How Australia compares on corporate governance within Asia

Each year, the Asian Corporate Governance Association (ACGA), based out of Hong Kong, surveys its institutional investor members on listed company governance standards within each of the major Asian countries. Australia has been included in that survey for the first time.

This is important for a number of reasons:

  • Firstly, Asia has become a significant source of capital for Australian issuers. Relative governance strength is a competitive advantage to attract capital in the region.
  • Secondly, it provides a ready reference for assessing the likelihood of finding suitably qualified directors with Asian experience capable of adapting to ASX-listed company governance standards.

For a broader perspective, the ACGA believes that including Australia has brought into sharper focus the need for all the pieces of governance to fit within a workable ecosystem.

Australia scores a 78 out of a potential maximum governance score of 100. Okay, so if Australia was an undergraduate, it would not have achieved a “high distinction”. But, a “distinction” grade is not too shabby.

Australia scored relatively well in the Asia region. The other nearest scores were Singapore, with 67, Hong Kong with 65, Japan with 63 and Taiwan with 60. All but Hong Kong have improved markedly in the past year. Japan and Korea have been improving at a good pace each year for 5 years.

The aspect that makes Australia stand out is labelled “corporate governance culture”. That is, the care and attention of Australian boards to focus on improving governance standards, and their pro-activeness in effecting governance change to improve standards.

Australia leads across all but one of the other factors. It falls down in enforcement, where it is second behind Hong Kong. While enforcement is a complex issue within each country, the ACGA believes a large component of where Australia falls down is how ASIC is funded and structured. Improvement in this area depends on Australia’s federal parliament being willing and able to achieve enough consensus for change. Hence, do not expect much improvement in next year’s ratings on this factor.

ACGA’s warning for Australia is that global and regional corporate governance standards are constantly evolving and that there is a “danger Australia’s score could slip in (their) next survey). At the same time, it warned that greater internationalisation of the ASX will mean Asian governance problems can be imported. This presents something of a conundrum, given the need for many ASX listed companies to seek out directors with greater Asian experience and depth of understanding for their boards.

© Guerdon Associates 2024
read more Back to all articles