This statement outlines the key aspects of the Commonwealth Bank’s corporate governance framework. The Board has consistently placed great importance on the governance of the Group, which it believes is vital to its well-being. The Board has adopted a comprehensive framework of Corporate Governance Guidelines, designed to properly balance performance and conformance. This enables the Group to undertake, in an effective manner, the prudent risk-taking activities which are the basis of its business. The Guidelines and the practices of the Group comply with the revised “Corporate Governance Principles and Recommendations”, dated 30 June 2010, released by the ASX Corporate Governance Council.
The Board's role and responsibilities are set out in the Board Charter. The responsibilities include:
The Board carries out the legal duties of its role in accordance with the Group’s values of trust, honesty and integrity. It has regard to the interests of the Group’s customers, people, shareholders and the broader community in which the Group operates at all times.
View Board Charter.
The Board delegates to the CEO the responsibility to achieve the Group’s objective of creating long term value for its shareholders through excelling in customer service and providing sustained best-in-industry performance in safety, community reputation and environmental impact.
The CEO is responsible for the day to day management of the business and maintaining a comprehensive set of management delegations under the Group’s Delegation of Authorities framework. These delegations cover commitments around project investment, operational expenditure and non-financial activities and processes. They are designed to accelerate decision-making and improve both efficiency and customer service.
An overview of the Group’s Corporate Governance framework is outlined on page 55 of the 2012 Annual Report.
There are currently nine Directors of the Bank and details of their experience, qualifications, special responsibilities and attendance at meetings are set out in the Directors’ Report.
Membership of the Board and Committees is set out below:
|Director||Board Membership||Committee Membership|
|Board Performance & Renewal||Remuneration||Audit||Risk|
|D J Turner||Non-executive, Independent||Chairman||Chairman||Member||-||Member|
|I M Narev||Executive||Chief Executive Officer||-||-||-||Member|
|J A Anderson||Non-Executive, Independent||-||Member||-||-||Member|
|J S Hemstritch||Non-Executive, Independent||-||-||Chairman||Member|
|L K Inman||Non-Executive, Independent||-||-||-||Member||Member|
|S C H Kay||Non-executive, Independent||-||-||Member||Member||Member|
|B J Long||Non-Executive, Independent||-||-||-||Chairman||Member|
|A M Mohl||Non-Executive, Independent||-||-||Member||-||Member|
|H H Young||Non-Executive, Independent||-||Member||-||Member||Chairman|
The Constitution of the Bank specifies that:
The Board has established a policy which limits the Directors’ appointment term to 12 years (except where succession planning for Chairman and appointment of Chairman requires an extended term). On appointment, the Chairman will be expected to be available for that position for five years.
View Commonwealth Bank Constitution, incorporating amendments up to and including all amendments passed at the Annual General Meeting on 13 November 2008.
The Group’s Non-Executive Directors are required to be independent of management and free of any business or other relationship that could materially interfere with the exercise of unfettered and independent judgment. The Board regularly assess each Director’s independence to ensure ongoing compliance with this requirement.
Directors are required to conduct themselves in accordance with the ethical policies of the Group and be meticulous in their disclosure of any material contract or relationship in accordance with the Corporations Act 2001. This disclosure extends to the interests of family companies and spouses. Directors must also strictly adhere to the participation and voting constraints in relation to matters in which they may have an interest in. Each Director may from time to time have personal dealings with the Group or be involved with other companies or professional firms which may have dealings with the Group. Details of offices held by Directors with other organisations are disclosed in the Directors' Report and on the Group's website. Full details of related party dealings are set out in the notes to the Financial Statements as required by law.
All the current Non-Executive Directors of the Bank have been assessed as independent Directors. In reaching that determination, the Board has taken into account (in addition to the matters set out above):
Directors participate in an induction programme upon appointment and in a refresher programme on a regular basis. This programme of continuing education ensures that the Board is kept up to date with developments in the industry both locally and globally. It also includes sessions with local and overseas experts in the particular fields relevant to the Group’s operations.
This year the Board also received an external assessment of shareholders’ perception of performance and strategy, which helped update the Board on the Bank’s external profile amongst investors.
The Non-Executive Directors meet at least annually without management, in a forum intended to allow for an open discussion on Board and management performance. This is in addition to the consideration of the CEO’s performance and remuneration which is conducted by the Board in the CEO’s absence.
Performance evaluations in accordance with the above processes have been undertaken during the year. Details on management performance evaluations are contained in the Remuneration Report section of the Directors’ Report, on pages 69 to 88.
The Board Performance and Renewal Committee annually review the Group’s corporate governance procedures. It considers the composition and effectiveness of the Commonwealth Bank of Australia Board and also the boards of the major wholly owned subsidiaries. It also considers the effectiveness of the Board and ensures that the Board annually reviews its own performance, policies and practices. These reviews seek to identify where improvements can be made in Board processes. They also assess the quality and effectiveness of information made available to Directors. The review process includes a performance assessment of the Board Committees and each Director. Every two years, this process is also facilitated by an external consultant.
The Board used an independent facilitator in this year’s performance review. The review endorsed the current Board and Committee processes and also suggested ways in which collective and individual Director performance might be improved. The assessment has been considered by the Board and individual Director assessments have been diarised with Directors by the Chairman of the Board.
After considering the results of the performance assessment, the Board will determine its endorsement of the Directors to stand for re-election at the next AGM.
In accordance with the Board’s policies, the Committee consists solely of independent Non-Executive Directors, with the CEO attending the meeting by invitation.
The Board Performance and Renewal Committee’s set of criteria for Director appointments are reviewed annually and adopted by the Board. These are aimed at creating a Board capable of challenging, stretching and motivating management to achieve sustained, outstanding performance in all respects. The Group’s aim is to ensure that any new appointee is able to contribute to the Board constituting a competitive advantage for the Group. Based on these criteria, each Director should:
Professional intermediaries are engaged to identify a diverse range of potential candidates for appointment as Directors based on the identified criteria.
The Board Performance and Renewal Committee will assess the skills, experience and personal qualities of these candidates. It will also take into consideration other attributes including diversity to ensure that any appointment decisions adequately reflect the environment in which the Group operates. Information on the Group’s diversity strategy more generally can also be found in the Sustainability section of this report on pages 51 to 54.
Candidates who are considered suitable for appointment as Directors by the Board Performance and Renewal Committee are then recommended for decision by the Board and, if appointed, will stand for election at the next AGM, in accordance with the Constitution.
The Chairman will provide a letter to all new Directors setting out the terms of appointment and relevant Board policies. These include time commitment, code of ethics and continuing education. All current Directors have been provided with a letter confirming the terms of their appointment.
View form of letter of appointment.
Board policies relevant to the composition of Committees and functions of Directors include:
Conflicts of Interest
In accordance with the Constitution and the Corporations Act 2001, Directors are required to disclose to the Board any material contract in which they may have an interest. In compliance with section 195 of the Corporations Act 2001 any Director with a material personal interest in a matter being considered by the Board will not vote on or be present when the matter is being considered. If the material personal interest is disclosed or identified before a Board or Committee meeting takes place those Directors will also not receive a copy of any paper dealing with the matter.
The Board has adopted a Group Securities Trading policy which prohibits Directors, employees and contractors of the Group from:
Directors are also only permitted to deal with the Group’s securities within certain periods, as long as they are not in the possession of unpublished price-sensitive information. These periods include the 30 days after the half yearly and final results announcements, and 14 days after quarterly trading update releases.
The Policy also requires that Directors do not deal on the basis of considerations of a short term nature or to the extent of trading in those securities. Similar restrictions apply to Executives of the Group, which is in addition to the prohibition of any trading (including hedging) in positions prior to vesting of shares or options.
Directors and Executives who report to the CEO are also prohibited from:
Details of the governance arrangements and policies relevant to remuneration are set out in the Remuneration Report on pages 69 to 88 of the 2012 Annual Report.
The Audit Committee assists the Board in fulfilling its statutory and fiduciary responsibilities. It provides an objective and independent review of the effectiveness of the external reporting of financial information and the internal control environment of the Group, as well as obtaining an understanding of the Group’s tax and accounting risks. The Audit Committee is responsible for overseeing accounting policies, professional accounting requirements, internal audit (GAA), external audit, APRA statutory and regulatory reporting requirements, and the external auditor’s appointment.
The Charter of the Audit Committee incorporates a number of policies and practices to ensure that the Committee is independent and effective.
View Audit Committee Charter.
PricewaterhouseCoopers (PwC) was appointed as the external auditor of the Bank at the 2007 AGM, effective from the beginning of the 2008 financial year.
The PwC partner managing the Group’s external audit will attend the 2012 AGM and be available to respond to shareholder questions relating to the external audit.
In line with current legislations, the Group requires that the partner be changed within five years of being appointed.
The Group and its external auditor must continue to comply with U.S Auditor independence requirements. U.S. Securities and Exchange Commission (SEC) rules still apply to various activities that the Group undertakes in the United States, even though the Bank is not registered under the Exchange Act.
The External Auditor Services Policy requires the Audit Committee (or its delegate) to approve all audit and non-audit services before engaging the external auditors to perform the work. The policy also prohibits the external auditors from providing certain services to the Group or its affiliates. The objective of this policy is to avoid prejudicing the external auditor’s independence.
The policy is designed to ensure that the external auditors do not:
Under the policy, the external auditor will not provide certain services including the following services:
In general terms, the permitted services are:
Risk Management governance originates at Board level, and cascades through to the CEO and businesses, via policies and delegated authorities. This ensures Board level oversight and a clear segregation of duties between those who originate and those who approve risk exposures. Independent review of the risk management framework is carried out through GAA.
The Board and its Risk Committee operate under the direction of their respective charters. The Board Charter stipulates, amongst other things that:
The CEO and the Chief Financial Officer have given the Board their declaration in accordance with section 295A of the Corporations Act 2001. The CEO has confirmed that the declaration is founded on a sound system of risk management and internal control and also that the system is operating effectively in all material respects in relation to financial risks.
The Risk Committee oversees the Group’s risk management framework. This includes credit, market (including traded interest rate risk in the banking book, lease residual values, non-traded equity and structural foreign exchange), liquidity and funding, operational, insurance, regulatory and compliance, and reputational risks assumed by the Group in the course of carrying on its business. It reviews regular reports from management on the measurement of risk and the adequacy and effectiveness of the Group’s risk management and internal controls systems.
Strategic risks are governed by the Board, with input from the various Board sub-committees. Tax and accounting risks are governed by the Audit Committee.
A key purpose is to help formulate the Group’s risk appetite for consideration by the Board, and agreeing and recommending a risk management framework to the Board that is consistent with the approved risk appetite.
This framework, which is designed to achieve portfolio outcomes consistent with the Group’s risk-return expectations, includes:
The Committee monitors management’s compliance with the Group risk framework (high-level policies and limits). It also makes recommendations on the key policies relating to capital (that underpin the Internal Capital Adequacy Assessment Process), liquidity and funding. These are overseen and reviewed by the Board on at least an annual basis.
The Committee also monitors the health of the Group’s risk culture, and reports any significant issues to the Board.
As part of the remuneration policy, the Risk Committee provides written input to the People & Remuneration Committee to assist in the alignment of executive remuneration with appropriate risk behaviours.
The Committee reviews significant correspondence with regulators, receives reports from management on regulatory relations and reports any significant regulatory issues to the Board.
Levels of insurance cover on insurance policies maintained by the Group to mitigate some operational risks are disclosed to the Risk Committee for comment.
The Risk Committee charter states that the Committee will meet at least quarterly, and as required. In practice this is at least six times a year. To allow it to form a view on the independence of the function, the Risk Committee meets with the Group Chief Risk Officer (CRO) in the absence of other management at least annually or as decided by of the Committee or the CRO. The Chairman of the Risk Committee provides a report to the Board following each Committee meeting.
View Risk Committee Charter.
The Group has an integrated risk management framework in place to identify, assess, manage and report risks and risk adjusted returns on a consistent and reliable basis.
A description of the functions of the framework and the nature of the risks is set out in the Risk Management section of the Annual Report (pages 37 to 40) and in Notes 37 to 40 to the Financial Statements (pages 178 to 201).
Matters which could be expected to have a material effect on the price or value of the Company’s securities must be disclosed under the Corporations Act 2001 and the ASX Listing Rules. The Group’s “Guidelines for Communication between the Bank and Shareholders” is available on the Group’s website. These set out the processes to ensure that shareholders and the market are provided with full and timely information about the Group’s activities in compliance with continuous disclosure requirements.
Continuous Disclosure policy and processes are in place throughout the Group to ensure that all material matters which may potentially require disclosure are promptly reported to the CEO. This is achieved via established reporting lines or as a part of the deliberations of the Group’s Executive Committee. Matters reported are assessed and, where required by the ASX Listing Rules, advised to the market. A Disclosure Committee has also been formed to provide advice on the requirements for disclosing information to the market. The Company Secretary is responsible for communications with the ASX and for ensuring that such information is not released to any person until the ASX has confirmed its release to the market.
View Group’s guidelines for Communication between the Bank and Shareholders.
The Group believes it is very important for its shareholders to make informed decisions about their investment in the Group. In order for the market to have an understanding of the business operations and performance, the Group aims to provide shareholders with access to quality information in the form of:
The Group employs a wide range of communication approaches, including direct communication with shareholders, publication of all relevant Group information on the shareholder centre section of the website and webcasting of most market briefings for shareholders. Upcoming webcasts are announced to the market via ASX announcements and publicised on the website to enable interested parties to participate. To make its general meetings more accessible to shareholders, the Group moves the location between Australian capital cities each year and live webcasts are available for viewing online. The Group has taken these actions to encourage shareholder participation at general meetings.
A summary record of issues discussed at one-on-one or group meetings with investors and analysts, including a record of those present, time and venue of the meeting, are kept for internal reference only.
The Group is committed to maintaining a level of disclosure that meets the highest of standards and provides all investors with timely and equal access to information.
The values of the Group are trust, honesty and integrity. The Board carries out its legal duties in accordance with these values and having appropriate regard to the interests of the Group’s customers, shareholders, people and the broader community in which the Group operates.
Policies and codes of conduct have been established by the Board and the Group Executive team to support the Group’s objectives, vision and values.
The Group’s code of ethics, known as a Statement of Professional Practice, sets standards of behaviour required of all employees and directors including:
These standards are regularly communicated to the Group’s people. The Group has also established the Group Securities Trading policy to ensure that unpublished price-sensitive information is not used in an illegal manner for personal advantage.
The Group has implemented various policies and systems to enable its people to carry out their duties in accordance with the Group’s values. These include:
Information on the Group’s diversity strategy can be found in the Sustainability section on pages 51 to 54 of the 2012 Annual Report.
Information on the Group’s diversity strategy can be found in the Diversity section.
The Group is strongly committed to maintaining an ethical workplace and to complying with legal and ethical responsibilities. The Group’s Behaviour policy requires its people to report fraud, corrupt conduct, mal-administration or serious and substantial waste by others. A system has been established which allows people to remain anonymous, if they wish, for reporting of these matters.
The policy includes reporting of auditing and accounting issues. These are reported to the Chief Compliance Officer by the Chief Security Officer, who administers the reporting and investigation system. The Chief Security Officer reports any such matters to the Audit Committee, noting the status of resolution and actions to be taken.
The Board will operate in a manner reflecting the Group’s values and in accordance with its agreed corporate governance guidelines, the Bank’s Constitution, the Corporations Act and all other applicable regulations.
The Board employs and requires at all levels, impeccable values, honesty and openness. Through its processes, it achieves transparent, open governance and communications under all circumstances, and addressing both performance and conformance.
The Board’s policies and codes include detailed provisions dealing with: