Impetus for the Promulgation of the Regulations
Australia’s Principles of Good Governance and Best Practices Poor corporate practices and governance resulted in the enactment of Australia’s Principles of Good Governance and Best Practices. In 2001, the National Australia Bank, the largest financial service institution on the Australian Stock Exchange (ASX), reported an operating loss of AUD 4.1 billion (US$ 4.1 billion). This huge loss emanated from poor corporate governance and reckless risk taking by the bank’s management. Thus, in 2003, the Principles of Good Corporate Governance and Best Practice was promulgated to avert future occurrence and enhance corporate governance. Further studies indicated that the loss was mainly due to the lack of auditors’ independence and ineffective risk management practices. This scandal displayed an operating environment characterized by lax oversight, poor risk management, and weak internal control.
The United Kingdom’s Combined Code on Corporate Governance Major corporate abuse and failures triggered the enactment of the Combined Code on Corporate Governance (2008). Apart from the reported corporate abuse by Maxwell and British Gas managements, there were other reported failures resulting from weak corporate governance structures. One of them was the failure of a major British bank, Barings, which created shock waves throughout corporate and financial communities. All these events forced the corporate world to rethink the role of risk management and internal control[ii].
South Africa’s King Report on Corporate Goverance
Various factors contributed to the corporate governance reform in South Africa. Corporate scandals perpetrated by Macmed, Regal Treasury Bank, and LeisureNet became the strongest impetus for the corporate governance reform. Macmed owed 16 banks about R1 billion (US$139 million) in unsecured loans in 1999. Regal Treasury Bank’s former chief executive officer perpetrated financial fraud worth millions of dollars. And LeisureNets collapsed with a liability of R1.2 billion (US$139.2 million) due to fraud perpetrated by its executive officers[iii]. These events finally fostered the establishment of the King Report on Corporate Governance. Another important reason of the reform is the market: falling equity prices led to changes in corporate structure and conduct.
As noted above, unfavorable business conditions, corporate failures and abuse are the major impetus for the governance regulations in Australia, South Africa, and the UK.
Similarities and Differences among the Regulations
We reviewed and compared the governance regulations and found the following similarities and differences among them. Similarities
As noted above, major impetus for the governance regulations in the countries are similar. Therefore, the following are the key similarities among them:
• Strengthen Internal Control System: Provisions to enhance the independence of external auditors–including mandatory rotation of audit partners, and restrictions on non-audit services external auditors. For instance, in the UK, the audit committee...