Independence required

RESEARCH under taken by Curtin Graduate School of Business director Professor Margaret Nowak has reinforced the importance of an open flow of information between the chief executive officer of a business and the independent company directors.

“Independent directors’ access to information is quite critical,” she said.

“They need access to information to do their job properly.

“The issue is really the flow of information.”

The research, which involved interviews with 45 directors of public listed companies, has raised a number of interesting questions.

Many of the directors made suggestions regarding the disemmination of information about a business to independent directors.

“Their suggestions were more about the need for independent directors to recognise that they can and should constantly be asking questions,” Professor Nowak said.

She said in certain circumstances independent experts should be commissioned to analyse decisions or aspects of a business.

Although this practice is not a big part of the Australian business culture it is a common practice in the US according to Professor Nowak.

“It’s not an implied criticism of CEO’s, it’s just the nature of their position,” she said.

“In the end if (independent directors) are not getting enough information or believable information the message was (from the interviews) that they should resign.

“It’s really important at this stage to highlight the need for independent directors to be fully confident of the information they are receiving.”

The recent spate of high profile corporate collapses in the US have only served to sharpen the focus on corporate governance in Australia.

Enron, Worldcom and drug giant Merck have all indicated huge accounting irregularities.

However, changes to Australian audit regulations will not be put in place until the HIH Royal Commission finishes next year.

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