Board Structure and Board Composition in Australia and Germany: a comparison in the Context of Corporate Governance

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MqJBL (2007) Vol 4

Board Structure and Board Composition in Australia and Germany: A Comparison in the Context of Corporate Governance

Elizabeth Shi*
I Introduction
Corporate governance refers to control of corporations and to systems of accountability by those in control1. It plays in an important role in the economies of capitalist countries. Although there are some global norms, every country tends to approach corporate governance from its own cultural background and hence there are various approaches around the world. This paper will focus on the approaches taken by Australia and Germany.
Corporate governance in Australia and Germany share some common goals. These goals include ensuring management who enjoy large discretion in decision-making are kept within reasonable boundaries and make good decisions; encouraging companies to meet their corporate social responsibility, beyond their narrow legal responsibilities of profit-making to their shareholders; making companies more efficient. Nevertheless, there are also important differences. For example, the structure and composition of the board of directors is an important aspect of corporate governance. However, Germany and Australia, due to their different political and social history, approach it differently.
The purpose of this paper is to examine board structure and board composition laws and guidelines for listed companies in Australia and Germany, in order to compare how well they further the common goals of good corporate governance. This paper will firstly examine the Australian law and guidelines on the composition and structure of the board of directors in listed companies. This will be followed by a discussion of the German law and guidelines on the composition and structure of the board of directors. Then there will be a comparative analysis of the two systems, an evaluation of how well they further the goals of good corporate governance, and finally suggestions will be made for improving the Australian laws and guidelines.
In this paper, ‘board structure’ refers to whether a board is a single-tier board or two-tier board2, and ‘board composition’ refers to the make-up of the board in terms of executive and non-executive directors, independent and affiliated directors, and shareholder-elected and employee-elected directors.
II Australian Law and Guidelines on the Composition and

Structure of the Board

A Single-Tier Board Structure

Australian corporations law requires a single board of directors. Public companies must have at least three directors.3

The initial directors are those persons named with their consent in the application for registration of the company4. Subsequently, the appointment of directors is by the general meeting of the shareholders5.
The directors take actions at the director’s meeting usually by a majority vote. The powers of the directors are set out in the company’s constitution or the replaceable rule in s 198A of the Corporations Act 2001(Commonwealth). S 198A provides that the directors may exercise all the powers of the company except any powers that the Corporations Act or the company’s constitution requires the company to exercise in general meeting. Thus the powers of the directors are fairly broad. In large public companies, the board does not usually deal with the day-to-day management, but rather supervises the executive management6.

B Composition of the Board and the Effect of ASX Recommendations

Whilst there is no government regulation requiring a specific composition of the Board in Australia, there is ‘soft regulation’ comprising self regulation and codes of practice.

The most powerful of these ‘soft regulations’ is the ASX guidelines for best practice for listed entities – the Principles of Good Corporate Governance and Best Practice Recommendations, released by ASX Corporate Governance Council released in 2003 (‘the ASX Recommendations’).
Although the ASX Recommendations are non-binding per se and attract no express sanctions, they are close to being mandatory7. The ASX has the enforcement power to ensure that its Listing Rules (in particular, Listing Rule 4.10.3) are complied with by listed entities. The ASX Listing rule 4.10.3 requires listed entities to disclose in each annual report the extent to which they have followed to ASX recommendations8. If they have not followed the ASX Recommendation, they have to identify which Recommendations they have not followed and explain why. This has been referred to as the ‘comply or explain’ regime9.
The effect of the ‘comply or explain’ regime is that most listed entities are reluctant to depart from the ASX Recommendations10. This is because the shareholders are likely to perceive a company’s decision to depart from the Recommendations in a negative light, even if they receive an explanation in their annual report. Shareholders’ perception is very important to the directors, because the shareholders have the power to remove directors in a general meeting by an ordinary resolution11.
The other reason the ASX Recommendations are close to being mandatory, is that s 249D of the Corporations Act 2001 (Commonwealth) confers upon members the right to requisition an extraordinary general meeting, potentially to compel the board to comply with the ASX Recommendations12. The minimum number of shareholders required by s 249D is only 100 members or members with at least 5% of the votes. Once the general meeting is requisitioned in this way, the directors have to convene a meeting within 21 days (s 249D(1)(b)). If this does not occur, the shareholders may call, arrange and hold a general meeting themselves, provided that more than 50% of the requesting shareholders agree (s 249E(1)). The cost of the meeting will be met by the company.
1 ASX Recommendations in relation to the Board Composition
The ASX Corporate Governance Council made the following recommendations in relation to the composition of the Board and independent directors / non-executive directors:
Recommendation 2.1: A majority of the board should be independent directors

Recommendation 2.2: The chairperson should be an independent director;

Recommendation 4.2: The board should establish an audit committee; Recommendation 4.3: (the audit committee) to be primarily comprised of independent directors and only non-executive directors13.

Recommendation 9.1: The board should provide disclosure in relation to the company’s remuneration policies.

Recommendation 9.2: The board should establish a remuneration committee, consisting of a majority of independent directors, chaired by an independent director.’
The notion of ‘independence’ is defined in the ASX’s Corporate Governance Council Recommendation 2.1, it includes, inter alia:
An independent director is a non-executive director (ie is not a member of management) and :

  1. is not a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company;

  2. within the last three years has not been employed in an executive capacity by the company or another group member, or been a director after ceasing to hold any such employment14

2 Stakeholders’ Interests Not Reflected by Board Composition
The ASX Recommendation 10.1 states that companies should ‘establish and disclose a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders.’15 Stakeholders in this context refers to ‘non-shareholder stakeholders such as employees, clients/customers and the community as a whole.’16
Although the ASX Recommendation 10.1 refers to stakeholders other than the shareholders, it does not recommend that the stakeholders should be directly represented on the board, in the form of elected representatives. Thus the composition of the board is not affected by Recommendation 10.1. In contrast, in Germany, there are employee-elected representatives on the boards of Stock companies, as discussed below.
III German Law and Guidelines on the Composition and

Structure of the Board

A Mandatory two-tier board structure

German law requires a dual board system for stock companies (Aktiengesellschaft). A stock company is equivalent to an Australian public company limited by shares. The dual system consists of a management board (Vorstand) and a supervisory board (Aufsichtsrat).17 Members of one board cannot sit as members of the other board.18

The management board must comprise one or more directors, and at least two directors if the company’s capital exceeds EUR 3,000,000, unless the articles of association provide otherwise.19 The responsibility for managing the stock company is borne by the management board.20
The supervisory board must comprise at least three members and at most 21 members, depending on the stated capital of the company21. The duties of the supervisory board are separate from those of the management board. The supervisory board is precluded from being involved in the day-to-day management of the company.22 Its duties include appointing and removing the directors of the management board23. It also supervises the management of the company24.
The supervisory board has several control mechanisms over the management board. The supervisory board has the right to ask the management board for any information about the company.25 It can comment on management board decisions. The management board may disregard the supervisory board’s opinion, but in doing so it must justify its actions.26 In addition, if the articles of association so provide, specific types of transaction need to be approved by the supervisory board.27
B Composition of the Stock Company Supervisory Board
There are two laws which regulate the composition of the supervisory board. They form a part of the German ‘labour co-determination laws’. The term ‘labour co-determination’ refers to the co-operative decision making by both the employee representatives and the shareholder(owner) representatives.28 It is aimed at promoting trust, co-operation and harmony between labour and capital29. The two laws are30:

  1. The law on co-determination in the coal and steel industries of 1951 (Montanmitbestimmung)

  2. The law on co-determination on the supervisory board of 1976

The 1951 law requires that employees elect half of the members of the supervisory board of coal and steel stock companies31. The 1976 law requires that for all other stock companies with at least 500 but fewer than 2000 employees, the employees elect a third of the members of the supervisory board. The shareholders elect the other two thirds.32 For stock companies with at least 2000 employees, the employees elect half of the members of the supervisory board33. The shareholders elect the other half. In the event of a deadlock, the chairman of the supervisory board, who is always elected by the shareholders, has the casting vote34.

In addition to the 1951 and 1976 laws, there is also the German Corporate Governance Code released by the government commission which was appointed by the German Ministry of Justice, in 200235 (‘The German Code’). The German Securities Exchange (Deutsche Börse AG) was a member of the government commission.
Similar to the ASX Recommendations, the German Code is a voluntary Code for listed entities, operating on a ‘comply or explain’ basis. Clause 5.4.1 of the German Code provides:
For nomination for the election of members of the Supervisory Board, care shall be taken that the Supervisory Board, ….. are sufficiently independent.
‘Independence’ is defined in clause 5.4.2:
A Supervisory Board member is considered independent if he/she has no business or personal relations with the company or its Management Board which causes a conflict of interest.
Clause 5.4.2 of the German Code provides:
No more than two former members of the Management Board shall be members of the Supervisory Board and Supervisory Board members shall not exercise directorships or similar positions or advisory tasks for important competitors of the enterprise.
Clause 5.4.4 provides:
It shall not be the rule for the former Management Board chairman or a Management Board member to become Supervisory Board chairman or the chairman of a Supervisory Board committee. If this is intended, special reasons shall be presented to the annual general meeting.
These provisions are aimed at sufficient demarcation between the two boards, thus ensuring proper monitoring.

IV Comparative Analysis

A Aim of Comparison

The aim of this paper is not to come to a simplistic conclusion about which country’s system is a better one. Such a conclusion may lead to the unrealistic proposition that one country’s system should be superimposed in the other country. Both the Australian system and the German system have their advantages. The aim of comparative analysis is to see which aspects of each system have something to offer, and which aspects of each system are in need of reform.

B Monitoring the Management

1 Agency Cost and Effective Monitoring

The relationship between the shareholders and the board of directors results in the directors being entrusted with the power to act on behalf of shareholders. An agency cost arises, because the interests of directors (the agent) and shareholders (the principal) are not identical36. There are several dangers: the directors may work less hard than if they were working for themselves (‘slacking’); the directors may avoid their share of the workload (‘shirking’) or they may use the company resources for their own benefit (‘rorting’)37. The shareholders are naturally interested in monitoring the directors to counter these dangers38.
This agency cost is more prominent for large public companies than in small proprietary companies, where there is less separation between the shareholders and the directors. In small proprietary companies, the shareholders and the directors are often the same people, or the shareholders are directly involved in the company. The agency cost problem and the need for monitoring are common to companies both in Australia and Germany.
2 Evaluation of the Board Structures in Reducing Agency Cost
It is argued both countries’ board structures can be successful at reducing the agency cost. There is no significant advantage posed by one structure over the other. The German system contains a formalised separation of two boards and their roles. The supervisory board has the task of monitoring the management board. The management board has the task of managing. The formalised separation has a sound doctrinal basis in providing checks and balances. However the formalised separation does not necessarily guarantee effective monitoring in practice.
As the German Government Commission points out in the foreword to the German Code:

In practice the dual board system, also established in other continental European countries, and the internationally wide-spread system of management by a single management body (Board of Directors) converge because of the intensive interaction of the management board and the supervisory board, both being likewise successful.39

Unlike Germany, Australia does not have a two-tier board system. However, in practice, the non-executive directors in Australia can fulfil a similar monitoring role as the German supervisory board to some extent. For example, the companies on the SA&P/ASX All Ordinaries Index are now required to have an audit committee40. The audit committee is an independent body made up of non-executive directors and their main function is to assist the board in discharging their responsibilities and in particular, add credibility to the auditing process41. If the CEO and executive directors engaged and interacted with the auditor directly, then they might pressure the auditor to ‘audit their way’. In the event the auditor doesn’t ‘audit their way’, they could threaten to engage another auditor. However, because the audit committee is separate from the board, it can discuss matters with the auditor in the absence of the CEO and executive directors, and then report the matters to the board. Hence the audit committee’s independence from the board adds an additional safeguard for the shareholders.
3 Board Composition ---- Evaluation of the Different Definitions of ‘Independence’
Whilst both the German Code and the ASX Recommendations emphasise the importance of having independent directors, only the ASX Recommendations defines an ‘independent director’ as a director who is not a substantial shareholder of the company.
The German Code states that a Supervisory Board member is considered independent if he/she has no business or personal relations with the company or the Management Board which cause a conflict of interest.
It is argued that a director having a substantial shareholding is a positive attribute rather than a negative attribute when it comes to effective corporate governance. Substantial shareholding does not hinder the director’s ability to effectively review and challenge the performance of management and to use independent judgment. As MonConvill and Bagaric correctly point out:
Human nature being what it is, people care far less, and sometimes not at all, about what is not theirs.42
Therefore maximising the alignment between the interests of shareholders and directors actually gives the directors more incentive to monitor management. This reduces agency cost. If the management does its job badly, the directors will suffer directly along with other shareholders.
It should be acknowledged however that the ASX definition does not state independent directors cannot be shareholders at all, only that they cannot be substantial shareholders. However, it is argued that the incentive to monitor management would be even greater if the shareholding is substantial.
Thus the German Code definition of ‘independence’ is preferable to the ASX definition. The ASX definition of ‘independence’ should be amended. An ‘independent director’ should not be defined as a director who is not a substantial shareholder of the company.

4 Arguments for Requiring Independent Non-executive Directors

Both the German Code and the ASX Recommendations emphasise the importance of having independent non-executive directors. In Germany, the independent non-executive directors sit on a separate board from the management board. In Australia, both the executive directors and independent non-executive directors sit on the same board.

There are many sound arguments for both countries to retain their recommendations to require independent non-executive directors.
Independent non-executive directors are more likely than executive directors to openly criticise the CEO. This is because, unlike executive directors, they do not depend on the CEO for promotions and salaries43. They have less to lose.
An analogy can be drawn between corporate governance and the governance of a nation. Most democratic nations today adopt the doctrine of the separations of powers, first espoused by the French philosopher Montesquieu44. Montesquieu believed that if the powers of government are concentrated in one person or one institution, then the power is likely to be abused. Therefore the powers should be separated into legislative, executive and judiciary branches, and each branch should be kept separate and independent from each other to ensure proper checks and balances. The doctrine of separation of powers is equally relevant to the governance of companies. Although shareholders do provide some checks and balances on the executive directors’ power, independent non-executive directors can provide an additional counterweight to the executive directors’ powers.
Independent non-executive directors are more likely to take the lead in potential conflict of interest situations, where the interests of the executive management diverge from those of the company, for example over takeovers and boardroom succession45. They are less likely to approve actions that benefit management at the shareholder’s expense46. Drastically increasing the remunerations of managers would be an example of such a conflict of interest.
Independent non-executive directors also add value to the board by bringing diversity of skill and experience and wider networks47.

5 Factors Limiting the Effectiveness of Independent Non-executive Directors

On the other hand, the results of empirical studies do not suggest a positive relation between the independent non-executive directors and financial performance of the company48. However, it is arguable that maximising shareholder wealth is not the only goal in corporate governance. Another valuable goal is the need to ensure managerial accountability and integrity, and providing checks and balances49.

Another criticism is that some independent non-executive directors are allied to management to such a degree that independent monitoring becomes difficult. For example, although formally elected by the shareholders, most Australian non-executive directors were selected by the board chairperson. 50

Further, because independent non-executive directors’ main interests lie elsewhere, they have no economic incentive to make the company a success51. This would change however if they had substantial shareholding in the company. Their commitments elsewhere also mean that they only have limited time to spend on the directorship52. They also lack sufficient knowledge of the company’s business, and as a result rely heavily on the executive directors53.

The problem of reliance was highlighted in the Australian case of Daniels v Anderson (1995) 13 ACLR 614, where a non-executive director tried to argue that he had a lower standard of care than an executive director because he relied on the executive directors. The court rejected this argument and said non-executive directors cannot simply turn a blind eye to the company’s woes, and must fulfil a monitoring role.

Finally, on many boards the independent non-executive directors form a minority only and lack the numbers to have an effective monitoring role54. In 2005, 47% of Australian listed entities did not comply with ASX Recommendation that a majority of the board should be independent directors (Recommendation 2.1).55 However this high level of non-compliance is partly due to the Australian definition of ‘independence’ as discussed above.
6 Independent Non-executive Directors – Here to Stay?
Overall, it is argued that the reasons for retaining recommendations requiring independent non-executive directors outweigh the criticisms. It remains to be seen however whether these types of recommendations are here to stay or are just a ‘fad’.
C Employees Representation on the Board
In Germany, there is a long political history of labour codetermination, 56 with legal requirements for employee-representatives on the board of directors. The employees are represented on the supervisory board, allowing the employees to participate in supervising management57. In Australia, unlike in Germany, there are no requirements for employee-representatives on the board. It is argued that it is good corporate governance practice to require employee representatives on the board, for the reasons set out below.
1 Advantages of Employees Representation on the Board
Employees make ideal candidates for being on the board of directors, because they have a first hand knowledge of the day-to-day issues faced by the business. Other areas of Australian law already recognise this fact and include employees in the corporate decision making process. For example, the Australian Occupational Health and Safety legislation provides that long term OH&S issues may be dealt with by a joint employer-employee committee.58
Employees are important stakeholders in a company. In 1932, US Professor Dodd wrote ‘directors held their fiduciary powers in trust, not only for shareholders, but for the broader constituency associated with the organisation, including employees, creditors and consumers.’59 Employee representation on the board would directly lead to the employees having a voice in the decision-making process.
Employee representation can also push companies towards meeting their broader social responsibility, in addition to focusing on the goal of profit-making. Meeting corporate social responsibility is becoming increasingly important for companies. A growing number of investors care about whether a company is socially responsible. More and more companies, such as the ANZ bank, undertake ‘triple bottom line reporting’ in their annual reports. ‘Triple bottom line reporting’ refers to the practice of reporting not only the traditional bottom line to shareholders, but also the company’s contribution to the society and to the environment.60 In addition, organisations such as the ‘Ethical Investment Association’ have been established to help investors identify socially responsible fund managers.61
A good example of a company with a disregard for its social responsibilities, including its responsibilities to its employees, is James Hardie. James Hardie was a major manufacturer of asbestos in Australia. Asbestos is a dangerous chemical substance which, if inhaled, causes fatal asbestos-related diseases. Thousands of James Hardie’s consumers and employees contracted the fatal diseases.
In the face of thousands of asbestos claims against the company annually, the company decided to restructure in 2001. It set up a Foundation (which is legally separate from the parent company) to settle future asbestos claims with $293 m. It claimed that this amount was sufficient to meet all future asbestos claims.62 In 2004, it became apparent that the funds were grossly inadequate and a huge number of future claimants will receive no compensation. Despite this, James Hardie had refused to provide more funding, until government and community pressure eventually led the company to succumb in 200563.
If James Hardie had employee-elected representatives on its board of directors, it would be less likely to have behaved so unethically. The employee-elected representatives would have provided a voice for the employees who would be less likely to support the decision to evade the compensation to employees and other victims.
2 Criticisms of Employees Representation on the Board
One criticism of codetermination is that it tends to pit the two benches of capital and labour representatives against each other, rather than uniting them in the task of controlling management64. Critics in Germany claim that the codetermined supervisory board becomes an ‘institutionalised battlefield of interests’65. The net beneficiaries of this battlefield are those who should be controlled: the management.
This criticism is questionable because there is no evidence to suggest that the interests of the labour and capital are always conflicting. Often both interests are consistent, and two factions can work effectively together66.
A good illustration of where both interests of labour and capital are consistent is the James Hardie case described above. It was in both the shareholders and employees interest for the company to compensate its asbestos victims. The unethical actions of James Hardie, which were originally intended to benefit the shareholders, did not benefit the shareholders. Instead it led to the company acquiring a bad reputation which in turn affected profits and led to a drop in the share price67. It also led to the company incurring large legal costs to respond to government inquiries.68
Another example of where the interests of capital and labour are consistent is the directors’ remuneration. It is in both the shareholders’ and employees’ interests that the remuneration paid to directors and managers is transparent and the amounts kept within reasonable boundaries.
In Germany, some critics also argue that the employee-elected representatives often lack sufficient knowledge of accounting and finance, which diminishes their ability to effectively monitor management69. To counteract this criticism, there is a trend in Germany towards electing more professional employees onto the supervisory board.70
This skills criticism is again questionable. The stereotype of all employees being unskilled is untenable. Directors who are not elected by employees could also lack sufficient skills and knowledge. This can be demonstrated by breach of duty of care, skill and diligence cases in Australia, such as ASIC v Rich [2003] NSWSC 85. The way to address this problem is to require a standard of care from directors and make them legally accountable for not meeting this standard. These safeguards are already in place in both Germany and Australia71.
Another criticism of codetermination is that having employee-elected representatives makes the supervisory board’s decision-making process slower, as more stakeholders are involved than just the shareholders72. Whilst this may be true, the quality of the decisions made by the supervisory board would be higher, as more interests are taken into account. The decisions are more likely to be well-balanced and therefore received favourably by employees and shareholders, which ultimately outweighs the disadvantage of a slightly lengthier process. A quick decision does not equal a good decision.

3 Australia Should Require Employees Representation on the Board

Australian law should be reformed to incorporate employee representation on the board of directors. This would utilise the employees’ first-hand knowledge of the business; give recognition to the employees’ important stakeholder status; and push companies further towards meeting their corporate social responsibility, as provided for by the ASX Recommendation 10.1.73
V Conclusion
After making these comparisons, it is clear that Australia can learn from the German system by adopting a definition of ‘independent director’ which removes the prohibition of being a substantial shareholder, and by incorporating employee-elected representatives on the board of directors.
In Australia, the debate of how to achieve better corporate governance has taken on increased importance following the collapse of companies such as HIH, Harris Scarfe and One-Tel74. Globally, corporate governance has been a hot topic since the collapse of large companies such as Enron in the United States. Whilst corporate collapses and wrongdoing cannot always be prevented by better laws and better guidelines, they can certainly help.

1* LLB (Hons) (Melb) BSc (Melb) Grad Cert Education (RMIT). Lecturer, School of Accounting and Law, RMIT University. The author grateful acknowledges Professor Margaret Jackson for her encouragement and assistance.

John Farrah, Corporate Governance (2nd ed, 2005), 3.

2 A single-tiered board is a single body of directors who sit together in board meetings and pass board resolutions. A two-tiered board is where there are two separate bodies of directors operating separately but interacting with each other, eg in Germany where there is a supervisory board and a management board.

3 s 201A(2) Corporations Act 2001 (Cth).

4 s 120(1) Corporations Act 2001 (Cth).

5 s 201G, s 201H Corporations Act 2001 (Cth).

6 Farrah, above n 1, 367.

7 James McConvill and John Bingham, ‘Comply or Comply: The Illusion of Voluntary Corporate Governance in Australia’ (2004) 22 Company and Securities Law 208, 208.

8 Australian Securities Exchange, Corporate Governance and the Listing Rules at 13 March 2007.

9 McConvill and Bingham, above n 7, 208.

10 See ASX, 2005 Analysis of Corporate Governance Practice Disclosure (22 May 2006) at 16 May 2007. The Analysis of Corporate Governance Disclosure report by ASX reveals that the adoption level for all ASX Recommendation is 74% for the 2005 period.

11 Corporations Act 2001 (Cth) s 203D.

12 McConvill and Bingham, above n 7, 209.

13 Non-executive director is defined as a director who is not involved in the full-time management of the company and are not employees of the company. See Susan Woodward, Helen Bird and Sally Sievers, Corporations Law in Principle (7th ed, 2005) 90.

ASX Corporate Governance Council, Principles of Good Corporate Governance and Best Practice Recommendations (2003) ASX 8 March 2007.

14 The definition of ‘independence’ also includes non-executive directors who:

- within the last three years has not been a principal of a material professional advisor or a material consultant to the company or another group member, or an employee materially associated with the services provided

- is not a material supplier or customer of the company or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer

- has no material contractual relationship with the company or another group member other than as a director of the company

- has not served on the board for a period which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interest of the company

  1. - is free from any interest and any business or other relationship which could, or could be reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the company.’ See ASX Corporate Governance Council, Principles of Good Corporate Governance and Best Practice Recommendations (2003) ASX 8 March 2007.

15 ASX Corporate Governance Council, above n 14, 62. The ASX Corporate Governance Council has proposed changes to the ASX Recommendations in 2006. One of these changes proposed is to relocate Principle 10 to Principles 3 and 7, and to give more guidance on how to cater for stakeholder interests.

16 Ibid.

R Thomas, Company Law in Europe (Issue 27, 2003, Looseleaf) Section E, 143.

17 § 76(1), § 95 § 96 Stock Corporation Act (AktG) at 17 April 2007.

18 Thomas, above n 18, 143.

19 Ibid.

20 § 77 Stock Corporation Act (AktG) 19 April 2007.

21 § 95 Stock Corporation Act (AktG) 19 April 2007.

22 § 111 Stock Corporation Act (AktG) < > 19 April 2007.

23 Ibid.

24 Ibid.

25 Ibid.

26 Ibid.

27 Andrew Clarke, ‘The Relative Position of Employees in the Corporate Governance Context: an International Comparison’ (2004) 32 Australian Business Law Review 111, 126.

28 Grit Tungler, ‘The Anglo-American Board of Directors and the German Supervisory Board – Marionettes in a Puppet Theatre of Corporate Governance or Efficient Controlling Devices?’ (2000) 12 Bond Law Review 230, 236.

29 Ibid 237.

30 P Auer, ‘Co-determination in Germany: Institutional Stability in a Changing Environment’ in Davis E and Lanbury R (eds), Managing Together: Consultation and Participation in the Workplace (1996) 160.

31 Ibid 161.

32 Ibid 162.

33 Ibid 162.

34 Ibid 162.

35 German Corporate Governance Code (2006), Deutsche Börse Group at 14 March 2007.

36 Farrah, above n 1, 434.

37 Farrah, above n 1, 435.

38 Farrah, above n 1, 435.

39 German Corporate Governance Code, above n 37, 1.

40 ASX, ASX Listing Rule 12.7 <> at 19 April 2007.

41 The audit committee can also assist the board of directors in other matters such as risk management and general compliance issues. The composition, operation and responsibilities of the audit committee must comply with Principle 4 of the ASX Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations. Also see Philomena Leung, Paul Coram and Barry J Cooper, Modern Auditing and Assurance Services (3rd ed, 2007) 668.

42 James McConvill and Mirko Bagaric, ‘Why All Directors Should be Shareholders in the Company: The Case Against ‘Independence’ (2004) 16 Bond Law Review 40, 43.

43 Tungler, above n 30, 239.

44 Margaret Barron, Fundamentals of Business Law (4th ed, 2004) 45.

45 G P Stapleton and Jeffrey Lawrence, ‘Board Composition, Structure and Independence in Australia’s Largest Listed Companies’ (1997) 21 Melbourne University Law Review 150, 161.

46 Tungler, above n 30, 249.

47 Farrah, above n 1, 366.

48 Tungler, above n 30, 249.

49 J Hill, ‘The Case for Good Corporate Governance’, The Australian Financial Review, 7 September 2000 4 September 2005.

50 Stapleton and Lawrence, above n 47, 158.

51 Farrah, above n 1, 367.

52 Ibid.

53 Ibid.

54 Stapleton and Lawrence, above n 47, 159.

55 ASX, above n 10.

56 K Hopt, ‘The German Two-Tier Board, A German View on Corporate Governance’ in K Hopt (ed) Comparative Corporate Governance (1997) 10.

57 Clarke, above n 29, 127.

58 Occupational Health and Safety Act 2004 (Vic) s 72. Equivalent sections also exist in other Australian jurisdictions. Employee representatives can require employer to establish committee to facilitate co-operation between employer and employees and formulate, review and disseminate information about standards rules and procedures relating to health and safety.

59 Clarke, above n 29, 113.

60 The phrase was coined by John Elkington, co-founder of the business consultancy SustainAbility, in his book Cannibals with Forks: the Triple Bottom Line of 21st Century Business (1998).

61 Ethical Investment Association at 2 September 2005.

M Westfield, ‘Asbestos Dust Storm’, The Bulletin by Newsweek, 23 March 2004, 64.

62 Ibid 64.

63 Sonali Paul, ‘Australia’s Hardie Signs A$3.1 Bln Asbestos Agreement’, Reuters, 1 December 2005 4 April 2006.

64 Tungler, above n 30, 238.

65 Ibid.

66 See generally, E Davis and R Lanbury (eds), Managing Together: Consultation and Participation in the Workplace (1996); and O Gollan and G Patmore (eds), Partnership at Work : the Challenge of Employee Democracy (2003).

67 ‘James Hardie Posts Sharp Profit Jump’, ABC News Online, 27 Feb 2006 <> 3 March 2006.

68 Paul, above n 66.

69 Auer, above n 32, 162.

70 Tungler, above n 30, 237.

71 Clarke, above n 29, 115.

72 Tungler, above n 30, 238.

73 Clarke, above n 29, 117.

74 Woodward, Bird and Sievers, above n 13, 89.

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