Ergon Energy's approach to corporate governance
The Board of Directors (the Board) is responsible for the corporate governance of Ergon Energy Corporation Limited and its controlled entities (the Group) (PDF 15kb).
The Board and management are committed to conducting all business activities legally, ethically and with strict observance of the highest standards of integrity and propriety.
To achieve this requires sound corporate governance practices and policies that have been adopted by the Board and implemented throughout all levels of management.
Each director is expected to have regard for these practices and policies in the performance of her or his duties as a director of the Company.
Good corporate governance is a fundamental part of the culture and the business practices of the Group.
Ergon Energy's corporate governance practices are further described in the "Corporate Governance Statement" section of the Governance and Annual Financial Report 2008-09 (PDF 2.6MB).
The Australian Stock Exchange (ASX) Corporate Governance Council released the second edition fo the 'Principles of Good Corporate Governance and Best Practice Recommendation' (the Principles) in August 2007. Ergon Energy has reviewed its current practices and established that, where the Principles are applicable to a Government Owned Corporation (GOC), it is substantially in accordance with the Principles.
The State of Queensland (Queensland Treasury) issued Version 2 of the Corporate Governance Guidelines (the Guidelines) for Government Owned Coporations in February 2009.
These guidelines have been drafted having regard to the ASX Principles (2nd edition), Reports from the Queensland Auditor-General, the OECD Principles of Corporate Governance OECD Principles of Corporate Governance and Guidelines for Managing Conflicts of Interest in the public sector issued by the Crime and Misconduct Commission.
In some instances, the recommendations in the guidelines differ from those in the Principles. Where appropriate, new policies and procedures have been developed in response to these differences.
Ergon Energy will continue to review its policies and practices in light of further developments in corporate governance and new guidelines that are generally accepted by the business community.
The corporate governance section on this website will be updated with any changes to the company's governance arrangements.
Board of Directors
The Directors of the parent company (Ergon Energy Corporation Limited) are appointed by the Governor-in-Council in accordance with the Government Owned Corporations Act 1993 (Qld) (GOC Act) and are accountable under the provisions of that Act to the Queensland Government shareholding ministers.
All, including the Chairman, are non-executive directors and, in light of the interests disclosed by those directors, are assessed as being independent based on the seven criteria for assessing the independence of directors under the ASX Corporate Governance Guidelines.
When conducting the assessment, materiality is judged on a case-by-case basis by reference to each director's individual circumstances rather than by general materiality thresholds.
The Board has set out the functions that have been delegated to it in the Constitution and at law and those delegated to management in a Board Charter (PDF 36kb) and a policy document, Delegation of Powers Policy (PDF 29kb).
ASX Best Practice Recommendation 1.1, 2.1, 2.2, 2.3, 2.6
GOC Guidelines, Principle 1, 2
Board Performance
Evaluation
The Board reviews and evaluates the performance of itself and Committees on a regular basis with the guidance of the Chairman.The framework for the conduct of the review is set out in a Board Performance Evaluation Policy which provides that the process selected may vary from year to year depending upon the circumstances and that a report of the evaluation is to be provided to the shareholding Ministers.
External consultants were engaged to facilitate the 2009 review. This involved interviews with individual directors and a Board workshop to present the findings from the interviews and to consider areas for improvement in board performance.
ASX Best Practice Recommendation 2.5
GOC Guidelines, Principle 2.
Induction and Continuing Education
Senior management, working with Chairman, provide an orientation program for new directors in order to assist them in fulfilling their duties and responsibilities.
The program includes discussions with the Chief Executive and members of the Executive Management Team, the provision of reading material, tutorials and workshops.
These include details of the director’s rights, duties and responsibilities, the Company’s strategic plans, its significant financial, accounting and risk management issues, its Code of Conduct, management structure and its internal and external auditors.
A board handbook is made available to directors to facilitate the board operations. Directors are also encouraged to keep up to date on relevant topical issues.
ASX Best Practice Recommendation 2.5
GOC Guidelines, Principle 1
Access to information and independent professional advice
The Directors Code of Conduct (PDF 15kb) provides for each director to have the right to seek independent professional advice, at the Company's expense, subject to the prior approval of the Chairman.
The Board has the authority to conduct or direct any investigation required to fulfil its responsibilities and has the ability to retain, at the Company's expense, such legal, accounting or other services, consultants or experts as it considers necessary from time to time in the performance of its duties.
To effectively discharge its responsibilities, the Board may request additional information from management.
In the normal course, requests made by a director for access to information from management, or access to an employee, should be made through the Chief Executive or Company Secretary or otherwise in accordance with protocols or arrangements approved by the Board or Chief Executive.
The Company has entered into a Deed of Access with each director, giving them right of access to all documents that were provided to them during their term in office, and for a period of ten years after ceasing to be a Director.
ASX Best Practice Recommendation 2.5
GOC Guidelines, Principle 2
Conflicts of interest
Directors and senior executives are expected to observe the highest standards of ethical behaviour, the requirements for which are defined in the Directors Code of Conduct (PDF 15kb) and Employees Code of Conduct (PDF 56kb) policies. These standards are further expanded in the Conflict of Interest Guidelines (PDF 32kb).
Directors are expected to avoid any action, position or interest that conflicts with an interest of the Company or gives the appearance of a conflict.
In accordance with the Corporations Act (2001) any director with a material interest in a matter must not be present when the matter is being considered and may not vote on the matter.
A director who has a material personal interest in a matter that relates to the affairs of the Company must give the other directors notice of such interest.
The Board regularly reviews the register of directors' interests and all new declarations of interest by directors should be provided in writing to the Company Secretary who is to ensure that the declaration is brought to the attention of the other directors.
The Board has approved the Trading in Securities Policy (PDF 67kb) which provides that directors, officers or employees who may, in the course of their duties, have access to inside information about a company's securities that is not generally available to others must not use this information in deciding whether or not to buy those securities.
ASX Best Practice Recommendation 3.1, 3.5
GOC Guidelines, Principle 3
Reporting of unlawful/unethical behaviour
The Company actively encourages the reporting of unlawful/unethical behaviour and official misconduct and has established an independent service (FairCall Service PDF 15kb) that provides a means by which a person can report suspected fraud, unethical conduct or breach of policy.
FairCall Service Provider: KPMG
Phone: 1800 500 965 between 8am and 6pm business days.
The service reflects the principles embodied in the various whistle blowers' protection standards and ensures fairness to all concerned.
ASX Best Practice Recommendation 3.1
GOC Guidelines, Principle 3, 7
Board committees
The Board has established the following committees to assist in the execution of its duties and to allow detailed consideration of complex issues.
All committees consist of non-executive directors and are chaired by a director who is not the chair of the board.
Current committees of the Board and their objectives as detailed in the relevant committee charters are:
- Audit and Financial Risk Committee (PDF 108kb)
- Operational Risk Committee (PDF 50.1kb)
- People Committee (PDF 36.9kb)
ASX Best Practice Recommendation 4.1, 4.2, 4.3
GOC Guidelines, Principle 1, 4
Risk management, compliance and internal controls
The Board has adopted overarching policies for risk management (PDF 66kb) and compliance (PDF 65kb) which govern the overall approach of the Company to the management of risk.
These policies are designed to ensure that strategic, operational, legal, reputational, financial, and business risks are identified, assessed, monitored, and managed to produce better performance outcomes and minimise unnecessary volatility.
Risks are managed by setting appropriate levels and areas for risk retention and, where necessary, through the use of insurance or other forms of risk financing and risk transfer.
The Board requires the Company and its executives to conduct all business activities in a manner that complies with the law and Board-approved delegated limits of authority.
Considerable importance is placed on maintaining a strong control environment to safeguard the Company's and stakeholders' interests.
Detailed control procedures cover management accounting, financial reporting, project appraisal and approval, environment, health and safety, information technology, security, compliance, and other key risk areas.
As a controlled entity in terms of the Auditor General Act 2009, the sharholders must appoint the Queensland Auditor General as the external auditor for the company.
An internal audit section has been established and operates under the terms of the Internal Audit Charter (PDF 60kb).
Compliance with control procedures is subject to investigation by Internal Audit as part of an annual plan approved by the Audit and Financial Risk Committee (PDF 108kb).
Detailed questionnaires on key aspects of operational and financial risks are completed on a quarterly basis by senior management and are reviewed by the Operational Risk Committee (PDF 51kb) and the Audit and Financial Risk Committee (PDF 108kb).
When presenting financial statements for approval, the Chief Executive and Chief Financial Officer provide a formal statement to the Board that:
- The Company's financial statements present a true and fair view, in all material aspects, of the Company's financial condition and operational results in accordance with relevant accounting standards
- The Company's financial statements are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board
- The risk management and internal control systems are sound and operating effectively in all material respects.
ASX Best Practice Recommendation 7.1, 7.2, 7.3, 7.4
GOC Guidelines, Principle 4, 7
Remuneration
Directors
Directors are remunerated separately from executive management.
Directors' emoluments are set by State Government regulation with other fees and allowances determined on the basis of meetings attended and expenditure incurred in performing their roles as directors of the Company.
Directors of the Company do not participate in any variable reward or at-risk plan.
ASX Best Practice Recommendation 8.3
Senior executives
The People Committee (PDF 37kb) recommends executive remuneration to the Board as part of an annual review.
Input is sought from several industry and market surveys (as well as Shareholding Ministers) when determining the level of remuneration for these positions.
The level of remuneration is determined in accordance with the provisionsof Guidelines for Executive Remuneration approved by the Shareholding Ministers ensuring that remuneration arrangements for the executives are appropriate.
Executive staff are eligible for an at-risk or variable component that is directly linked to both the overall performance of the Company and their individual efforts against a range of key indicators.
The Board reviews the performance of the Cheif Executive based on the acheivement of previously agreed Key Performance Indicators and this process cascades to senior executives on a semi annual basis.
Any at-risk payment is totally contingent on the Board's assessment of the Company's overall performance.
ASX Best Practice Recommendation 1.2, 8.1, 8.3
GOC Guidelines, Principle 8
Stakeholders' interests
The Board has a formal Directors Code of Conduct (PDF 15kb) to guide compliance with legal and other obligations to legitimate shareholders.
Shareholders
Ergon Energy is required to keep the Shareholding Ministers reasonably informed (Government Owned Corporations Act 1993 Section 122).
The Disclosure to Shareholders Policy (PDF 88kb) has been adopted to ensure that these requirements are met and Ergon Energy will, in addition to any other disclosure obligations, provide the Shareholding Ministers with sufficient information to enable the Shareholding Ministers to properly fulfil their obligations. Ergon Energy will base its disclosures on a 'no-surprises' approach and will ensure that its disclosure of information is:
- Made in a timely manner
- Sufficiently factual and does not omit material information
- Clear and objective (and not overly technical).
The guiding principles and strategy for shareholder engagement are set out in the Communications Strategy Guidelines (PDF 29kb)
ASX Best Practice Recommendation 6.1, 6.2
GOC Guidelines, Principle 5, 6
Other stakeholders
The Board has also adopted formal policies relating to its obligations to non-shareholder stakeholders such as employees, customers, suppliers, contractors, developers and the community as a whole.
These include areas such as safety, probity, occupational health and safety, employment practices, privacy, and environmental protection.
ASX Best Practice Recommendation 3.1
GOC Guidelines, Principle 3
Subsidiary companies
The activities of every company in the Group (PDF 15kb) are overseen by their own boards of directors.
The boards of the subsidiary companies have resolved, for the purpose of the power to delegate obtained in the company constitution, to approve, where appropriate, that the Board committees are committees of the subsidiary company.
The boards of the subsidiary companies have also resolved to adopt the Directors Code of Conduct (PDF 15kb) and to adopt applicable Ergon Energy management and governance policies as issued and amended from time to time.
The constitutions of the subsidiary companies provide that the directors may take into account and act in the best interests of the company's holding company in the exercise of their powers as directors of the company.
Charters and policies
View the Company's charters and policies.
ASX Corporate Governance Council, Corporate Governance Principles & Recommendations – 2nd Edition / Corporate Governance Guidelines for GOC’s –Version 2.
| Principle | Reference* | Compliance | |
|---|---|---|---|
| Principle 1: Lay solid foundations for management and oversight | |||
|
1.1 |
Establish the functions reserved to the board and those delegated to senior executives and disclose those functions |
Board of Directors, Charters and Policies |
Comply |
|
1.2 |
Disclose the process for evaluating the performance of senior executives |
Senior Executives |
Comply |
|
1.3 |
Provide the information indicated in Guide to reporting on principle 1 |
Board of Directors, Charters and Policies |
Comply |
|
GOC Guide |
A board handbook should be available to facilitate board operations and induction and self-evaluation processes |
Induction and Continuing Education |
Comply |
|
GOC Guide |
Appropriate induction processes should be developed for new members in relation to their board and committee functions |
Induction and Continuing Education |
Comply |
|
GOC Guide |
Establish and maintain a register of committees and their functions |
Board Committees |
Comply |
| Principle 2: Structure the board to add value | |||
|
2.1 |
A majority of the board should be independent directors |
Board of Directors |
Comply |
|
2.2 |
The chairperson should be an independent director |
Board of Directors |
Comply |
|
2.3 |
The roles of chairperson and chief executive officer should not be exercised by the same individual |
Board of Directors |
Comply |
|
2.4 |
The board should establish a nomination committee |
|
Not applicable Directors appointed by Governor-in-Council |
|
2.5 |
Disclose the process for performance evaluation of the board, its committees and individual directors |
Evaluation of Board Performance |
Comply |
|
2.6 |
Provide the information indicated in Guide to reporting on principle 2 |
Board of Directors |
Comply |
|
GOC Guide |
The board should develop and implement a plan for identifying, assessing and enhancing director competencies |
Evaluation of Board Performance |
Comply |
|
GOC Guide |
The board and committees regularly review their information needs (quality, quantity and timeliness) to ensure the information they receive is appropriate for the effective discharge of their duties |
Access to Information and Independent Professional Advice |
Comply |
| Principle 3: Promote ethical and responsible decision making | |||
|
3.1 |
Establish a code of conduct and disclose the code as to: · the practices necessary to maintain confidence in the company’s integrity · the practices necessary to take into account their legal obligations and reasonable expectations of their stakeholders · the responsibility and accountability of individuals for reporting and investigating reports of unethical practices |
Conflicts of Interest, Reporting of Unlawful/ Unethical Behaviour |
Comply |
|
3.2 |
Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity and for the board to assess annually both the objectives and progress in achieving them |
Other Stakeholders |
Comply |
|
3.3 |
Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them |
Shareholders |
Comply |
| 3.4 |
Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board |
Shareholders |
Comply |
|
3.5 |
Provide the information indicated in Guide to reporting on principle 3 |
Conflicts of Interest, Charters and Policies |
Comply |
|
GOC Guide |
Establish the policy concerning trading in company securities by directors, senior executives and employees and disclose the policy |
Conflicts of Interest |
Comply |
| Principle 4: Safeguard integrity in financial reporting | |||
|
4.1 |
The board should establish an audit committee |
Board Committees |
Comply |
|
4.2 |
Structure the audit committee so that it consists of: · Only non-executive directors · A majority of independent directors · Is chaired by an independent chair, who is not chair of the board · Has at least three members |
Board Committees |
Comply |
|
4.3 |
The audit committee should have a formal charter |
Board Committees, Charters and Policies |
Comply |
|
4.4 |
Provide the information indicated in Guide to reporting on principle 4 |
Charters and Policies |
Comply |
|
GOC Guide |
The Chief Executive Officer and Chief Financial Officer (or equivalent) state in writing that the financial reports present a true and fair view and are in accordance with accounting standards |
Risk Management, Compliance and Internal Controls |
Comply |
| Principle 5: Make timely and balanced disclosures | |||
|
5.1 |
Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies |
Not Applicable Not subject to ASX Listing Rule |
|
|
5.2 |
Provide the information indicated in Guide to reporting on principle 5 |
Not Applicable |
|
|
GOC Guide |
Establish written policies and procedures to ensure compliance with disclosure requirements (including those in the GOC Act) and generally ensure the accountability of senior management for that compliance |
Shareholders, Charters and Policies |
Comply |
| Principle 6: Respect the rights of the shareholders | |||
|
6.1 |
Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy |
Shareholders |
Comply |
|
6.2 |
Provide the information indicated in Guide to reporting on principle 6 |
Shareholders, Charters and Policies |
Comply |
| Principle 7: Recognise and manage risk | |||
|
7.1 |
Establish policies on the oversight and management of material business risks and disclose these policies |
Risk Management, Compliance and Internal Controls, Charters and Policies |
Comply |
|
7.2 |
The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks |
Risk Management, Compliance and Internal Controls |
Comply |
|
7.3 |
The board should disclose whether it has received assurances from the Chief Executive Officer and the Chief Financial Officer that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating efficiently and effectively in all material respects in relation to financial reporting risks |
Risk Management, Compliance and Internal Controls |
Comply |
|
7.4 |
Provide the information indicated in Guide to reporting on principle 7 |
Risk Management, Compliance and Internal Controls, Charters and Policies |
Comply |
|
GOC Guide |
Ensure the integration and alignment of the risk management system with corporate and operational objectives |
Risk Management, Compliance and Internal Controls |
Comply |
|
GOC Guide |
Ensure clear communication throughout the GOC of the board and senior management’s position on risk |
Risk Management, Compliance and Internal Controls |
Comply |
|
GOC Guide |
Ensure a common risk management terminology across the GOC |
Risk Management, Compliance and Internal Controls |
Comply |
|
GOC Guide |
Ensure risk management is undertaken as part of normal business practice and not as a separate task at set times |
Risk Management, Compliance and Internal Controls |
Comply |
|
GOC Guide |
Ensure information systems for reporting on risk are integrated to enable aggregation and reporting at a corporate level |
Risk Management, Compliance and Internal Controls |
Comply |
|
GOC Guide |
Undertake a risk assessment to identify any high-risk fraud areas and develop strategies to mitigate any significant fraud risks |
Risk Management, Compliance and Internal Controls |
Comply |
|
GOC Guide |
Implement polices and procedures which include: · employee responsibilities in relation to fraud prevention and identification; · responsibility for fraud investigation once a fraud has been identified; · processes for reporting on fraud related matters to management; · reporting and recording processes to be followed to record allegations of fraud; · requirements for employee training to be conducted on fraud prevention and identification; and · a reference to the GOC's code of conduct for ethical behaviour |
Reporting of Unlawful/Unethical Behaviour, Risk Management, Compliance and Internal Controls |
Comply |
|
GOC Guide |
Implement a fraud control plan for ongoing monitoring and coordination of fraud control activities, which identifies fraud risk, incorporates control strategies, action plans and a timetable for implementation, and sets out responsibilities and accountabilities for fraud control at all levels of the GOC |
Risk Management, Compliance and Internal Controls |
Comply |
| Principle 8: Rumunerate fairly and responsibly | |||
|
8.1 |
The board should establish a remuneration committee |
Board Committees, Charters and Policies |
Comply |
|
8.2 |
The renumeration committee should be structured so that it: · consists of a majority of independent directors · is chaired by an independent director · has at least three members |
Board Committees, Charters and Policies |
Comply |
|
8.3 |
Clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives |
Remuneration- Directors, Senior Executives |
Comply |
|
8.4 |
Provide the information indicated in Guide to reporting on principle 9 |
Charters and Policies |
Comply |
|
GOC Guide |
GOCs should disclose their remuneration policies to show the broad structure and objectives of the policies and the link between remuneration of the Chief Executive Officer and senior executives and corporate performance |
Senior Executives |
Comply |
* Reference refers to the relevant sections of the Corporate Governance Statement.