In recent years, corporate governance has become one of the cornerstones of in-house legal practice. It is difficult to conceive of a general counsel of a company being appointed without a sound knowledge and understanding of the principles of corporate governance.

Interest in corporate governance has grown since the early 1990s with the publication in the UK of the Cadbury Committee's 1992 Report on the Financial Aspects of Corporate Governance. Perhaps as a response to the corporate excesses of the 1980s, in which many companies collapsed leaving very little for creditors, the Cadbury Committee report was one of the first definitive analyses of corporate governance. This was followed in the UK by:

• 1995 AIMA Blue Book;

• 1998 UK Combined Code (revised in 2010); and

• 1999 OECD Principles of Corporate Governance (revised in 2004).

In Australia, the ASX Corporate Governance Council originally published its Corporate Governance Principles and Recommendations in 2003, laying the framework for corporate governance in Australia. These have been revised subsequently, with a second edition released in 2007 and amendments to that edition released in 2010. In March 2014, the ASX released its third edition of the principles and recommendations. The principles and recommendations are to listed public companies, and are also a solid starting place for non-listed companies.

More recently, the importance of corporate governance was highlighted by the global financial crisis of 2008 when companies and governments around the world faced almost unprecedented financial pressures. While some countries, including the UK and the US, have sought to reform their financial regulatory systems, in Australia the foundations laid down in the ASX CG Principles and Recommendations have proved adaptable in ensuring controls are in place to require accountability and disclosure by corporations relating to corporate governance.

Corporate governance is the system through which a company is directed and controlled. It includes the framework within which authority is exercised, and the methods of ensuring accountability of those in control.

There is no single system of good corporate governance. Rather, corporate governance practices should be tailored to meet the needs of the particular company.

See What is corporate governance?

The board plays a key role in corporate governance. This is because corporate governance is essentially about the relationship between the board and the company and its members, and the systems and processes put in place to measure their effectiveness.

Broadly, the role of the board is to formulate strategy, provide effective oversight and management, facilitate board and management accountability and ensure a balance of authority.

The chair has a particularly important position in leading the board and dealing with shareholders and the media.

See The role and functions of the board.

Both private and institutional investors are increasingly participating in the affairs of companies. Today, shareholders and, in particular, institutional investors, take an active role and can exert some influence over companies due to their size.

One of the means by which companies communicate information to shareholders is under the continuous disclosure regime. Investors must have timely access to material information, and company announcements must be factual, clear and balanced.

Since 1992 a class action regime has been available in Australia, which has increasingly been used to advance the interests of disaffected shareholders.

See The role of shareholders.

As set out in Australian Securities and Investments Commission (ASIC) v Healey , a director is “an essential component of corporate governance. Each director is placed at the apex of the structure of direction and management of a company. The higher the office that is held by a person, the greater the responsibility that falls upon him or her. The role of a director is significant as their actions may have a profound effect on the community, and not just shareholders, employees and creditors” [at 14].

Corporate governance requires the participation of directors in upholding their duties required by law. These are set out in detail in Ch 2D of the Corporations Act 2001 (Cth) (Corporations Act), but include:

• the duty of care and diligence;

• the duty to act in good faith in the best interests of the company;

• the duty to act for a proper purpose;

• the duty not to improperly use position;

• the duty not to improperly use information;

• the duty to avoid conflicts of interest; and

• the duty not to fetter discretions.

See Directors' duties.

Establishing a corporate governance framework requires familiarity with the ASX Corporate Governance Council’s Principles and Recommendations and the relevant provisions of the Corporations Act 2001 (Cth). It is also advisable to review examples of corporate governance statements of other companies.

The chair, board and executive must show leadership in promoting the framework in their interactions with staff and external stakeholders, and must ensure its implementation.

See Establishing a corporate governance framework.

In 2011, the Corporations Act was amended to include additional provisions in relation to executive remuneration. See the changes incorporated into the Corporations Act by the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011 .

See Directors’ and executive remuneration.