Corporate governance regulation : assessing the effectiveness of soft law in relation to the contemporary role of the board of directors

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The objective of this thesis is to explore, using empirical evidence, the effect of recent corporate governance reforms in Australia. The Australian Securities Exchange (ASX) implemented a code of corporate governance in 2003 which has been regularly revised. The thesis focuses on this semi-voluntary code of corporate governance, exploring how it has resulted in changes in corporate behaviour and its effectiveness at improving board performance. By interviewing directors and other company officers, as well as reviewing published evidence of companies’ corporate governance systems, the thesis builds theory regarding corporate governance and its regulation founded closely upon empirical data. The thesis finds that the contemporary role of the board is complex: collaboration with management may be more important to effective board function than monitoring. Open dialogue between board and management is the key to an effective board, a process that enables it to fulfil its multiple roles. The role of the board can change over time and is dependent on company circumstances. Directors, in fulfilling their legal duty to act in the best interests of the company balance the interests of different stakeholders. This involves incorporating these interests into operational strategies to improve long-term sustainability. Using specific recommendations of the Australian corporate governance code as regulatory case studies, the thesis finds that the flexibility of the ASX corporate governance code is vital in permitting companies to create tailored solutions to their governance needs. The provisions of the code that require regular review of corporate governance and setting of targets are some of the most effective because they keep corporate governance structures and processes alive and relevant. Corporate governance codes appear to influence behaviour through the internalisation of processes rather than through external pressure based directly on corporate disclosures. Indeed, understanding the interplay between soft regulation and its institutional environment is essential to effective policy making. Voluntary regulation relies on tapping into this institutional environment to provide incentives for desired behaviour. In doing so it builds on and enforces emerging norms of behaviour and entrenches them into corporate culture through a slow process of change management.
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