Telstra’s Corporate Governance Analysis 2006

Telstra’s corporate governance analysis 2006

Telstra indicated a few important parts of the corporate governance in 2006 annual report including the board of directors, audit governance and financial reporting, risk management, and code of conduct and other policies. Firstly, Telstra currently has 8 directors on the board, and Telstra set a list of roles and responsibilities for these board members according to ASX (Telstra website). With the exception of CEO, all other board directors are non-executive directors therefore Telstra’s board is mostly considered to be independent (Telstra website). The purpose of this arrangement is to ensure the board directors excepted CEO free from management, business relationship and avoid the conflict of interests thereby to act as the independent overseeing the organization. However, because they are independent and free from management and business activities, so they could be less knowledge, skill and experience of the business, thus those non-executive directors are entitled to have right of access management presentation or seek professional advices at company’s expenses to fulfill their responsibilities and an investigation (Telstra website). In addition, the board of Telstra appointed Gonald G McGauchie as chairman, who is to contact with shareholders and working with CEO for board meeting (Telstra website). For example, Telstra in fiscal 2006 held the annual general meeting on 14th November 2006, the AGM deal some specific matters such as discuss Telstra’s financial statement and election or re-election of directors (Telstra website).

For the purpose of Australian Corporations Act, Telstra has the auditor-general as its auditor, who owes duties to Telstra, its shareholders and commonwealth. The auditor-general appointed Ernst & Young as external auditor for filings outside of Australia (Telstra website). Ernst & Young is responsible for financial reporting rather than the auditor-general, and is accountable to the board, the audit committee and shareholders. Ernst & Young as its external auditor might help to perform peer reviews, obtain opinions concerning contentions issues, and provide expertise for audits in specialized areas. Therefore, the Auditor-General and Ernst & Young are authorized to perform all audit services. In addition, Ernst & Young provides non-audit service but if Ernst & Young is not independent, the provision of a non-audit service will not be approved by the audit committee (Telstra website). The audit committee is required by ASX, is to review the integrity of Telstra’s financial reporting and the independence of Ernst & Young. In the 2006 Telstra’s auditing report, the auditor-general, Ian McPhee concluded that the financial report and Telstra group have been no contraventions of the auditor independence requirements of the Corporation Act 2001 or any applicable code of professional conduct (Telstra website).

Telstra committed the risk oversight and management throughout its operations. Firstly, Telstra has a risk management and assurance function that independently assesses and evaluate the adequacy and effective operation of the controls in place surrounding the management of risk (Telstra website). The key role of risk management is to identify, manage and control Telstra’s significant business risks by developing, promoting and transferring a common language and approach to the business units. Moreover, Telstra has a central treasury function, which is to manage the financial risk and minimize the volatility of financial outcomes that might be arising from liquidity, cash flow, foreign exchange, interest rate and borrowing (Telstra website). Telstra’s central treasury function also can manage an insurance to transfer significant risk for property, public and product liability and director’s liabilities (Telstra website). Besides, for more secure the integrity and effectiveness of management of risk, audit committee regularly advice the management of risk to the board, in turn, the board monitors those items such as internal control, financial reporting systems, and/or compliance risk.

Telstra is not only complying with the rules of ASX Corporate governance, but also has its own operating policies, code of conduct and principles that promote ethical behavior for all employees. Firstly, Telstra has a whistleblowing policy and service that all staff might report the unethical concern to Telstra’s Ethics Committee, and the management committee oversees the investigation and considers appropriate implementation (Telstra website). So Telstra’s whistleblowing policy and service reflects Telstra’s accountability and complements existing management functions. Telstra also set the share trading policy, which listed number of requirements for directors, CEO, managers and other employees trading Telstra’s