Corporate Governance Statement from 2009 Annual Report
Envestra is committed to sound corporate governance and to this end the following policies and practices have been adopted and implemented by the Board.
Each year a review of the Company’s corporate governance framework is carried out against the best-practice recommendations of the Australian Stock Exchange Corporate Governance Council.
The Company’s framework largely complies with these recommendations. Consistent with the Company’s approach to sound corporate governance, opportunities for improvement are regularly considered.
The Board delegates to the Managing Director and senior executives day-to-day management of the affairs of the Company and its controlled entities, and the implementation of the corporate strategies and policies.
The Directors are responsible to shareholders for the performance of the Company and their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the Group is properly managed.
The main processes that the Directors of the Company use in doing so are set out in this statement.
Board Composition
The Company’s Constitution requires that the minimum number of Directors is three and the maximum is 10. The Company has two major shareholders, Australian Pipeline Ltd (APA Group) and Cheung Kong Infrastructure Holdings (CKI).
Under Envestra’s Constitution, while CKI holds more than 15 per cent of Envestra’s securities, they may appoint up to two non-executive Directors.
If their holding is between 10 and 15 per cent, they may appoint one Director.
The APA Group and CKI Directors are not regarded as being independent as both organisations each hold more than 15 per cent of the Company’s issued capital. In addition, APA Group has a significant contractual relationship with Envestra under the Operating and Management Agreements related to the Company’s assets.
Membership of the Board comprises:
- Three independent non-executive Directors.
- Two non-executive Directors nominated by APA Group.
- Two non-executive Directors appointed by CKI.
- The Managing Director.
The Chairman must be an independent Director.
To comply with the ASX best-practice guidelines on independent Directors it would be necessary to appoint two additional Directors, which would require an amendment to the Constitution.
However, given the balance between the existing major shareholders’ representatives on the Board, and the independent Directors, the existing Board structure is considered appropriate, particularly as under the Constitution the Chairman has a casting vote in the event of an equality of votes.
Directors are subject to retirement by rotation and election by shareholders at a general meeting.
No Director may remain on the Board for more than three years without re-election. Where a Director is appointed during the year, that Director will hold office until the next Annual General Meeting and then be eligible for re-election.
Details of the members of the Board, their experience, qualifications and special responsibilities are contained in the Annual Report.
When considering Board vacancies, Directors take into account the candidate’s capacity to enhance the mix of skills and experience of the Board and to contribute to the development of the Company. When a vacancy exists, the Board identifies candidates with the relevant experience and expertise, using external consultants when required.
The current Board has a broad range of expertise covering financial, legal, banking, commercial and operational backgrounds, with all members bringing the benefits of experience from other Boards and industries.
Performance appraisal
The Board has adopted a policy of undertaking self-assessments of its performance to initiate improvements and assist in determining the Board’s support for individual members offering themselves for re-election by the security holders. Assessments are conducted at regular intervals.
Board Responsibilities
The most significant responsibilities of the Board include:
- Setting strategic objectives, long-term business plans and annual budgets.
- Regularly reviewing the operational and financial performance of the Company.
- Ensuring that the requirements are met of continuous disclosure to the investment market and shareholders about the performance and activities of the Company.
- Ensuring that appropriate risk management systems are in place and reports on performance are regularly reviewed.
- Overseeing the Company’s commitment to the health and safety of employees and contractors, the environment and sustainable development.
- Evaluating potential business development opportunities.
- Appointing the Managing Director and other senior executives and evaluating their performance.
- Appointing the Company’s external auditors.
- Appointing the Company’s internal auditors as part of its general responsibility to ensure satisfactory internal controls are maintained over the Company’s key risk areas.
- Ensuring the Company’s Code of Conduct and Ethics and other policies are adhered to.
- Approving the annual and half-yearly financial reports.
- Overseeing the engagement of resources to conduct the business.
Independence of Board Members
Envestra’s Constitution provides that Directors or their firms may act in a professional capacity for the Company, other than acting as an auditor for the Company. Disclosure of related party transactions is set out in the Annual Report.
APA Group entities connected with Mr M J McCormack and Mr R M Gersbach had dealings with the Company during the year. Almost all transactions were associated with the contractual arrangements under the Operating and Management Agreements enetered into with Envestra. In respect to other matters which arose with APA Group during the year, in accordance with Board guidelines, the APA Directors declared their interest in those dealings to the Company and, after discussion, the remaining Directors determined whether the potential conflict of interest disqualified them from being present or voting on the matter.
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Resources available to the Board
Directors have the right of access to Company employees, advisors and records.
In relation to their duties and responsibilities, Directors have the right to seek independent professional advice at the Company’s expense where the Chairman has given approval.
As approved by shareholders, the Company has entered into Deeds of Access with each Director giving them a right of access to all documents that were provided to them during their time in office for a period of 15 years after ceasing to be a Director.
Remuneration of non-executive Directors
The maximum aggregate remuneration for non-executive Directors is set out in the Company’s Constitution and can be varied only at a general meeting. Shareholders approved the maximum aggregate remuneration of $750,000 per annum on 3 November 2003.
The amount paid in 2008-09 was $720,000.
Board fees were last reviewed with effect from 1 July 2006. The Chairman’s fees are $150,000 and for other Directors they are $75,000. The Chairman of the Audit and Risk Committee receives a fee of $15,000 and other members $10,000.
Details relating to the remuneration paid to non-executive Directors are contained in the Annual Report.
The Retirement Benefit Scheme for Directors, which was introduced when the Company was formed in 1997, was suspended on 30 June 2003. Under the scheme, after one year of service Directors were entitled to receive retirement benefits on a sliding scale based on the number of years served on the Board. The maximum retirement benefit was payable after 10 years’ service and was calculated as three times the average annual emoluments of the Director over the three years before the date of retirement.
Superannuation was paid by the Company, in addition to the above fees, at the minimum superannuation guarantee levels required by Commonwealth legislation. The accumulated benefit arising from these superannuation payments are offset from the retirement benefit, when paid to Directors.
Superannuation contributions continue to be made for eligible Directors, but these are now deducted from the fees paid.
At 30 June 2009, the benefit payable on retirement of each non-executive Director was:
- Mr J G Allpass $175,919
- Mr C C A Binks $30,686
- Mr O B O’Duill $46,912
The benefit payable on retirement is based on 10/13 of the Director’s fees paid in the previous three years, but is not adjusted for the increase in years of service.
Mr E F Ainsworth, Mr D Chan, Mr I Chan, Mr M McCormack and Mr R Gersbach joined the Board after the scheme was suspended, so do not participate in the Retirement Benefit Scheme.
Board Committees
The Board has established two committees to assist in the execution of its duties. They are the Audit & Risk, and Remuneration Committees. The committee structure and membership is reviewed annually. Other committees are formed to deal with specific issues, when required.
Each of the Audit & Risk, and Remuneration Committees has its own charter setting out its role and responsibilities. The charters are approved by the Board and can be obtained on request from the Company or are available on the Company’s website. All recommendations of the committees are submitted to the Board.
Director appointments are relatively infrequent and are considered by the full Board. In these circumstances it has not been deemed necessary to establish a Nomination Committee. Similarly, the other roles normally undertaken by such a committee are also addressed by the full Board.
Audit and Risk Committee
Members of the Audit and Risk Committee must be non-executive Directors, and the Chairman of the Committee cannot be Chairman of the Board. The committee must consist of a majority of independent Directors.
Members of the committee are:
- Mr O B O’Duill (Chairman);
- Mr E F Ainsworth; and
- Mr R M Gersbach.
Each of the external and internal auditors and the Managing Director and Group Manager Finance and Risk Management, usually attend the meetings.
The key responsibilities of the committee are:
- Reviewing the annual and half-year financial reports and recommending their adoption by the Board.
- Reviewing other financial information distributed externally.
- Reviewing management of financial risks.
- Recommending the appointment and remuneration of the auditors, and reviewing the terms and scope of engagement and assessing their performance.
- Reviewing the effectiveness of the internal control environment.
- Approving the scope of the internal audit program.
- Overseeing the risk management program.
- Reviewing compliance with corporate policies, controls and delegated authorities.
- Reviewing compliance with the requirements of energy regulatory bodies, including the approval of regulatory accounts.
- Considering the independence of the auditor and approving non-audit services provided by the audit firm.
PricewaterhouseCoopers (PwC) was appointed as external auditor in 1997. It is PwC policy to rotate audit engagement partners with listed companies at least every five years. The responsible audit partner for Envestra was rotated in 2004.
The Board recognises the need to periodically review the services provided by its external auditor, as well as the cost of these services. In June 2009, the Audit and Risk Committee conducted a tender for the provision of external services. It was resoilved to continue using the services of PricewaterhgouseCoopers as the Group's external auditor.
The internal and external auditors have direct access to the Chairman of the Audit and Risk Committee and, where necessary, the Chairman of the Board. The Audit and Risk Committee meets with the external and internal auditors without management present on an as required basis, but at least once a year.
The external auditor attends the Annual General Meeting and is available to answer questions from security holders.
Download the Annual Review of Audit and Risk Committee Charter (150KB PDF)
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Remuneration Committee
Members of the Remuneration Committee must be non-executive Directors. The Managing Director is invited to attend meetings to discuss senior executives’ performance and remuneration.
Members of the committee are:
- Mr J G Allpass (Chairman);
- Mr E F Ainsworth; and
- Mr O B O’Duill.
The Remuneration Committee advises the Board on remuneration policies and practices, and makes recommendations on remuneration packages and other terms of employment for the Managing Director and other senior executives, having regard to the need to attract, retain and develop appropriately skilled people.
Each member of the senior management team is employed under a contract covering a range of matters including their duties, rights, responsibilities and entitlements on termination.
The committee, having regard to personal and corporate performance and relevant comparative information, reviews remuneration of the senior management team annually. The remuneration of all senior managers is assessed at regular intervals by an external professional human resources consultant and the resultant report submitted to the committee for consideration as part of the review of packages.
Remuneration for senior executives comprises both fixed remuneration and incentives. The incentives are based on a combination of the Company’s results and individual performance levels. The payment of short-term incentives is dependent upon the achievement of operating and financial targets set at the beginning of each year.
Each employee develops a list of personal key performance indicators (KPIs), including targets as against which performance is measured, in conjunction with their manager, prior to the commencement of the financial year.
The KPIs for senior executives are reviewed and agreed in conjunction with the Managing Director, before being submitted to the Remuneration Committee for consideration.
Performance against the KPIs is regularly monitored, with two formal reviews being carried out at the half-year in December and at year-end in June. The June assessment is considered by the Remuneration Committee as part of its deliberations as to whether an executive is to receive a bonus. Any bonus is based on a combination of individual performance (40%) and corporate outcomes (60%). The Managing Director is assessed entirely on the corporate outcomes.
Further information on the incentive schemes for senior executives is included in the Annual Report.
The maximum short-term incentive for the Managing Director is 30 per cent of his total employment costs. The maximum incentive for the Group Manager Commercial is 25 per cent, and the maximum incentive for all other senior executives is 20 per cent.
The Managing Director and Group Manager Commercial have the ability to earn a long-term incentive, on a rolling basis, after three years’ service. The bonus is equivalent to 50 per cent of the short-term incentive. Payments under this incentive for the Managing Director and the Group Manager Commercial commenced in 2007, and 2008, respectively.
The Company does not operate an Employee Share Option Plan.
Risk Assessment and Management
The Company has a risk-assessment program that is monitored by the Audit and Risk Committee. The program is designed to ensure strategic, operational, legal, reputation and financial risks are identified, assessed, addressed and monitored to enable the Company to achieve its business objectives.
The Managing Director, Group Manager Finance and Risk Management and Company Secretary manage the Company’s risk-management program in conjunction with the Executive Risk Management Committee. The Board and the Audit and Risk Committee receive regular reports on progress in addressing the risks. The internal auditors also carry out regular investigations into control mechanisms and report their findings, including recommendations for improvement to controls, processes and procedures, to the Audit and Risk Committee.
APA is required to operate and manage Envestra’s networks in accordance with the Operating and Management Agreements and to legal and prudential standards. Envestra’s management has the responsibility to monitor the risks and compliance issues associated with APA’s performance and to report to the Board on these matters. As part of this process, independent engineering audits are conducted each year.
The Company has a comprehensive insurance program in place which is reviewed annually in conjunction with the Company’s insurance brokers and legal advisors
Click here to view Envestra's Risk Management Policy.
Indemnities
The Directors are indemnified under deeds against liability in the fulfillment of their duties unless the liability arises out of conduct involving a lack of good faith or willful neglect. They are also indemnified for the costs of defending proceedings in which judgement is given in their favour, or in which they are acquitted, or the claim is withdrawn.
Code of Conduct and Ethics
The code requires that, at all times, Directors and employees act with integrity, objectivity and in compliance with the letter and spirit of the law and Company policies.
The code requires employees who are aware of unethical practices within the Company to report these using the avenues available under the Company’s Whistle-blowing Policy. Employees have direct access to the Managing Director or, if this would cause a conflict, the Chairman of the Audit and Risk Committee or the Chairman of the Board.
Click here to view Envestra's Code of Conduct and Ethics statement.
Dealings in Envestra’s stapled securities by Directors and employees
Directors and officers of the Company are prohibited from trading in Envestra securities between 1 July and the close of business on the day the Company announces its full-year results, and between 1 January and the close of business on the day the Company announces its half-year results.
Directors and officers are also subject to the provisions of the Corporations Act relating to conduct by a person in possession of inside information. A person possesses inside information, if they know, or ought to reasonably know, that if the information were generally available, a reasonable person would expect it to have a material effect on the price of Envestra’s securities.
Directors and officers in possession of inside information are prohibited from trading in Envestra’s securities.
Directors must inform the Chairman, or in his absence the Chairman of the Audit and Risk Committee, and officers must inform the Managing Director, or in his absence the Company Secretary, of their intention to trade in Envestra’s securities either by themselves or by an associate.
Such notification must be provided at least 24 hours prior to any proposed trade.
Continuous disclosure and shareholder communication
The Company Secretary is responsible for communication with the Australian Stock Exchange (ASX). This includes ensuring compliance with the continuous disclosure requirements in the ASX Listing Rules and the Company’s Continuous Disclosure Policy, and overseeing information disclosure to analysts, brokers, securityholders, the media and general public. The policy is available on the Company’s website.
All information disclosed to the ASX is posted on the Company’s website as soon as practicable after it is disclosed to the ASX. Material used to brief analysts on the Company’s operations is released to the ASX when it provides new information and all presentation material is posted on the website.
An email alert system is operated for the benefit of security holders and other interested parties, whereby an email is sent to those persons registered on the system when a media release or other document has been issued to the market.
Click here to view Envestra's Share Trading Policy
Click here to view Envestra's Fraud and Corruption Prevention Policy (PDF 35kb)
Company announcements, annual and half-year reports, as well as market and AGM presentations are available on the Company’s website.
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Earnings Revision – Year ended 30 June, 2010
