Good corporate governance

Summary

To be successful, the directors of a corporation must run it properly and effectively with the help of management and staff. ORIC is developing ways to help corporations run effectively. This help depends on the goals of the corporation, its size and other issues. As part of this help, ORIC examines corporations from time to time, to ensure they are run properly and to provide help if needed. Eventually, all corporations will be given a 'report card' on how they are doing and this will be posted on the public register of corporations.

What is corporate governance?
ORIC policy on good corporate governance
Examinations and 'healthy organisation' checks
INFOsheet: Healthy corporation checklist
INFOsheet: Top ten practical tips for good corporate governance
More information about governance

What is corporate governance?

Corporate governance is how people lead and run their organisations. Corporate governance is mainly the responsibility of the board as a group. The governing board performs its duties with the support of management and staff, in line with members’ wishes, the constitution and the law, and ideally in partnership with stakeholders.

Corporations will be in a good position to build and develop in a healthy way if they:

have clear objectives and functions
operate in ways that respond to and accommodate their particular circumstances
have members who understand their constitution (rules).

ORIC policy on good corporate governance

A key initiative of ORIC is the development of a policy on good corporate governance to inform ORIC’s work, and to share with others best corporate governance practices. The policy will be based on mainstream principles and on success factors relevant to Indigenous corporations. The principles and success factors will be drawn from evidence-based research in Australia and overseas.

A focus of the policy is that successful governance hinges partly on clarifying what the governance is: either a system for meeting corporate objectives or representing a community, or a decision-making system used by traditional owners. Our policy will recognise that Indigenous corporate governance must often be performed in conjunction with other types of governance. However, widespread expectations that Indigenous corporations will somehow meet all the governance needs at a site can overload the corporations and their directors, and can raise legal issues about their decision making.

The size of the corporation makes a big difference to how corporate governance is practised. In small corporations with very little funding and few liquid assets, informal arrangements can work well. Medium to large corporations (that is, where income is over $100 000) need to formalise their practices more if they are to survive and be successful. The trend towards growth in the size of Indigenous corporations means that the process of formalising corporate governance practices as corporations grow is important and a key to improving governance in the near future. At the same time, small corporations should not be over-burdened with unnecessary red tape. The CATSI Act allows for this by streaming corporations for reporting purposes.

For medium and large corporations, more formal arrangements need to be in place if the board of directors is doing its job well. The focus of the board of directors should be on clarifying with members the direction (aims) of the corporation, then deciding on the best roads to get there (goals) and driving to achieve these aims and goals. The challenge of mapping clearly the direction and the roads that the corporation will take is a big job and should not be underestimated. The governing committee/board also needs to focus on overseeing the implementation of the goals through management, including having a say in the employment of the chief executive officer and keeping a constant eye on risks and whether they are being managed well. Boards for medium to large corporations need to avoid micromanaging (a common mistake); instead, they should steer.

Most corporations under the CATSI Act have limited liability, which means that members do not usually have to contribute to the debts of the corporation if it fails. However, directors can be held liable if they have not fulfilled their duties. See the fact sheet Duties of directors and other officers.

The policy’s other ‘pillars’, which are increasingly being recognised as important to Indigenous corporations, are:

respect for members’ rights
agreement about and use of effective internal dispute resolution mechanisms for corporations
availability of timely and accurate reporting to directors
self monitoring
an agreement about to whom accountability is owed, which is put into practice
agreed decision-making principles
the need for the directors to be equally representative of various interest groups, balanced with other requirements for skills and independence
transparency in structure and decision making
active and persistent conflict-of-interest management, particularly by the directors as a whole and individually
up to date and relevant goals and strategies for the corporation.

Examinations and 'healthy organisation' checks

ORIC conducts examinations to assess the corporate governance health of corporations as part of a rolling program. Possible outcomes from an examination could be that the corporation:

is operating well and requires no further action
is under consideration for further action
requires rectification of a less serious matter
raised serious matters and is required to advise why an administrator should not be appointed.

INFOsheet: Healthy corporation checklist—For boards, members and staff

Members actively participate.
Board communicates with members regularly, in a way that members understand.
Democracy is at work in the board and the wider corporation.
The board is keen to learn about and apply good corporate governance, and share their knowledge.
The board audits its own performance to pinpoint areas for improvement.
Good relationships thrive and good conflict resolution policies and procedures exist and are acted upon.
Plans, policies and decisions are transparent.
Planning is inclusive, goals fit with the purpose of the corporation, and plans are implemented, monitored and reviewed regularly. Planning is seen as an opportunity to work as a team to produce a plan that reflects the aspirations of the corporation. The plan is a vehicle for 'one voice' in the corporation.
Budgets are developed against the plan, projects and activities.
Younger people, women and marginalised groups are actively brought along in the corporation.

Download 'ORIC INFOsheet: Healthy corporation checklist' [1 page, PDF, 268Kb]

INFOsheet: Top ten practical tips for good corporate governance

1. keep register of members up-to-date

Make sure the registers has the following information for every person who is or has been a member:

the person's name and address
the date that person became a member
the date that person ceased to be a member (if applicable)

(Note: the register of members is a continuing record and if kept correctly, it will help to resolve any disputes about who is a member.)

2. know your role and responsibilities

Make sure the board fully understands it role and responsibilities

3. know your constitution

Know your constitution. Encourage your members to learn about it.

4. know your money position

Make sure you know about the money position, or use your auditor more often (say every three months) to check that your staff are managing the money properly (a good auditor will do this for the board).

5. taxes

Make sure that tax matters are handled correctly, in particular the Goods and Services Tax (GST), Pay As You Go (PAYG) and Fringe Benefits Tax (FBT). Make sure the Superannuation Guarantee contributions are paid for all your staff.

6. attendance

Make sure someone from the board is at every meeting when the funding agency(s) come to visit.

7. insurance

Make sure the corporation's property is insured. Check that insurance policies are renewed on (or before) the due date.

8. assets

Be careful to only use the corporation's assets in line with funding conditions (most will say that personal use is not allowed). Better still, make a policy about this for everyone to see and use.

9. minutes of meetings

Make sure you keep minutes of every meeting of the corporation. Minutes should say what type of meeting you had (AGM, SGM or board meeting, what day it was held, who came, and what decisions were made).

10. hold and annual general meeting (AGM)

Make sure you have and AGM every year (usually before 30 September).

Download 'ORIC INFOsheet: Top ten practical tips for good corporate governance' [1 page, PDF, 331Kb]

More information about governance

Links to more information about governance can be found on our Other relevant links page.

Page updated: 30 Apr 08