Coporate Governance
To ensure the Company operates effectively and in the best interests of shareholders, the Board has followed the principles and best practice recommendations established by the ASX Corporate Governance Council having regard to the nature of the Company’s activities and its size. The Company has adopted the ASX Corporate Governance Principles and Recommendations with 2010 Amendments ((2nd Edition) for the 2011 financial year.
Role of the Board
The Company has a Board but no full time employees. Subject at all times to any written guidelines issued by the Board of Directors of WAM Active Limited, the day-to-day management and investment of funds is carried out by MAM Pty Limited (the Manager) pursuant to a management agreement. Consequently, there is no need for a process to evaluate the performance of senior executives under recommendations 1.2 and 1.3.
The role of the Board is to set strategic direction, approve capital management initiatives and to be responsible for the overall corporate governance of the Company which includes:
- To oversee and monitor the performance of the Manager’s compliance with the management agreement and to ensure that the Manager is monitoring the performance of other external service providers;
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Ensuring adequate internal controls exist and are appropriately monitored for compliance;
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Ensuring significant business risks are identified and appropriately managed;
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Approving the interim and final financial statements and related reports and other communications to the ASX and shareholders;
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Setting appropriate business standards and code for ethical behavior.
The Board aims to ensure that all Directors and the Manager act with the utmost integrity and objectivity and endeavour to enhance the reputation of the Company. The Board aims to act in a manner designed to create and build sustainable value for shareholders.
Composition & Operation of the Board
The skills, experience and expertise relevant to the position of each Director who is in office at the date of the annual report and their term in office are detailed in the Directors’ Report of the Annual Report 2011.
The Board had two independent Directors and two non independent Directors. The name of the Director considered to be independent is:
- John Abernethy
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These Directors are considered independent as per the criteria outlined in the Board of Directors Charter which includes the Company’s criteria for independence of Directors. The criteria are in accordance with ASX Corporate Governance Council’s principles.
Board of Directors Charter
Whilst the Company agrees with the benefits of a majority of independent Directors, under Recommendation 2.1, it believes that it can better achieve the results of the Company with the current Boards’ level of expertise and without burdening shareholders with the additional costs associated with adding further independent Directors..
The Chairman is not an independent Director. The Company believes that an independent Chairman, under recommendation 2.2, does not necessarily improve the function of the Board. The Company believes that when the Chairman is a significant driver behind the business and is a sizeable shareholder, as is the case with the Company, it adds value to the Company for all shareholders. The Company does not employ a Chief Executive Officer, consequently recommendation 2.3 is not applicable.
Given the size of the Board a nomination committee has not been formed under recommendation 2.4. The Board as a whole considers the composition of the Board and appointment of new Directors. The Board identifies suitable candidates to fill vacancies as they arise.
Under the Board of Directors Charter, the performance of each Director is reviewed by the Chairman annually and the Board undertakes an annual review of the performance of the Chairman to ensure the Board’s activities continue to be efficiently organised and conducted. At every Annual General Meeting one third of the Directors must retire from office and be eligible for re-election. Shareholder approval is required on the composition of the Board.
Each Director has the right to access all relevant information and subject to prior consultation with the Chairman, may seek independent professional advice at the entity’s expense. A copy of advice received by the Director is made available to all other members of the Board.
Code of Conduct
The Company has established a Directors Code of Conduct which sets out the Company’s key values and how they should be applied within the workplace and in dealings with those outside of the Company.
Directors Code of Conduct
Diversity Policy
As the Company has o full time employees and given the size of the Board, a diversity policy has not been established under Recommendations 3.2 to 3.5. The Board's composition is reviewed on an annual basis. In the event a vacancy exists, the Board will include diversity in its nomination process.
Audit & Risk Committee
The company has formed an Audit & Risk Committee consisting of two non-executive Directors of whom are independent as defined by the ASX Corporate Governance Council’s principles. This is considered adequate given the size of the Board (4 members) and the nature of the company. The members of the Audit & Risk Committee are:
- John Abernethy Chairman, independent director
- Matthew Kidman Non-Executive Director, non-independent director
The Committee’s responsibilities are to:
- Oversee the existence and maintenance of internal controls and procedures to ensure compliance with all applicable regulatory obligations;
- Oversee the financial reporting process;
- Review the annual and half-year financial reports and recommend them for approval by the Board of Directors;
- Nominate external auditors; and
- Review the existing external audit arrangements.
Audit & Risk Committee Charter
The Committee formally reports to the Board after each of its meetings. Details of the number of meetings of the Audit & Risk Committee during the 2011 financial year are set out in the Directors’ Report of the Annual Report 2011.
The external audit firm partner responsible for the Company audit attends meetings of the Board and Audit & Risk Committee by invitation.
The Company’s external audit is undertaken by Moore Stephens Sydney and the audit engagement partner is required to be changed at regular intervals. Jenelle Webster, a partner of Moore Stephens Sydney, is the partner responsible for the external audit of the Company for the 2011 financial year.
ASX Listing Rule Compliance
The Company has established a Continuous Disclosure Policy to ensure compliance with the continuous disclosure obligations under the ASX Listing Rules and the Corporations Act 2001. The Policy aims to ensure all investors have equal and timely access to material information concerning the Company and that Company announcements are factual and presented in a clear and balanced way.
Continuous Disclosure Policy
Due to changes to the ASX Listing Rules on 1 January 2011, the Company revised its Securities Dealing Policy. Under this Policy, Directors are not required to hold a minimum number of shares pursuant to the Company's Constitution. However, their current relevant interests in the Company shares are shown in the Directors' Report. Directors must not deal in shares of the Company if they are in possession of price sensitive or inside information. The Board has also nominated they may not deal in shares of the Company the 5 business days before the announcement of a dividend or any other capital management initiative that might have a material impact on the share price.
Securities Dealing Policy
In addition, the company has established a Conflict of Interest Policy, in accordance with the Corporations Act 2001. Under this policy, the Directors must keep the Board advised, on an ongoing basis of any interests that could potentially conflict with those of the Company. Where the Board believes that a significant conflict exists, the Director concerned does not receive the relevant board papers and is not present at the meeting whilst the item is considered.
Shareholder Rights and Communication
The Board aims to ensure that the shareholders are informed of all major developments affecting the Company’s state of affairs.
The Company Secretary is primarily responsible for coordinating the disclosure of information to shareholders and regulators under the direction of the Board.
Information is communicated to shareholders through the:
- Website;
- ASX Company Announcements platform;
- Annual Report;
- Investor Newsletters;
- Investor Presentations;
- Monthly Investment Updates and NTA releases; and
- Other correspondence regarding matters impacting on shareholders as required.
Monthly NTA releases and bi-annual Investor Newsletters contain additional information concerning the underlying investment portfolio of the Company in an effort to give investors a better understanding of the Company.
The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the Company’s strategy and goals. Shareholder information sessions are also held twice a year in May/June and November following the AGM. These provide an informal forum where shareholders are given the opportunity to raise questions and participate in general discussion about the Company.
Communications Policy
Risk Management
The Company has an established enterprise risk management program in accordance with teh International Risk Standard AS/NZS ISO 31000:2009. It also has an established internal control program based upon the principles set out in the Australian Compliance Standard AS 3806:2006.
The Company’s enterprise risk management program addresses its material business risks. Each identified risk is individually assessed in terms of the likelihood of the risk event occurring and the potential consequences in the event that the risk event was to occur. The CompliSpace Assurance software has been implemented through which material business risks are linked to mitigating controls. This software gives the Company and the Manager the ability to monitor the performance of its enterprise risk and compliance programs in real time. It also ensures transparency of data and ease of reporting to the Board.
The Manager has provided to the Board a report as to the overall effectiveness of the company’s management of its material business risks.
The Board has received assurance from the CEO and Director of the Manager that in their view:
- the declaration provided in accordance with section 295A of the Corporations Act 2001 is founded on a sound system of risk management and internal control; and
- the system of risk management and internal control is operating effectively in all material respects in relation to financial reporting risks.
The Board requires the Manager to report annually on the operation of internal controls to manage the Company's material business risk, reviews any external audit commentary in respect to internal controls and conducts any other investigations it requires in order to report to the Board on the effectiveness of the internal control system. In respect of the current financial year all necessary declarations have been submitted to the Board.
There are two main areas of risk that have been identified:
- Market risk
- Operational risk
Market risk
The Board is primarily responsible for recognising and managing market related risk as per the management agreement. The Manager provides periodic reports to the Board regarding this area of risk. By its nature, as a listed investment company, the Company will always be subject to market risk as it invests its capital in securities which are not risk free as the market price of these securities can fluctuate. However, the Company seeks to reduce and manage market risk by not being overly exposed to one investee company or one particular sector of the market. The Manager reviews the relative weightings of individual securities and the relevant market sectors regularly. The Company does not have set parameters as to a minimum or maximum amount of the portfolio that can be invested in a single company or sector.
MAM Pty Limited, the Manager is required to act in accordance with the investment management agreements and reports to the Board regularly on the Fund’s performance and any material actions that have occurred in the period.
Operational risk
The Manager is primarily responsible for recognising and managing operational risk issues such as legal and regulatory risk, systems and process risk and outsourcing party risk. The company outsources its operational functions to service providers: MAM Pty Limited (investment management, accounting and compliance), RBC Dexia Investor Services (custody) and Boardroom Pty Limited (share registrar) and accordingly risk issues associated with these activities are handled in accordance with the service provider’s policies and procedures.
MAM Pty Limited, the Manager provides a declaration to the Board twice a year, to certify that the Company’s financial statements and notes present a true and fair view, in all material respects, of the Company’s financial condition and operational results and that they have been prepared and maintained in accordance with relevant Accounting Standards and the Corporations Act 2001.
Remuneration of Directors
Given the size of the Board, a remuneration committee has not been formed as it is believed that such a committee would not serve to protect or enhance the interests of the shareholder. As such, the Board deals with the issue of remuneration as a whole.
The maximum total remuneration of the Directors of the company has been set at $110,000 per annum to be divided in such proportions as they agree. The scope of the Company’s operations, and the frequency of Board meetings are principal determinants of the fee level. Further detail is provided in the Directors’ Report of the Annual Report 2011.
The Board has made no distinction between the remuneration of non-executive directors from executive directors under recommendations 8.2 and 8.3. All directors of WAM Active are non-executive directors.
The Chairman of WAM Active Limited is a Director of MAM Pty Limited. A Director of WAM Active Limited is also a Director of MAM Pty Limited and they are further remunerated by that Company. Further detail is provided in the Directors' Report.