ASIC's consultative approach to be applauded

Corporate Governance is an issue that occupies a great deal of company boards' time and
thoughts. Like almost any issue with an ethical dimension however, it does not have one
single and simple manner in which it should be addressed. Nor is there any precedence or
benchmark to provide guidance on whether or not a governance initiative can be made
workable.

Whilst our Corporations' Law identifies that a Board must act within the confines of a fiduciary relationship, it is not a highly functional day-to-day working document. Boards rely on gaining appropriate interpretations and guidance from a designated company officer. More often than not, they turn to the Company Secretary.

Last week ASIC released "Better Disclosure for Investors". This paper not only acts as a
practical guide for companies trying to comply with the continuous disclosure rules, it also
avoided creating an unworkable and overly prescriptive system. In short, it was a victory for common sense after a shaky start.

What is particularly pleasing is the way that ASIC has gone about devising the guidelines.
Rather than acting in a dictatorial, "holier-than-thou" fashion, they chose to engage a broad cross-section of professional associations, the business community and shareholder bodies, in what can accurately be described as true leadership. The end product is a true reflection of the quality of the consultation process that ASIC conducted.

We have seen far too many overhauls, amendments and flaws in the development of
legislation and regulations. Building a consensus between regulators and those complying
with the laws is essential if we are to establish a system that not only protects investors, but is also attractive to business investment.

The guidelines are a dramatic improvement on the earlier discussion paper "Heard it on the Grapevine", which drew sharp criticism from a broad range of opponents and Chartered Secretaries Australia (CSA) in particular.

What must be remembered is that corporate governance is essentially an issue of selfregulation.

Whilst there is no doubt that a few not so ethical colleagues will add Majorca to their holiday destinations, this is by no means indicative of the behaviour of the majority of
Australian business.

In fact, the overwhelming majority of companies go to considerable lengths to ensure fair and full disclosure. ASIC's guidelines recognise this by not being overly prescriptive and by not imposing additional regulatory requirements. Instead ASIC has developed guidelines on what they think is "good disclosure practice".

Australia already has a rigorous and comprehensive Corporations Law and stringent
continuous disclosure regime in place – fortunately this was confirmed late last week. What Australia doesn't need is a supplementary system that will complicate matters further.
Companies require practical assistance in ensuring that the requirements of the existent laws are met.

CSA is focused on achieving a system of workable and commercially sensible corporate
governance for all Australian businesses. Building on ASICs guidelines, CSA now proposes to document what Best Practice in continuous disclosure is.

To do this, we require a flexible system and that is exactly what ASIC have delivered. In fact they specifically stated that the guidelines "should be implemented flexibly and sensibly to fit the situation of individual companies".

A good example of why such lateral thinking is needed, is illustrated by ASIC's seventh point.

If an absolutely strict interpretation of the guidelines were to take place, then a company
would be obliged to post a rumour on their website whether it were true or not.

Obviously, if the rumour were untrue, then to strictly comply with the guidelines would be
entirely misleading. It may in fact be the result of some breach of confidentiality, which might not only adversely affect the company but third parties as well. An even greater problem would present itself if the company did not have a website. Taking such a strict literal view is obviously not what ASIC intended. Finding a way through such thickets is the kind of guidance a good company secretary can add.

Similarly, the markets and society demand that chief executives comment on issues outside their business operations, but have a substantial influence on the broader community. This is an integral part of sustainable development.

Insisting on chief executives communicating all of their thoughts to all investors at the same time, would effectively silence them. It would be a shame to gag the very same people that are paid to think and speak.

ASIC's guidelines have provided all businesses with a good starting point to address the
issues of continuous disclosure. In not imposing any new regulations, they have put their
weight behind simplifying our existing system, but have acted to ensure a greater level of
compliance and fairness for all shareholders. In addition, their style of inclusion and
consultation has gained wide spread acceptance, which is by no means an easy task these days.

Whilst consultation is an oft-touted word, it is frequently too difficult in practice to pursue. ASIC have made a determined effort to hear and heed the voices of their constituency — if such a parallel can be drawn — and the end result is a success.

Tim Sheehy
Chief Executive
Chartered Secretaries Australia

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