Research

Australian companies favouring boilerplate disclosure

Australian companies may be running the risk of becoming complacent, choosing minimum disclosure rather than fully embracing the spirit of the Australian Stock Exchange (ASX) principles of good corporate governance, a study by Grant Thornton has warned.

The principles ask that if they are diverged from, companies explain “if not, why not”, with an emphasis on departing from the recommendations only if it can be justified with considered explanations. Grant Thornton said it was therefore surprising that the review found 55% of companies chose to depart from the recommended principles. In particular, the study found that in the areas of risk and control few companies are going the extra mile with detailed disclosures.

Grant Thornton called upon Australian companies to provide more disclosure details rather than resort to “boilerplate”, and warned that unless real commitment to the principles is shown there exists the potential for the introduction of a more prescriptive regime.

However, the study also noted that overall there has been continuing improvements in governance disclosure, and Australian practices are in line with or better than those in the UK and Hong Kong (which also operate on a risk-based approach).

This positive note was supported by the ASX, which recorded the highest adoption of recommended practices since it began reviewing compliance three years ago.

The aggregate adoption of ASX Corporate Governance Council principles was 90% for 2006, compared to 88% for 2005 and 84% for 2004. This includes “if not, why not” reporting – a similar practice to the “comply or explain” approach of the UK’s Combined Code.

Eric Mayne, ASX chief supervision officer, said: “Disclosure is the key … The best form of corporate governance is where there is substantive disclosure as opposed to disclosure that is seen merely as compliance with the form of the principles”.

July 2007