MAC: Mines and Communities

Mining firms worst performers with corporate governamce

Published by MAC on 2007-11-29

Mining firms worst performers with corporate governamce

29th November 2007

by AAP

Mining firms have the worst corporate governance standards among medium-sized listed companies and a shortage of talented people willing to become board members could be to blame, a report shows.

The 2007 report by accounting firm BDO Kendalls found a deterioration in corporate governance standards, with four in 10 firms having inadequate governance standards.

The University of Newcastle's Associate Professor Jim Psaros, who compiled the report, said the overall fall in standards since 2006 was particularly evident across the mining sector, where the the resources boom had increased many company's market capitalisations.

"Now that they have reached some prominence, sometimes their corporate governance is not matching their profile just yet," he said.

BDO Kendalls director of risk advisory services, Andrew Pearce, said a slip in corporate governance performance was partly due to the fact that talented executives were not taking up positions on the boards of listed firms.

"It is time for the regulators to have a look at why the good experienced people around are not accepting positions as directors of public companies," he said.

Mr Pearce said for the malaise in standards could be because executives were taking up positions with private equity firms, as they were nervous about the onerous liabilities that went with board positions.

However, another reason could be complacency, which often crept in during times of sharemarket exuberance, Mr Pearse said.

"Some companies that don't have good corporate governance do excel, but as a generalisation without transparency and accountability in the market place, at the absolute extreme, the company faces liquidation," said Associate Professor Psaro.

The study was based on the 2006 annual report disclosures of the 150 largest mid-sized Australian listed companies (ASX 251-400) with a market capitalisation of $100 million to $250 million at 31 December 2006.

It scrutinised board composition and independence, auditor independence and having separate audit, remuneration and nomination committees in place.

"Most of these companies also have inadequate documentation in areas such as disclosure of related-party transactions or rigorous policies on risk management and share trading," the report said.

Highest ranked of those surveyed was Launceston-based financial services group Tasmanian Perpetual Trustees, then Sydney-based bio tech firm Life Therapeutics.

The bottom two performers were Brisbane-based resources group Kings Minerals NL and Perth-based property company United Overseas Australia Ltd.

Other findings were that two of 150 companies had achieved best practice standards and that 8.7 per cent of the firms survey scored one out of five, while 32 per cent received two out of ten, less than half of the companies have an independent chairman and only a quarter have a majority of independent directors.

It also showed that almost 71 per cent of mid-caps had a separate remuneration committee, while less than 40 per cent had a separately constituted nomination committee and more than half did not have a majority of independent members.

There were 14.7 per cent of companies with no code of conduct.


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