Corporate governance has been described as the framework of rules, relationships, systems and processes by which authority is exercised and controlled in corporations: see Justice Owen in the HIH Royal Commission, The Failure of HIH Insurance Volume 1: A Corporate Collapse and Its Lessons, Commonwealth of Australia, April 2003 at page xxxiii.

Numerous sources make up this framework, which may be internally generated or externally imposed, and which may be legally binding or purely serve as guidance for a company, its directors, management and employees. In recent times “good” governance has become a euphemism for a company that is well managed and has policies and procedures in place that are effectively implemented according to applicable legal requirements and (increasingly international) standards of best practice. One key component of an effective corporate governance framework is ensuring that the company's internal procedures reflect the applicable local and international legal requirements that the company is subject to and the risk framework within which it operates.

Perceptions of the strength and standard of a listed entity’s corporate governance framework can be particularly important to institutional investors (who may be advised by proxy advisors) and how they cast their votes at meetings of the members of the company on contentious issues such as director and executive remuneration. Although shareholder activism has to date been less pronounced in Australia than in other jurisdictions such as the US, institutional shareholders in Australia have become more activist in recent years in respect of a range of issues which affect shareholder value, including board composition, corporate strategy and general corporate governance. The Australian Shareholders Association (ASA) is the primary shareholder activist body in Australia, which frequently attends shareholder meetings. Like other activist bodies across the globe, the ASA calls for greater disclosure and greater accountability of listed companies.

In addition, activist hedge funds have been very successful in the US, and although hedge funds have not historically driven activist agendas in Australia, there is speculation that this may change. The Wall Street journal reported in 2013 that US hedge fund activists won more than 68% of their proxy fights, and returns for activist funds have outperformed the general market. As opinions form that hedge fund activists have successfully driven improvements in company performances, and as US and UK activists seek out overseas opportunities, some commentators predict that hedge fund activists will be more prevalent in Australia over the coming years.

The Corporations Act 2001 (Cth) (the Act) is the primary legislation governing all aspects of corporations, including compliance with corporate governance rules. The Australian Securities and Investments Commission (ASIC) is the principal regulator empowered with statutory authority to enforce compliance with the Act. To assist the market in understanding how ASIC intends to exercise its regulatory powers, it prepares a variety of regulatory guidance notes. The provisions of the Act governing compliance with corporate governance rules vary depending on whether the company is public, proprietary or if it is listed on the Australian Securities Exchange (ASX) which has its own corporate governance principles that apply to listed entities.

Industry specific regulators can also impose their own corporate governance requirements on entities operating within their regulatory purview. For example, the Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry and oversees institutions such as banks, building societies, insurance companies and the superannuation industry to ensure their compliance with the corporate governance standards prescribed by the applicable legislation.

This guidance note commences by describing the legal requirements of companies with respect to governance, which are chiefly contained in the Act and in the company’s constitution. See General Legal Requirements.

The Act and the ASX Listing Rules also contain requirements in relation to the maintenance of financial records and preparation of financial reports, directors' reports and auditors' reports. Penalties apply to directors for non-compliance with these provisions.

See Reporting.

Specific requirements under the ASX Rules relating to corporate governance apply to entities listed on the ASX and further guidance is provided in relation to these companies through the ASX Corporate Governance Council Principles and Recommendations (CGCPR).

See ASX Listing Rules.

Many large and listed companies choose to publicly disclose the documents and procedures which govern their Corporate Governance Framework. Increasingly, some large private companies also choose to disclose corporate governance information on their websites or in their annual reports. Occasionally large private companies may choose to “benchmark” their corporate governance practices against market accepted standards. Consistent with the notion of Corporate Governance there is no set template for what documents are to be included in this framework or which documents should be disclosed, although it is market practice for ASX listed companies to disclose key corporate governance policies connected to compliance with the ASX Listing Rules on their websites.

See Basic components of a corporate governance framework.

Reporting companies need to ensure ongoing compliance with the Accounting Standards.

See Accounting standards.