend; expanded powers for the Australian Securities and Investments Commission (ASIC); and the creation of a Shareholder and Investors Advisory Council.

Corporate Governance Australia [CGA] is one of Australia's leading specialist advisory group working with boards on corporate governance and stakeholder issues. CGA is supported by an Advisory Board, whose members have distinguished experience with corporations, government and academia.

For more information
please contact Vincent Sweeney or Danny Herceg on ph: 02 9238 6160

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