Whether companies have adopted ASX corporate governance principles:

The ASX has laid down 8 principles of corporate governance that every listed company has
to follow. These principles are:
1. Lay Solid Foundation for Management and Oversight
2. Structure the board to add value
3. Act ethically and responsibly
4. Safeguard integrity in corporate reporting
5. Make timely and balanced disclosures
6. Respect the rights of security holders
7. Recognize and manage risk
8. Remunerate fairly and responsibly
WestField Retail Trust (WRT):
WRT was listed in 2010. The first principle relates to laying solid foundation for
management and oversight of the organization. In its 2013 annual report, WRT has declared
that it has adopted this principle by placing certain matters such as the strategy and direction
of the company, financial controls, capital structure, appointments, etc. under the authority of
the Board, which may delegate these functions to the senior management. The board is also
the decision making authority in matters of corporate governance such as independence of
non-executive directors.
Another requirement under this guideline is to have formal agreements of appointment with
the directors and senior management. WRT has adhered to this requirement and its annual
report explicitly mentions that every director on the board has received a letter of
appointment detailing the terms of appointment (WRT 2011). Additionally, the trust also
meets other guidelines such as a diversity policy, standards against which the performance
will be measures, etc.
The second principle is about structuring the board to add value. All the guidelines under this
principle has been met except for the requirement to establish a nomination committee by the
board. The explanation given is that this function is performed by the board.
The next principle is to act ethically and responsibly and WRT has met this guideline by
establish a code of conduct for its directors and also seems to have disclosed a summary of
this code.
The other principles such as safeguarding integrity in financial reporting, etc. have also been
met in its entirety.
It appears that WRT has followed all of the ASX corporate governance principles except the
requirement for a nomination committee, the functions of which are performed by the Board
in the company.
Bank of Queensland (BOQ):
Bank of Queenslands 2013 annual report explicitly mentions that the company has provided
a solid base for management and oversight by clearly outlining the roles and responsibilities
of the board and management. While the board of BOQ is responsible for overall corporate
governance, strategy and direction, appointments of CEO, Directors and setting targets, the
responsibility for day to day management, financial management and reporting, developing
strategy for approval by the board, etc. lies with the CEO and managing director. In addition,
the company has also set various committees for Audit, Risk, HR and remunerations,
Nominations and governance and IT. It appears that adequate importance is also placed on
ensuring gender diversity. It is notable that the company has gone a step beyond and has set
up a target of 25% women in its senior management by 2015.
In relation to structuring the board for adding value, the company states that it has eight
directors, seven of whom are non-executive and meet the criteria for being called
independent. The 2013 report mentions that the directors represent an adequate mix of
skills, qualifications and experience to assist in efficient discharge of duties (BOQ 2013, p.
5). Prior to appointment, the company ensures that the appointees meet its Fit and Proper
policy that includes police and bankruptcy checks.
In the context of acting ethically and responsibly, BOQ has established a code of conduct for
its directors, employees, contractors, etc. and has also disclosed a summary of it.
The remaining principles that relate to corporate reporting, disclosures, rights of stockholders,
risk management and remuneration have also been met in their entirety.
In order to establish the link between adoption of the ASX corporate governance principles,
the reports of 2013 and 2012 were analysed. It appeared that the company has been
consistently following all the corporate governance principles. As such, it is evident that
BOQs consolidated profit for the year increased by 168.7 million dollars in 2013, as
compared to a loss of 17.1 million dollars in 2012. Consequently, the earning per share also
increased to 58.4 cents per share in 2013. Upon analysing its Return on Assets (ROA), it was
found that it increased to 0.437% in 2013 from 0.398% in 2011. BOQ however generate a
negative ROA in 2012 as it made a loss in that year.
Thus it can be seen that the financial performance of both WRT and BOQ has been
fluctuating. Despite of adopting the ASX corporate governance principles, it is difficult to
observe if there is a relationship between adoption of these principles and a firms
performance.
Grgens and Brown (2009) state that companies with better corporate governance perform
better than companies with poor governance practices. They further add that companies that
have adopted the ASX principles in their entirety outperform companies with partial
adoption. However, they point out that owing to the endogenous nature of governance
structures in different firms, it is hard to establish a causal inference. They explain that a
company may perform better if it has adopted the governance principles but it may also be
possible that companies that are already performing better may opt to adopt those principles
owing to the ease of implementing them as things are already going well for them.
Edwards & Clough (2005) outlined some common features of good corporate governance
principles from around the world. These separation of the duties of chairman and the CEO,
majority of independent directors on the board, good mix of director skill set, effective
performance evaluations, communication with investors and establishing committees such as
audit. When the effect of these features on company performance is analysed individually, it
was found that many of those features do not impact performance. Bhagat and Black (2002),
for instance, found that firms with greater degree of independence on their boards do not
perform better. Separation of the duties of chairman and CEO also does not provide a clear
link with performance (Leblanc & Gillies 2004). Another major feature of corporate
governance principles is CEO remuneration. Shields, OBrien and ODonnell (n.d.)
performed a study on CEO remuneration and performance and failed to find any positive
relationship.
Thus, it can be seen that vast research has been done on the relationship between corporate
governance and company performance. Although a positive relationship between can be seen
in the Australian context (Grgens and Brown 2009), but when the effect of the individual
principles of corporate governance are tested empirically elsewhere, no positive or significant
relationship can be found.
























There are many theories such as agency, stakeholder, stewardship and resource dependency
theory, etc. that explain the need for corporate governance. Among these, agency theory is
said to be the most important theory in whose context, the need for corporate governance is
discussed (Psaros, J 2009). It is also argued that corporate governance deals with agency
problem (Shleifer & Vishny 1997). Shleifer and Vishy also state that corporate governance
deals with the basic question of how to assure financers that their investment will generate
returns.
Agency theory talks about the conflict of interest that may arise between shareholders and
management owing to the separation of management in publicly held companies. Under the
theory, it is argued that managers will act in their own self-interest instead of working
towards achieving the goal of maximising shareholder wealth.
As agency theory was formulated in the context of publicly listed companies, it cannot be
applied directly to private companies because of reasons such as the ability of shareholders to
closely monitor the activities of management and ownership lying in a few hands as
compared to a publicly listed company which may have many shareholders (Callaghan et al.
n.d.). However, under certain situations such as if the private company is large enough that
employ many staff and also has manager level employees for expertise, the arguments of
agency theory may apply.
Under agency theory, in order to align the interests of managers and owners, the principle
should provide adequate incentive and remuneration to agents (Bowrin et al n.d.). This is also
highlighted under the ASX corporate governance principle 8 Remunerate Fairly and
Responsibly (Australian Securities Exchange 2014, p 31). It is argued that attractive
remuneration is positively tied to firm performance. However, Ke et al. (1999) find no
substantial relationship between the performance of private companies and executive
management in the UK. Not just the UK, this phenomenon repeats itself even in the case of
private companies in Denmark (Banhoj et al. 2010). These studies point out that these firms
do not benefit from attractive executive pay owing to the concentration of ownership and
managerial equity ownership.
Callaghan et al. (n.d.) point out that the studies discussed above do not find any significant
relationship between pay and performance because they selected smaller samples. Callaghan
et al. argue that their larger sample of firms does prove a positive relationship between the
two variables. This implies that adopting the corporate governance principle of remunerating
fairly and responsibly does add value to large private companies.
Another theory that has been suggested as more externally focussed and socially acceptable
for discussing corporate governance predicaments is stakeholder theory. The major difference
between agency and stakeholder theory is the importance of shareholders. While agency
theory identifies shareholders as of primary importance, stakeholder theory sees them as only
one potential stakeholder group, along with creditors, employees, society, etc. It is because of
this theory that the ASX corporate governance guidelines include principles of acting
ethically and responsibly.
Stakeholder theory argues that a firm will be able to achieve its goals of value maximisation
only if it has a comprehensive and clear understanding of its relationships with different
stakeholders. As stakeholder theory mainly relates to managing relationships between various
stakeholders, it can be applied to large private companies as well, with the possible exception
of the fact that they are not publicly listed.
Jensen (2001) argues that stakeholder theory should not be viewed as the only way of
providing value as it fails to provide a specific corporate purpose. He argues that companies
which adopt this theory will experience managerial conflict, inefficiency or even failure.
Jensen however states that in order to maximize value, the support of all employees,
customers, communities, etc. is needed. Jensen is of the view that stakeholder theory is
unassailable as long as it encompasses all the stakeholders that can effect a firms value.
Apart from Jensen, various other academics such as Harrison and Vicks (2013) have also
concluded that accepting the premise of stakeholder theory does add value to a firm.
However most of this research has been done with publicly listed companies in mind and
there is an absence of literature on the implications of stakeholder theory on large private
companies. On the other hand, it can be said that large private companies such as Ikea
(Sweden) and Inghams Enterprises (Australia) are similar to public companies in the sense
that they interact with stakeholders such as customers, government agencies, etc. So, if this
theory adds value to public companies, it may also be inferred that it also adds value to large
private companies.



















References:
1. Australian Securities Exchange 2014, Corporate Governance Principles and
Recommendations, ASX Sydney. Available from: ASX [16 August 2014].
2. Bhagat, Sanjai and Black, Bernard S. 2002, The Non-Correlation Between Board
Independence and Long-Term Firm Performance, Journal of Corporation Law, vol.
27, pp. 231-273. Available at: SSRN [16 August 2014].
3. Bank of Queensland 2011, Annual Report 2011, Bank of Queensland Limited, viewed
15 August 2014, <http://www.boq.com.au/ >.
4. Bank of Queensland 2012, Annual Report 2012, Bank of Queensland Limited, viewed
15 August 2014, <http://www.boq.com.au/ >.
5. Bank of Queensland 2013, Annual Report 2013, Bank of Queensland Limited, viewed
15 August 2014, <http://www.boq.com.au/ >.
6. Brown, R & Grgens 2009, Corporate Governance and Financial Performance in an
Australian Context. Available from
<http://lowpollutionfuture.treasury.gov.au/contentitem.asp?NavId=049&ContentID=1
495 >. [14 August 2014].
7. Banghj, J., Gabrielsen, G., Petersen, C., & Plenborg, T., 2010 Determinants of
executive compensation in privately held firms, Journal of Accounting & Finance,
vol. 50, pp. 481-510. Available from: Wiley Online Library [17 August 2014].
8. Bowrin, A, Sridharan, VG, Navissi, F & Braendle, C, n.d., Theoretical Foundations
of Corporate Governance. Available from: Virtusinterpress [18 August 2014].
9. Callaghan S, Ashton, J & Hodgkinson, L, n.d., Executive compensation and
ownership structure in private UK firms. Available from: British Accounting and
Finance Association [18 August 2014].
10. Edwards, M & Clough, R 2005, Corporate Governance and Performance, An
exploration of the Connection in a Public Sector Context, University of Canberra,
Issue paper series No.1. Available from
<http://www.governanceinstitute.com.au/knowledge-resources/public-sector-
governance-library/australian-government/>. [15 August 2014].
11. Harrison, J & Wicks, A 2013, Stakeholder Theory, Value and Firm Performance,
Business Ethics Quarterly, vol. 23, pp. 97-124. Available from: Ebsco host [18
August 2014].
12. Jensen, M 2001, Value Maximization, Stakeholder Theory, and the Corporate
Objective Function, Journal of Applied Corporate Finance, vol. 14, No.3, pp. 8-21.
Available from: JStor [18 August 2014].
13. Ke, B., Petroni, K. and Safieddine. A 1999, Ownership concentration and sensitivity
of executive pay to accounting performance measures: evidence from publicly and
privately held insurance companies, Journal of Accounting and Economics, vol. 28,
pp. 185209. Available from: SSRN [18 August 2014].
14. Leblanc, R & Gillies, J(2004), Improving Board Decision-Making: An Inside View.
Alternatives Beyond Imagination. Paper presented at Company Directors
Conference, Port Douglas, Queensland, AICD.
15. Psaros, J 2008, Australian Corporate Governance, Prentice-Hall, Sydney.
16. Shields, John & O'Donnell, Michael & O'Brien, John Michael 2003, The bucks stop
here private sector executive remuneration in Australia ; a report prepared for the
Labor Council of New South Wales, The Council, [Sydney].
17. Shleifer, A & Vishny, R 1997, A Survey of Corporate Governance, The Journal of
Finance, vol. LII, No.2. Available from: Wiley Online Library [17 August 2014].
18. Westfield Retail Trust, 2013, Annual Report 2013, Westfield Retail Trust Limited,
viewed 14 August 2014, <http://www.westfieldretailtrust.com/ >.
19. Westfield Retail Trust, 2012, Annual Report 2012, Westfield Retail Trust Limited,
viewed 14 August 2014, <http://www.westfieldretailtrust.com/ >.
20. Westfield Retail Trust 2011, Annual Report 2011, Westfield Retail Trust Limited,
viewed 14 August 2014, <http://www.westfieldretailtrust.com/ >.




























It is a general expectation that adoption of best corporate governance practices have a
positive effect on a companys performance. However, on analysing the performance of
WRT between 2011 and 2012, it was found that the profit after tax actually fell by AU$
142.7 million, i.e 14.75%. Consequently, even the earnings per share fell by 4.66 cents in
2012. The trend continues despite WRT adopting the ASX corporate governance principles
as the profit further fell by 6.5% to AU$ 777.1 million in 2013.
Pham et al. (2007) further highlighted in a working paper that empirical research done on the
relationship between adoption of best corporate governance practices and performance has
remained inconclusive. They argue that previous attempts to find the relationship between
corporate governance and firm value have failed because of the endogeneity associated with
monitoring mechanisms and the absence of a reliable measure of success.
In another