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Australia, like the US and the UK, has a shareholder model and the main goal of corporate governance is to protect and increase shareholder wealth (Grantham, 2004). However there is a growing recognition that the cultivation of stakeholder interests contributes to long term shareholder value. The Australian Securities Exchange (ASX) Corporate Governance Council Corporate Governance Principles and Recommendations suggests in Principle Three that the code of conduct include practices necessary to take into account the reasonable expectations of stakeholders (ASX Corporate Governance Council, 2010). Australia has opted for a balance between a rules-based and principles-based regime. The ‘comply or explain’ approach coupled with the elements of SOX that have been adopted in new legislation push it further along the continuum towards the United States' response (Blackmore, 2006). Mandatory legislation is contained in the Corporations Act 2001 and listed companies are required to comply with the ASX Listing Rules. The Listing Rules are enforceable under the Corporations Act. But Listing Rule 4 allows a “comply or explain” disclosure in regards to the ASX Council’s corporate governance principles; it is left to the market to draw its conclusions (Kimber & Lipton, 2005).

Corporate governance received media and policy attention in Australia due to the collapses of overseas companies such as Enron and WorldCom, and domestic

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companies, such as HIH, OneTel and Harris Scarfe (Fleming, 2003). Reform in Australia took place in 2004. It consisted of the establishment of the

abovementioned Corporate Governance Council by the Australian Securities Exchange (ASX) primarily to stiffen mandatory disclosure requirements of the top 500 listed companies and the introduction of CLERP 9 (Corporate Law

Economic Reform Program) to strengthen the financial reporting framework, ending the era of audit self-regulation (Clarke, 2004; Robins, 2006). CLERP 9 also imposes civil liability under the Corporations Act for breaches of the ASX Listing Rules’ continuous disclosure requirements (Listing Rule 3) and extends this liability to directors and executives (Hutchinson & Percy, 2008).

Corporate governance practices were also reviewed. Standards for good practice in governance were introduced by Standards Australia (Armstrong & Francis, 2008b) and the ASX Corporate Governance Council introduced a corporate governance code consisting of eight best practice principles and

recommendations (Teh, 2009). As mentioned above listed companies are required to “comply or explain” why they have not complied. The Code can be divided into structural, behavioural and disclosure principles (Fleming, 2003). As with other jurisdictions greater emphasis was placed on director independence; Principle Two states that the majority of the board should be independent including the chairperson (ASX Corporate Governance Council, 2010). Both Standards Australia and the ASX Council emphasised the values and ethics that should underlie good corporate governance such as transparency, accountability, fairness, honesty and integrity (Francis, 2000). The ASX Council stated:

There is a basic need for integrity among those who can influence a company’s strategy and financial performance, together with responsible and ethical decision-making….[organisations should] clarify the standards of ethical behaviour required of company directors and key executives . . . and encourage the observance of those standards (p. 3).

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Principle Three of the Code provides that companies actively promote ethical and responsible decision-making and recommends that companies establish a code of conduct (ASX Corporate Governance Council, 2010).

Kimber and Lipton (2005) in surveying the corporate governance regimes of the Asia-Pacific countries including Australia, conclude poor ethics has caused the corporate governance failures and also found that there are two diverging belief systems underpinning attitudes towards directors and senior executives: either directors and senior executives are driven by self-interest and require stringent regulation to constrain their natural behaviour; or they have an innate capacity to be good stewards and virtuous leaders and their personal sense of high moral standards underpins good ethical behaviour in business. Kimber and Lipton (2005) observe that the US reflects the former while the “comply or explain” regimes reflect the latter. In fact Karin Hamilton, chief integrity officer of the ASX commented that the principles and guidelines approach is more relevant in Australia than the SOX approach (Hamilton, 2004). However, Kimber and Lipton (2005) point out that ethics in a principles-based approach to corporate

governance depends entirely on the integrity of the individual leaders; they end their paper calling on those in senior roles to remember that sustainability rests ultimately on their personal capacity to maintain high standards, and foster ethical processes.

An analysis of the Australian corporate scandals by Robins found legal but unethical elements present in all cases (2006). “Human frailty rather than human law lies at the heart of the corporate governance problem”(Robins, 2006, p. 47). He concedes that ethical standards are much less amenable to the external influence of regulation than are technical standards and institutional conventions and that nothing can replace personal integrity; legal reforms cannot help cultural causes. Armstrong and Francis (2008a) attribute corporate governance failure to a loss of integrity and so further regulation may not be the answer to corporate governance failure. They argue that directors need to know and practice the ethical principles underlying corporate governance.

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From the above discussion it can be concluded that corporate governance reforms internationally have followed similar paths. On the whole there is an emphasis on compliance with rules surrounding board and committee structures, procedures and codes of ethics, with the view to achieving board and auditor independence. The difference lies in the fact that the US has adopted a rules-based regime whereas the UK, Australia and Europe use a mixture of legislation and principles. Advocates for a shift in direction to emphasise the personal ethics of leaders can be found in all jurisdictions. Norburn, Boyd, Fox and Muth (2000) reflected this view even before the major reforms and governance failures of 2002-2008:

The predominant common theme from our review of international corporate governance encapsulates recommendations that essentially are mechanistic and structural….We believe governance problems today have much less to do with structure and much more to do with human behaviour (p. 131).