Cooperative Research Centres
Governance Guide
Prepared by
Kerrin Anderson
Rachel Sciascia
Page 1 of 39
Table of Contents
Cooperative Research Centres Governance Guide
1
Introduction ............................................................................................. 3
2
Why is good governance important? .................................................... 4
3
ASX Principles ......................................................................................... 5
Principle 1 – Lay solid foundations for management and oversight ........ 6
Principle 2 – Structure of the CRC board to add value ............................ 6
Principle 3 – Promote ethical and responsible decision making .............. 6
Principle 4 – Safeguard integrity in financial reporting ............................ 7
Principle 5 – Make timely and balanced disclosure ................................. 7
Principle 6 – Respect the rights of shareholders/ participants ................. 7
Principle 7 – Recognise and manage risk ............................................... 7
Principle 8 – Remunerate fairly and responsibly ..................................... 8
4
The choice of legal structure ................................................................. 8
4.1 - The role of the legal structure in good governance ......................... 8
4.2 - What are the Commonwealth’s requirements that influence the legal
structure? ................................................................................................ 9
4.3 - What are the other underlying factors that influence the choice of
structure? .............................................................................................. 10
5
An outline of common legal structures adopted by CRCs ................ 12
5.1 - Unincorporated Joint Venture with a managing entity ................... 12
5.2 - Incorporated Joint Venture ............................................................ 18
5.3 - Incorporated CRC ......................................................................... 23
6
Governance Structure........................................................................... 25
6.1 - What are the underlying factors that influence the Governance
Arrangements?...................................................................................... 26
6.2 - Establishing a CRC board ............................................................. 27
6.3 - Securing participant engagement in the governance of the CRC . 32
7
Conclusion............................................................................................. 34
8
Glossary ................................................................................................. 35
9
Annexure – Legal Structure Diagrams ................................................ 37
9.1- Appendix 1 – UJV with Managing Entity ........................................ 37
9.2 - Appendix 2 – Incorporated Joint Venture ...................................... 38
9.3 - Appendix 3 – Incorporated CRC ................................................... 39
Page 2 of 39
1
Introduction
Cooperative Research Centres (CRCs) are required to follow best practice in
the design and execution of their governance arrangements. This CRC
Governance Guide (the Guide) has been developed for the Department of
Industry, Innovation, Science, Research and Tertiary Education’s (DIISRTE’s)
Cooperative Research Centres program (CRC Program) to assist bidding and
existing CRCs and their participants, to design and implement governance
arrangements appropriate to their circumstances, having considered the
various issues involved and the options available to them.
This Guide complements DIISRTE’s Principles for CRC Governance1 which
discusses what is meant by “good governance”, and articulates the
expectations of the CRC committee (the CRC Program’s Ministerially
appointed advisory committee) of what constitutes good governance for
CRCs. The Principles for CRC Governance document is based upon the eight
good governance principles identified by the Australian Stock Exchange
(ASX)2 and discusses the underlying issues in the context of CRC
governance. The Principles for CRC Governance document should be read
before reading this Guide as the CRC Program expects CRCs to have a good
understanding of the broader ASX Principles (as adapted for CRCs) and to
apply them to their governance arrangements.
As emphasised in the Principles for CRC Governance, like any organisation,
CRCs transit several life stages as they mature, including: infancy (start-up or
start-over); juvenile (growth); adolescence (growth and decline spurts);
maturity (established); and transition (wind-up/start-anew). It is important also
to recognise that just as a CRC should grow and mature, so too should its
governance arrangements change to meet new challenges.
This Guide is not intended to be prescriptive – the governance and
management strategies need to suit the objectives and activities of each
individual CRC. The CRC Program provides the necessary flexibility for CRCs
and their participants to choose their own governance and management
arrangements, including for intellectual property (IP). The CRC Program
places the onus on applicants to demonstrate the merits of their proposed
arrangements. Should a bidding or existing CRC elect not to follow any of the
principles in the Principles for CRC Governance document, it is required to
provide an explanation to DIISRTE of why it has chosen a different method
(i.e. the “if not, why not?” approach).
This Guide focuses on those aspects of the legal structure and governance
arrangements that should be determined as part of the bidding and
establishment phase rather than those aspects that are post-establishment
such as the development and adoption of policies including those related to
board behaviour, review of board performance and remuneration. This Guide
1
The Principles for CRC Governance is available at: https://www.crc.gov.au/Information/ShowInformation.aspx?Doc=for_crcs&key=bulletin-boardinformation-for-crcs&Heading=Information for CRCs
2
Australian Securities Exchange. (2007) Corporate governance principles and recommendations. 2nd ed. ASX Corporate Governance Council.
http://www. asx.com.au/about/corporate_governance/revised_corporate_governance_principles_recommendations.htm
Page 3 of 39
will address the practical elements of the governance arrangements that are
generally the most complex when establishing a CRC. It is important that
agreement on governance arrangements is reached early in the process of
bidding for, or establishing, a CRC. A term sheet is the most commonly used
tool for this purpose and these items are covered in the template term sheet
provided by the CRC Program3.
The first part of the Guide will outline the three common legal structures used
by CRCs (a UJV with a managing entity; an incorporated joint venture and an
incorporated CRC) as well as the governance elements within each structure.
It will then consider how the governance arrangements can be framed within
these structures to meet good governance standards. To the extent relevant,
the Guide will also touch on IP ownership and use models.
The terminology used will reflect the terminology used in the current CRC
Program Guidelines and Commonwealth Agreement. Accordingly:
o
“DIISRTE” refers to the Commonwealth Department of
Industry, Innovation, Science, Research and Tertiary
Education;
o
the “Commonwealth Agreement” is the agreement entered
into with the DIISRTE that governs the provision and use of
Commonwealth funding by the CRC;
o
the term “Recipient” refers to the single entity that signs the
Commonwealth Agreement with the DIISRTE;
o
the term “Participants Agreement” refers to what was
previously known as the “Centre Agreement” and is the
agreement that details how the participants will contribute to
and engage in the activities of the CRC; and
o
the terms “Essential Participant” and “Other Participant” refer
to what were previously known as “Core Participant” and
“Supporting Participant” respectively. Essential Participants
must be party to the Participants Agreement and are those
participants considered critical to the operation of the CRC.
Other Participants may be party to the Participants Agreement
or alternatively they may sign a separate independent one-onone agreement with the Recipient that details their
involvement with the CRC.
Other terms used are defined in the Glossary in section 8.
2
Why is good governance important?
“Corporate governance is the system by which companies are directed and
managed. It influences how the objectives of the company are set and
achieved, how risk is monitored and assessed, and how performance is
optimised.
3
The template term sheet can be downloaded at: https://www.crc.gov.au/HTMLDocuments/Documents/Word/Term%20Sheet%20Template.doc
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Good corporate governance structures encourage companies to create value
(through entrepreneurism, innovation, development and exploration) and
provide accountability and control systems commensurate with the risks
involved.”4
The right governance framework is not simply about complying with
administrative or legal obligations and the Commonwealth’s requirements
under the CRC Program. Good governance adds significant strategic value to
the CRC and enables it to maximise its opportunities and accomplish its
objectives, delivering benefits to its participants and to Australia. Making good
governance a priority from the outset helps ensure that, through
entrepreneurialism, innovation, development and exploration, CRCs create
value in their organisation and provide accountability and control systems
commensurate with the risks involved.
While implementing the right governance and legal structures may have an
initial impact on a new CRC’s limited resources, the incorrect structure or
framework will have a far greater long-term impact. Failure in this regard could
see a CRC operating under an inefficient structure and/or having to undergo a
restructure once the inefficiencies have sufficiently manifested themselves.
Adopting an inappropriate governance framework could also mean a CRC
fails to maximise its opportunities and could lose the good faith and trust of its
participants and stakeholders. All these issues divert significant effort away
from the core research and utilisation activities of the CRC aimed at achieving
the CRC’s objectives and will inevitably cost the CRC more in time, money
and reputation to rectify after it has commenced operations.
3
ASX Principles
The ASX Principles set out best practice good governance and sit at the core
of developing and implementing an effective governance framework. While
designed to apply to ASX-listed companies, the underlying fundamentals of
the principles are equally applicable and relevant to CRCs, both incorporated
and unincorporated. The principles and their subordinate considerations
presented here have been adapted specifically for CRCs by the CRC
committee and are consistent with those discussed in the Principles for CRC
Governance.
The suggested approaches to addressing the principles discussed in the
Principles for CRC Governance are not prescriptions, they offer guidance and
are designed to produce an outcome that is effective and of high quality and
integrity. The CRC committee supports CRCs seeking to meet the essence of
the principles through whatever means they believe are most appropriate to
their circumstances. Nothing in the Principles for CRC Governance precludes
a CRC from adopting an alternative approach to that suggested, provided it
explains its approach. This explanation of the alternative approach is the
essence of “if not, why not” reporting. The CRC committee considers that a
4
Australian Securities Exchange. (2007) Corporate governance principles and recommendations. 2nd ed. ASX Corporate Governance Council page
3.http://www.asx.com.au/about/corporate_governance/revised_corporate_governance_principles_recommendations.htm
Page 5 of 39
well-reasoned “if not, why not” explanation from a CRC is a valid response to
a particular suggestion.
Principle 1 – Lay solid foundations for management
and oversight

Are the Chair and the CEO of the CRC two different people?

Are the roles of the Chair and the CEO clearly defined?

Is the time commitment of the Chair sufficient to enable him/her to
fulfil their responsibilities and add value to the work of the CRC?

Are the roles of the board and the CRC management team clearly
defined?

Is the process for board appointments and dismissals clear,
transparent and agreed to by all participants?

Do the directors receive formal letters of appointment outlining
expectations, rights, responsibilities, terms and conditions?

Are induction procedures in place to assist directors to quickly
integrate and participate fully in board decision-making?

Does the board meet regularly enough to be effective?

Do directors have access to continuing professional development to
maintain and update skills?

Are individual performance evaluations of directors undertaken
regularly?

Is the process for evaluating the performance of senior executives
known to participants?
Principle 2 – Structure of the CRC board to add value

Is the Chair independent?

Are the majority of directors independent?

Is the time commitment of the Chair sufficient to enable him/her to
fulfil their responsibilities and add value to the work of the CRC?

Is the board skills-based?

How large is the board?

Are performance evaluations of the board as a whole undertaken
regularly?
Principle 3 – Promote ethical and responsible decision
making

Has a code of conduct and standards of behaviour required of the
board and senior executives been established?

What procedures are in place to manage actual or potential conflicts
of interest for board members from participant organisations?
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
How are other conflicts of interest handled at the board level?

Can participants have confidence in the board’s integrity in respect
of their legal obligations?

Are policies in place for the reporting and investigating of reports of
unethical practices?

Are processes in place for reporting decisions of the board to
participants and taking into account their issues and concerns?
Principle 4 – Safeguard integrity in financial reporting

Has a finance and audit committee been established?
Principle 5 – Make timely and balanced disclosure

Are policies in place to ensure company announcements about
financial and non-financial issues are timely, factual, clear and
objective?

Are policies in place to ensure accountability at a senior level for
compliance?

Are those policies disclosed to participants?

Are senior management core entitlements disclosed to participants?

Are board evaluations disclosed to participants?
Principle 6 – Respect the rights of shareholders/
participants

Is there a communications policy in place which details how, and
how often, information will be communicated to participants?

Are there general meetings that encourage the attendance of all
participants?

Is there clear consideration of those matters that participants need to
vote upon and those that need to be addressed by the board?

Is the latest technology used to communicate with participants?

Does the CRC have a website and are all communications
accessible from the website?
Principle 7 – Recognise and manage risk

Are there practices in place which identify, assess, monitor and
manage both strategic and operational risk?

Does the board regularly review and approve the risk management
and oversight policies?

Has the board established a risk management committee?

Are the policies disclosed to participants, for example, by being
placed on the CRC’s website?
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
Does the CEO or a relevant member of the CRC management team
advise the board in writing that the integrity of financial statements is
founded on a sound system of risk management and internal
compliance and control?
Principle 8 – Remunerate fairly and responsibly
4

Is the level of board remuneration sufficient and reasonable?

Is the relationship between remuneration and performance clear?

Does the board have a remuneration committee to review and
recommend levels of remuneration of senior executives?

Is there a remuneration policy which motivates senior executives to
pursue the long-term growth and success of the CRC?

Is there a balance between fixed and incentive pay?
The choice of legal structure
4.1 The role of the legal structure in good governance
It is important that the legal structure to be adopted is agreed to early in a
CRC’s life as it will impact on the governance arrangements required to be put
in place. While the ASX Principles do not refer to the role of the legal structure
in governance (as the ASX Principles are designed for use by publicly listed
companies which assumes that legal structure), the legal structure is the
overarching framework within which the governance model is implemented, so
having the right framework is the first step in ensuring good governance –
Principle 1: Lay solid foundations for management and oversight.
Principle 1 states that the company’s framework should be designed to:
o
enable the board to provide strategic guidance for the
company and effective oversight of management;
o
clarify the respective roles and responsibilities of board
members and senior executives in order to facilitate board
and management accountability to both the company and its
shareholders; and
o
ensure a balance of authority so that no single individual has
unfettered powers.
A CRC’s legal structure is fundamental to providing that framework.
While the legal structure will dictate the governance arrangements required by
law, it does not mean that these are the only governance arrangements that a
CRC should consider. Good governance may demand additional
arrangements that are not strictly required by law, such as a finance
committee and a research advisory committee. Accordingly, any discussion of
a CRC’s governance framework should not be limited to that which is legally
required. Rather, the governance structures demanded by law should simply
be the umbrella under which a good governance framework is implemented.
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CRCs take many different legal forms. The CRC Program Guidelines permit
any type of legal structure, provided it complies with the Commonwealth’s
requirements. While this offers considerable scope and flexibility, it puts an
onus on management and participants to properly consider the options
available and develop an appropriate legal structure, best suited to their CRC.
What should be avoided is a structure that evolves organically from trying to
meet individual participants’ demands without consideration of what is in the
best interests of the CRC as a whole (i.e. the collaborative venture).
That is, what structure will provide the good governance standards expected
by the Commonwealth (and outlined in the ASX Principles) and will best
enable the CRC to achieve its objectives, as well as meet the expectations of
the participants over its lifetime?
The legal structure puts the framework around the operation of a CRC and a
good structure should facilitate, not hinder, the operation of a CRC.
4.2 What are the Commonwealth’s requirements that
influence the legal structure?
In addition to understanding and implementing the ASX Principles, the
following three requirements of the Commonwealth impact on the legal
structure and governance frameworks of CRCs:
(a) Single signatory to the Commonwealth Agreement
A single legal entity is required to sign the Commonwealth Agreement.
Multiple parties will not be accepted.
(b) No agency and assumption of liability and risk for the
Recipient
The Commonwealth requires that the signatory to the Commonwealth
Agreement signs in its own and not as agent on behalf of the CRC’s
participants. Each CRC must therefore find an entity to act as the
Recipient that is willing to assume the primary liability and risk for the
conduct of the CRC.
(c) Governance required to be equivalent to corporate
boards
The Commonwealth Agreement includes a requirement that regardless
of whether a CRC is incorporated or unincorporated, the CRC board
must ensure that it operates and manages the CRC to the same
fiduciary and good governance standards that apply to incorporated
bodies under Australian law.
This means that even UJV boards must function as if they are the board
of a company rather than only representatives of the CRC participants.
Accordingly, the governance model within that UJV (legal structure)
should apply the good governance arrangements set out in the ASX
Principles and undertake the duties of the directors of the board of a
company.
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4.3 What are the other underlying factors that
influence the choice of structure?
(a) The type of IP outcomes and how they will be best
utilised
No matter what type of IP outcomes are likely it is important that the IP
ownership structure is flexible, appropriate and designed to best protect
the IP to maximise the benefits to Australia and the participants. It is
recommended that CRCs read and consider the Intellectual Property
Management Guide for CRCs5 (Guide to IP) before settling on an IP
ownership structure.
Taking advantage of potential opportunities while managing potential
adverse effects is an important consideration in any governance
arrangements as noted in Principle 7: recognise and manage risk.
Where the anticipated IP outcomes are more likely to be commercially
viable or high-risk, participants may see the extra cost of administering a
more complex legal structure around IP ownership and/or distribution of
commercialisation income as more justifiable.
Where a CRC is more likely to produce public good outcomes that will
be best utilised by putting the outcomes into the public domain or by
making the outcomes available to stakeholders at minimum cost, there is
often less incentive to create complex legal structures around IP
ownership. And as discussed in the Guide to IP there are also good
reasons for protecting some IP beyond the usual commercial
considerations. Any model chosen should not wholly exclude the
possibility of protecting IP as it is difficult to foresee exactly what IP will
arise from the CRC’s Activities, and how this may be utilised, over its
entire lifetime.
(b) The type and composition of participants, including
facilitating a SME strategy
There are certain types of participants, principally governments and
some universities, who are unable to participate as members of a CRC
company for legal, regulatory or policy reasons. This can also be an
issue for some international participants.
The CRC Program requires CRCs to undertake small or medium
enterprise (SME) strategies that build SME innovation and/or research
and development capacity. Where there are numerous SMEs involved in
a CRC or a CRC’s end-user sector is characterised by a large proportion
of SMEs, a legal structure that is conducive to greater SME involvement
in the CRC Activities may be preferred.
SME participants are often unable to commit to the CRC for the entire
lifetime of the CRC, or may be unable to contribute sufficient resources
5
The Intellectual Property Management Guide for CRCs is available at:
https://www.crc.gov.au/Information/ShowInformation.aspx?Doc=for_crcs&key=bulletin-board-information-for-crcs&Heading=InformationforCRCs
Page 10 of 39
to bring them up to the level of an Essential Participant. Over the years,
CRCs have come up with many innovative strategies to facilitate greater
SME engagement6. One CRC SME strategy that is often cited is 43 Pty
Ltd, a company established as the trustee of a unit trust by the SME
participants in the CRC for Spatial Information. All 43 of the CRC’s
SMEs held units in the trust which were issued on the basis of
contributions to the CRC. The company then amalgamated all the
contributions and SMEs were able to participate in the CRC collectively
as an Essential Participant. This structure also enabled SME participants
to join and leave as their business requirements dictated.
(c) The participants’ return on investment expectations
Different participants have different expectations from their participation
in a CRC. This can make it difficult to come up with a structure that is
acceptable to all and can lead to compromises that add complexity to the
structure. Recognising these expectations and taking them into
consideration when developing the legal structure is a very important
aspect in the establishment of a CRC’s legal structure – and is a
consideration in Principle 6: respect the rights of
shareholders/participants. Participants are not required to be
shareholders in any company that is part of the legal structure, but it
does require their rights to be respected.
Ultimately, while the expectations of all participants should be respected
and taken into account, they should not be allowed to overshadow a
CRC’s primary objective of delivering benefit to Australia. The legal
structure chosen should accommodate the participants’ expectations but
not to the detriment of the best interests of the CRC as a whole (i.e. the
collaborative venture).
(d) New CRC vs extension CRCs
Where the CRC is successful in securing an extension of funding, there
can be issues around the termination or conclusion of the former CRC’s
Commonwealth Agreement (and Participants Agreement), the windingup of any earlier legal structures and arrangements, and around the new
CRC’s access to and use of IP from the former CRC. For example, if the
new CRC does not have the same participants as the former CRC, the
IP ownership structure of the former CRC may need to be retained if
agreement cannot be reached on transferring IP from the former CRC to
the new CRC.
(e) The exit strategy
It is important that the structure chosen when establishing a CRC
anticipates, to the extent possible, what the exit strategy will be once
Commonwealth funding ends. Changing the structure at the end of the
CRC, particularly the IP ownership structure, can result in adverse tax
consequences. It is therefore preferable to consider the exit strategy up
6 For examples of CRC strategies to facilitate greater SME engagement, contact the DIISRTE or the CRC Association.
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front and design the legal structure accordingly. Where this is not
possible, the legal structure should be flexible enough to accommodate
a variety of options for exiting the CRC Program.
(f)
Taxation requirements
Each of the commonly used CRC structures has different tax
implications that can offer both benefits and significant downsides. While
tax should not be the key driver, it is critical that the taxation position is
considered when designing a legal structure. An adverse tax outcome
can significantly impact a CRC’s ability to meet its objectives. Some of
the relevant questions that should be asked are:
5

What parts of the CRC structure are potential tax entities?

Will the CRC be eligible for income tax exemption?

Can the CRC obtain charitable or scientific institution endorsement?

What will be the income tax position on revenue from IP
commercialisation and contract research services?

Will the Commonwealth funding be subject to tax in the hands of the
CRC?

Will the structure allow the industry participants to claim the research
and development tax credit in relation to their contributions?

Will the structure ensure that non-tax paying participants do not
indirectly pay tax on their interests in the CRC?

Does the structure effectively deal with CGT and stamp duty issues
on share transfers and IP transfers?

How does GST apply to participant contributions?
An outline of common legal structures
adopted by CRCs
This section outlines the three basic legal structures adopted by CRCs, their
key features as well as their strengths and weaknesses. These three
structures will be used in the next section when considering the type of
governance arrangements that can be adopted by CRCs and how good
governance principles would be applied to those arrangements.
It should be noted that the names given to the structures in this guide are
descriptive only and are not legal terms. As such, the terminology used to
describe the structures may vary to the terminology used in other contexts.
5.1 Unincorporated Joint Venture with a managing
entity
A diagrammatic representation of a unincorporated joint venture (UJV) with a
Managing Entity appears in Appendix 1 of this document.
(a) Key features
The points to note about this structure are:
Page 12 of 39

A UJV is essentially an agreement between a number of parties to
carry out activities together. In this case, the Participants Agreement
is the joint venture agreement.

A UJV is not a legal entity and therefore it cannot do certain things
such as enter into contracts, employ staff and own intellectual
property. It can only act through the parties to the joint venture
collectively or through a single entity acting as the agent of those
parties.

A UJV may be a taxable entity7 even if it is not a legal entity if, as is
usual, it receives the Commonwealth funds and the participant cash
contributions into a joint venture account that is held and operated
on behalf of the joint venture participants.

CRC monies are held in a joint venture account that is administered
by the Managing Entity. As such, the money is treated as income of
the joint venture not income of the Managing Entity.

The UJV is governed by a board established and given powers
under the joint venture agreement. It is not a company board and
would not ordinarily be regulated by the Corporations Act 2001 (Cth)
and other applicable statutory and common laws that apply to
corporations. Therefore, to the extent the Commonwealth requires
the board to govern and meet the same standards as a company
board, these must be imposed by the joint venture agreement.

Where the Managing Entity is a special purpose company
established by the CRC participants, the board of that company will
operate separately to the board of the CRC.
(b) Legal structure
This structure envisages the parties who are participants in the CRC
entering into a UJV relationship and appointing one of those parties or
another legal entity to run the CRC. The UJV in this structure is created
by either the Essential Participants, or all the participants (Essential and
Other Participants) signing the Participants Agreement to establish the
CRC as an unincorporated joint venture (CRC UJV). In this sense, the
Participants Agreement is what would usually be termed the joint venture
agreement.
As a UJV is not recognised as a legal entity, it can only act either
through the CRC UJV participants as a collective or through a legal
entity that is appointed on their behalf. Accordingly, under the UJV
model, the CRC UJV participants would appoint a Managing Entity to
provide management and administrative services to the CRC. The
Managing Entity can be the lead participant (usually a university) but it
may also be a purpose-created company.
7 As tax laws and their interpretation change over time it is not possible to be definitive on this particular point or on any taxation
consequences of the particular legal and governance structures outlined in this document. It is therefore important that each CRC
seeks its own independent advice from a qualified tax practitioner before deciding on its structure.
Page 13 of 39
The Managing Entity would act as the Recipient of the Commonwealth
funds and sign the Commonwealth Agreement. It should be noted that in
entering into the Commonwealth Agreement, the Managing Entity is
doing so in its own right and not as agent of the participants. Therefore,
in acting as the Recipient under the Commonwealth Agreement, the
Managing Entity assumes all the liability and risk under the
Commonwealth Agreement for ensuring that: the CRC carries out the
CRC Activities; and that all the participants make their promised
contributions and use the CRC funds as required.
As universities are often reluctant to assume the responsibility of
Managing Entity, CRCs that wish to adopt a UJV often need to create a
special purpose company to take on that role and absorb the risk
assumed by executing the Commonwealth Agreement.
(c) Governance structure
The CRC UJV would be governed by a joint venture board established
under the Participants Agreement. Under the Participants Agreement,
the joint venture board is vested with specific powers to make decisions
relating to the CRC UJV on behalf of the CRC participants. Unlike a
company board, whose powers arise from the constitution of the
company and the statutory and common laws that apply to companies,
the joint venture board obtains its powers from the Participants
Agreement. It is therefore essential that the Participants Agreement in
this structure is very explicit and comprehensive as to the powers of the
CRC UJV board. The Participants Agreement is critical for ensuring that
CRCs adhere to Principle 1: lay solid foundations for management and
oversight, and Principle 2: structure the CRC board to add value.
The powers given to the board of a CRC UJV would generally include
giving directions to the CRC Managing Entity in relation to the services it
is to provide, how the monies in the joint venture account are to be
utilised and how it is to administer the CRC UJV and its activities. This
may include employment of staff, procuring goods and services for the
CRC UJV and holding IP rights on behalf of the CRC UJV.
In addition to the powers of the CRC UJV board, the Participants
Agreement must also set out the board’s obligations and limitations. The
most important of these is the obligation to ensure that the board meets
the requirements set out in the Commonwealth Agreement as to its
composition and its obligation to operate the CRC to the same fiduciary
and good governance standards that apply to incorporated bodies under
Australian law.
It is important to note that as the board in this structure is not a company
board, the individuals on the board assume obligations under contract
rather than under statute or common law. This has important
Page 14 of 39
consequences from a governance perspective that will be discussed
further in section 68.
The other important element to note in this legal structure is that, where
the Managing Entity is a special purpose company created by the
participants, there is a second board, that of the Managing Entity
company, whose composition, structure and role needs to be
considered, including how the ASX Principles apply to it as well as the
CRC UJV board. It is common in this structure for the CRC board, who
controls the CRC, to direct the Managing Entity as to how it operates the
CRC. This creates a risk for the board of the Managing Entity company
as it is the company that has all the obligations and liabilities under the
Commonwealth Agreement, but it does not control how those obligations
are met.
The solution to this that has been adopted in the past was to have the
CRC UJV board the same as the board of the Managing Entity.
However, this:

creates confusion as to when the board is acting in its capacity as
the board of the CRC UJV and when it is acting as the board of the
company; and

puts the board members in an inherent position of conflict of interest
when they are acting in either capacity.
The use of a qualified company secretary to ensure the operation of the
two boards is clearly delineated, and that they both comply with relevant
legislation and regulation, could address the issue of when the board is
acting in the capacity of the CRC UJV or the company, but it would not
resolve the underlying conflicts of interest. Ultimately, having two boards
that consist of the same people offers little real value and adds
complexity and cost to the administration of the CRC.
The simplest solution to these difficulties was to eliminate the UJV board
from the structure, leaving the Managing Entity’s board as the sole board
responsible for the CRC’s governance, operation and management. This
therefore led many CRCs to conclude that the incorporated joint venture
structure outlined below is preferable.
(d) IP ownership
There are several options for IP ownership9 but more usual in this
structure would be to have the IP owned either jointly by all the
participants or a subset of the participants (such as the Essential
Participants only or project participants) as tenants in common, or by the
Managing Entity on trust for the relevant participants. The first of these
options makes it very difficult to deal with the IP because it is difficult to
administer those joint ownership rights as they differ in significant ways
8 See Section 6.2(g).
9For more information on IP ownership options refer to the Guide to IP.
Page 15 of 39
depending on the type of IP and the jurisdiction. Accordingly, joint
ownership itself can create a risk that the CRC will be unable to meet its
obligations and objectives.
In order to overcome the issues of joint ownership, and for the Managing
Entity to be able to meet its obligations under the Commonwealth
Agreement to utilise the IP to maximise the benefit to Australia, it is
usual to implement another separate corporate or trust structure to
enable this to happen.
Each option gives rise to its own unique legal and tax consequences so
it is important that advice is sought before deciding on any one of these
structures. Different options can also give rise to different consequences
from a governance perspective. For example if a separate IP holding
company is used it would mean there would be another board separate
from the CRC UJV board and the Managing Entity’s board so
consideration would need to be given to how this board is appointed, its
composition, the skills required and how conflicts of interest between the
three boards would be dealt with.
(e) Summary
Many CRCs that opt for a UJV structure do so on the assumption that it
is the “simplest” structure. However, the fact that a UJV is not a legal
entity (but can be a taxable entity) means that quite complex
arrangements have to be put in place to overcome this impediment. A
CRC needs to function as a business operation. It has its own ABN and
needs to perform the day to day functions of a business such as opening
and operating bank accounts, employing staff, procuring goods and
services and most importantly, managing CRC developed IP and
securing Commonwealth funding. It can be impractical for the
participants to act collectively to do these things. The lack of a legal
entity forces a CRC UJV to either act collectively or put in place
arrangements for the Managing Entity (or some other legal entity) to do
these things on its behalf. For this reason, establishing a CRC company
as the Managing Entity that is able to do all these things itself can
reduce the complexity of the legal structure, the governance framework
and the operational arrangements.
In summary, some of the factors that should be taken into consideration
when establishing a CRC as a UJV are as follows:
Pros:

Many public organisations feel more comfortable with this type of
structure as they perceive it allows more direct control through a
representative board. However, as the Commonwealth Agreement
requires the board to operate to the same good governance and
fiduciary standards as the board of a company10, this UJV board
10Commonwealth Agreement clause 5.1.
Page 16 of 39
should offer no more direct control to participants than the board of
an incorporated entity.

Where the Managing Entity is a participant (e.g. a university) the
CRC is able to leverage off of all the existing infrastructure of the
Managing Entity which can reduce operating costs.

If the CRC UJV is a tax law partnership GST would generally not be
charged on contributions to the CRC made by the CRC participants.

It is easy to unravel at the end of the CRC. The UJV effectively just
ceases and there is no need to wind up any companies unless the
Managing Entity is a company or an IP trustee company is
established.
Cons:

From a legal and administrative perspective, this structure can be
more cumbersome than an incorporated option. This is not only from
an operating and IP ownership perspective, but also from a tax
perspective. For example, a UJV usually operates as a tax law
partnership and there has been a view held within the Australian Tax
Office that if a participant leaves the joint venture or a new
participant joins, then a whole new tax law partnership is created
and the old one has to be dismantled and a new one established
(including applying for a new ABN number).

High level of risk to the Managing Entity as the recipient under the
Commonwealth Agreement.

Risk that the participants will be held jointly and severally liable for
the acts of each other and the Managing Entity if the UJV is found to
constitute a common law partnership:
o
a UJV may constitute a common law partnership resulting in
the participants carrying joint and several liability for each
other’s actions in the CRC. The test for a common law
partnership is whether the participants are carrying on
business in common with a view to a profit. The question that
therefore arises is whether the UJV is carrying on business
with a view to profiting from the commercialisation of its IP or
to producing IP for the use of its participants in their business.
o
the IP structure is therefore important to determining whether
a UJV is a common law partnership11. The documentation to
establish a UJV CRC typically includes provisions that
explicitly state the parties are not carrying on business with a
view to a profit12 so most CRCs operate on the assumption
that they are not common law partnerships. However, this
position has never been tested at law and, if it were, the
11For more information on IP ownership structures refer to the Guide to IP.
12See for example clause 4.2(b) of the template Participants Agreement for unincorporated CRCs.
Page 17 of 39
wording of the agreement alone would not be conclusive as a
court looking at this issue would look beyond the wording to
the actual operation of the CRC.

Where the Managing Entity is a participant, it can lock the CRC into
the bureaucracy of the Managing Entity and subject it to any binding
legal or regulatory obligations of the Managing Entity. For example, if
the Managing Entity was a university then the university’s award or
enterprise bargaining arrangements may apply to hiring or removing
CRC staff.

To ensure the efficient management and operation of the CRC UJV,
the CRC needs to operate through a single legal entity. The options
for this are:
o
each participant appoints the CRC Managing Entity as its
agent13 for the purposes of entering into contracts with third
parties. This may be a significant obstacle for many
participants as many public organisations are unable to make
such agency appointments for regulatory and risk
management reasons; or
o
the Managing Entity assumes all the liability and risk of
procuring goods and services and employing the staff in its
own right.

Joint ownership of IP, whether outright or through a trust, creates
complexities, and it is often hard to persuade participants to give all
their IP rights to the Managing Entity.

As the board is not a company board, there can be a lack of clarity
and understanding on the part of board members as to what their
duties and responsibilities are – which runs counter to Principle 1:
lay solid foundations for management and oversight.

If the Managing Entity is a purpose created company, the board of
that company can be faced with difficult risk management issues as
it does not control the operation of the CRC for which it has
assumed liability under the Commonwealth Agreement.

It does not lay a platform for a long-term, independently viable
centre. This type of structure is usually associated with CRCs that
will terminate at the end of the CRC term.
5.2 Incorporated Joint Venture
A diagrammatic representation of an incorporated joint venture appears in
Appendix 2 of this document.
(a) Key features
The points to note about this structure are:
13A template Manager’s Agreement prepared by the CRC Program to assist CRCs can be downloaded from
https://www.crc.gov.au/HTMLDocuments/Documents/Word/Round11ManagersAgreementTemplate(30July2009-v3.0).doc
Page 18 of 39

The CRC is the joint venture as in section 5.1 but a company is
incorporated to not only manage but also govern the CRC through
the board of the company.

The company is the legal entity through which the CRC is operated.

Both the joint venture and the company may be taxable entities.

CRC monies are held in a joint venture account that is under the
control of the company.
(b) Legal structure
This structure is often described as an “incorporated” joint venture, but in
reality it operates as a UJV with a special purpose company
incorporated to run it. This type of structure was common in the 2004
and 2006 rounds when the Commonwealth required a CRC to be
incorporated. Essentially, the difference between this option and option
5.1 is that there is no joint venture board and the Managing Entity is a
special purpose company incorporated by or on behalf of the participants
whose role is to govern, operate and manage the joint venture.
Accordingly, it is the board of the company that operates as the CRC
board.
The company can be incorporated as either a proprietary company
limited by shares or a company limited by guarantee. Companies limited
by guarantee are perceived as being less flexible due to the inability to
raise capital or to transfer membership and, as they are public
companies, they can have stricter regulatory requirements depending on
their level of turnover.
However, in a CRC context, a lot of the disadvantages of a company
limited by guarantee are less relevant and the advantages offered are
quite significant. The advantages of a company limited by guarantee
over a proprietary company limited by shares as the vehicle for
governing the CRC joint venture include:

It is facilitative of obtaining not-for-profit tax-exempt status and
endorsement as a charitable institution although there is some
uncertainty around this at the time of writing this guide as the new
arrangements for the administration of charitable institutions through
the Australian Charities and Not-for-profit Commission are yet to
come into effect.

Members may join and leave without the added complication of
transferring or buying-back shares or trust units.

It can be established as a special purpose company with members
required to subscribe to objects of the company. In this structure, the
company is bound to pursue its stated objects independent of the
interests of any one member or members.

As a public company, it has the extra scrutiny, transparency and
accountability that is required of such companies, giving it a level of
credibility and independence that can give confidence to funders and
Page 19 of 39
members alike, addressing Principle 5: make timely and balanced
disclosure.

A company limited by guarantee structure is a straightforward
structure familiar to the likely Essential Participants in the CRC with
wide acceptance by universities who participate in multiple CRCs.
The advantages of a proprietary company limited by shares over a
company limited by guarantee include:

It is a private corporate vehicle so in a CRC context it would have
less stringent reporting obligations to the Australian Securities and
Investments Commission. This benefit would really only be of
significance beyond the term of the CRC as the reporting obligations
under the Commonwealth Agreement mean a higher standard of
accountability and reporting is required for the duration of
Commonwealth funding.

Shares may be issued on the basis of contributions to the CRC
giving the participants a proportionate ownership of the CRC,
although any potentially adverse tax consequences of this should be
considered before implementing this arrangement.

It can be established without needing to specify its objects so it has
the flexibility to shift its focus and activities over the life of the CRC
and beyond without needing to amend its constitution.
In either company structure, membership would usually be made up of
some or all of the participants. However, there may some participants
who for legal/policy reasons, will be precluded from taking up
membership in the company. For example, there can be legislative
constraints around government departments or statutory bodies such as
universities that can either preclude them from becoming members;
require them to include provisions in the constitution of the company in
order to become a member that may be unacceptable to the other CRC
participants; or require them to go through such onerous approval
processes that membership becomes impractical.
The company in this option would act as the recipient under the
Commonwealth Agreement in the same manner as the Managing Entity
in option 5.1 and therefore also assumes those same risks as the
Managing Entity. The significant difference is that in this option those
risks are isolated in a purpose created company and are managed by
that company’s board.
The down side of this option is that it involves the addition of a corporate
entity that is tax visible without removing the CRC UJV as tax visible
entity. So even though the company may be income-tax exempt it will
need to administer its own financial arrangements separately from the
CRC thus adding an additional level of administrative burden and cost.
(c) Governance structure

Under this structure, the board of the CRC is the board of the
company and as such the directors are bound by their statutory and
common law legal obligations, including their duties as directors of
Page 20 of 39
the company. Accordingly, the directors are bound to act in the best
interests of the company, which in this case requires them to pursue
the objectives for which the company was established, and to
comply with the legal obligations the company assumes under both
the Commonwealth Agreement and the Participants Agreement.

In this structure there is only one board, the board of the company,
that has a role in the governance and management of the CRC and
its activities. The exception to this may be if a separate IP company
is created.
(d) IP ownership
There are many options for structuring IP ownership under this legal
structure but the most common reflect those outlined in option 5.1 but
with the company in place of the Managing Entity. A significant
difference that can arise is that the company in this option may not hold
any interest in the IP by virtue of its involvement in the CRC whereas the
Managing Entity in option 5.1 may have an interest in the IP if it is a
university or another participant. There is no legal or other reason why
the company under this option cannot hold an ownership interest in the
IP and in fact some of the newer CRCs have allocated an ownership
interest to the company based on the contribution value of the
Commonwealth funds.
Another difference to note is that it would be usual for the board of the
company under this option to determine the strategy for protection, use
and commercialisation of the IP. In doing so it would not be acting on the
direction of the UJV board, as is usual with a Managing Entity. It may
however, take advice from a board committee, participants committee,
commercialisation committee or the like. Ultimately, this depends on
what IP ownership structure is put in place. If, for example, a separate IP
company is established to hold the IP, it may result in the decisions on
the protection, use and commercialisation of the IP resting with that
company.
(e) Summary
This option has the advantage of having a corporate entity in place to
govern, manage and operate the CRC and to minimise risk to the CRC
participants. The removal of the CRC UJV board means that the entity
that is assuming the risk of running the CRC under the Commonwealth
Agreement also has the power to make the decisions on the operation of
the CRC. However the addition of the corporate entity without removing
the CRC UJV would add to the burden and cost of administering the
CRC as it involves duplicating some or all of the accounting, tax,
compliance and administrative obligations.
The following identifies some of the pros and cons with an incorporated
joint venture:
Page 21 of 39
Pros:

The CRC is effectively run through the company. As a corporate
legal entity it is able to enter into contracts, employ staff etc without
the need to act as agent of the participants.

As the CRC company is the legal entity that assumes all the liability
and risk for the operation of CRC with third parties, including the
Commonwealth, it offers risk protection for the participants.

Having the CRC run through a company means there is an existing
legal entity in place around which to build a long term independently
viable centre.

As the board is a company board, all the duties of a company
director would automatically apply giving directors clarity as to their
role and responsibilities. It also gives the participants comfort that
the CRC is being run in the best interests of the CRC as a whole and
with the diligence that is required of company directors.

If the CRC UJV is a tax law partnership, GST would generally not be
charged on contributions to the CRC made by the participants but
this ultimately depends on how the agreements are drafted and the
particularities of how the CRC operates in practice.
Cons:

It is not as easy to unravel at the end of the CRC as option 5.1 as
the company would need to be wound up as well.

As the CRC is still essentially a UJV that may be a tax law
partnership (depending on how the flow of monies are set up both in
the documentation and in practice) and the company would be an
additional tax visible entity there would be the additional cost of
running two tax visible entities within the CRC structure.

If the CRC UJV is a tax law partnership it may mean that it has to be
deregistered and reregistered for tax purposes with a new ABN each
time a participant leaves or joins. Whether this is the case or not
depends on the detail of how the CRC is set up.

Risk that the participants will be held jointly and severally liable for
the acts of each other and the company if the CRC UJV is found to
constitute a common law partnership14.

The same issues around joint ownership of IP outlined in option
5.1(d) would also be applicable under this option unless the
ownership was vested in the CRC company. There can be confusion
for third parties as to what is the CRC (is it the company or the UJV
or both?) and how it operates and who they should be dealing with.

The board being a company board can mean that representative
directors on the board are exposed to conflicts of interest.
14See discussion on this point under option 5.1(e), page 15.
Page 22 of 39

If tax-exempt, on wind-up assets must be transferred to tax-exempt
entities with similar objectives. This may be CRC participants if they
are not members of the company.

Cannot pay dividends or distribute profits to its members if tax
exempt but may pay royalties and licence fees to CRC participants
in return for assignment of the IP.

Company would need to be wound up at the end of the CRC if no
arrangements made for its ongoing operation.
5.3 Incorporated CRC
A diagrammatic representation of an incorporated CRC appears in Appendix 3
of this document.
(a) Key features
The points to note about this structure are:

The CRC is run as a company. The company enters into a
collaboration with the participants that enables it to run its business
as the CRC.

All monies for the CRC’s activities are held by the company as part
of its own assets.

The company is the only taxable entity.
(b) Legal structure
The key difference between this option and options 5.1 and 5.2 is that
the CRC is the UJV in options 5.1 and 5.2 (that is, all the Commonwealth
funds and the participant cash contributions go into the UJV accounts)
and the Managing Entity or the special purpose company is appointed to
oversee the operation of the CRC UJV. In this option, the company is the
CRC. That is, the Commonwealth funding and the participant cash
contributions go to the company.
Notwithstanding that this is referred to as an incorporated CRC, it is not
about a CRC company being set up to employ all the staff to carry out
research projects and to commercialise IP itself. It still requires the
collaborative effort of the participants as the company cannot undertake
the CRC Activities or meet its obligations under the Commonwealth
Agreement unless it has secured the participation of the participants in
the CRC Activities. It does this by signing the Participants Agreement
with the participants. The fact that the funding does not flow through the
company to a CRC UJV but is retained in the company to fund its
operations (that is, the operations of the CRC) means the funding for the
research is paid to the participants as collaborators under contract.
In this structure the Participants Agreement can function in one of two
ways: if all the participants are members of the company it functions as a
members agreement; alternatively, if not all the participants are able or
willing to become members of the company: it is a collaboration
agreement between the company and the participants. This contrasts to
Page 23 of 39
options 5.1 and 5.2 where the Participants Agreement is the primary
document that establishes the CRC as a UJV.
The company governs and manages the CRC Activities and it engages
the participants in those activities as contractors rather than joint
venturers. The company will be responsible, under the terms of its
constitution, for the management and conduct of the CRC Activities in a
manner consistent with the agreed arrangements set out in the
Commonwealth Agreement and the Participants Agreement.
(c) Governance structure
The CRC board will be established as a board of the company.
Accordingly, the same issues and considerations arise in relation to this
board as the board under option 5.2.
(d) IP ownership
As with the other options, under this legal structure there are many
options and variations on how IP ownership may be structured15.
However, in this structure the preferred option is to have the company
own the IP outright. This results in a very simple structure with the
company as the only governing and operating entity and potential taxing
point.
The other common alternative is to have the company to own the IP on
trust for the participants or a separate IP company can be set up to hold
the IP itself or on trust for the participants.
(e) Summary
This structure is potentially the least complex structure with only one
company to establish and operate. The only possible complicating factor
is whether a second company is needed for IP ownership depending on
the model of ownership chosen.
The potential pros and cons of this structure are as follows:
Pros:

Simplest of all the structures to administer from a legal and tax
perspective. Only a single legal and tax entity, being the company
(assuming no IP trust company is established).

The simplicity of a corporate structure means it is easy to deal with
third parties as they are likely to understand a company structure
more so than the more complex joint venture structures.

As the company is set up as a research institution it is conducive to
obtaining tax exempt and even charitable status provided its objects
are consistent with such status and the constitution has the requisite
provisions that prevent the members obtaining any benefit or
distribution of profits from the company.
15For more information on IP ownership options refer to the Guide to IP.
Page 24 of 39

It does not create a tax law partnership so there would generally be
no issue with participants joining or leaving.

Low risk of a common law partnership arising so low risk of joint and
several liability of participants.

As there is a corporate legal entity it is able to enter into contracts,
employ staff etc without the need to act as agent of the CRC
participants.

It offers risk protection for the CRC participants in relation to the
operation of the CRC.

Having the CRC run through a company means there is an existing
legal entity in place around which to build a long term independently
viable centre.

As the board is a company board, all the duties of a company
director would automatically apply giving the directors clarity as to
their role and responsibilities. It also gives the CRC participants
comfort that the CRC is being run in the best interests of the CRC as
a whole and with the diligence that is required of company directors.

If IP is owned outright by the company it has very clear freedom to
operate for the purpose of dealing with third parties to commercialise
the IP.

Ongoing operating costs should be at least comparable and
generally less than the joint venture models.

There is clear identity around the CRC and the CRC brand.
Cons:
6

Participants may feel removed from the operation of the CRC so
care needs to be taken to incorporate into the collaboration rules
sufficient and appropriate participant representation as discussed
under option 5.2 to accord with Principle 6: respect the rights of
shareholders/participants.

The board being a company board can mean that representative
directors on the board are exposed to conflicts of interest.

If tax-exempt, on wind up assets must be transferred to tax-exempt
entities with similar objectives. These may be participants if they are
not members of the company.

Dividends or profits cannot be distributed to its members if taxexempt but royalties and licence fees may be paid to participants
under the collaboration in return for assignment of the IP.

The company would need to be wound up at the end of the CRC if
no arrangements made for its ongoing operation.
Governance Structure
CRCs are required to follow best practice in their governance arrangements.
The Principles for CRC Governance were developed, with guidance from the
Page 25 of 39
CRC committee, to assist applicants for CRC funding as well as existing
CRCs to meet that requirement.
The ASX Corporate Governance Council defines corporate governance as:
“Corporate governance is the system by which companies are directed and
managed. It influences how the objectives of the company are set and
achieved, how risk is monitored and assessed, and how performance is
optimised.
Good corporate governance structures encourage companies to create value
(through entrepreneurism, innovation, development and exploration) and
provide accountability and control systems commensurate with the risks
involved.”16
Ensuring good corporate governance is not just a requirement imposed by the
Commonwealth. It is every company director’s duty under statute and
common law. It is arguably also the duty of every director on a UJV board
due to the fiduciary nature of their relationship with the participants. Certainly
in the case of CRCs, the board of a UJV have the same obligations of good
governance as the board of a company due to the requirements of the
Commonwealth Agreement.
This section will focus on the structure and composition of the board of the
CRC as the primary mechanism through which a CRC is governed, and on
the use of committees to facilitate the board’s role and stakeholder
engagement. In general, the discussion applies equally to the role of a UJV
board in a CRC with that structure as the board of an incorporated CRC.
Where there are potential differences these will be considered.
It will also look at how the ASX Principles relate to a CRC and the
mechanisms that can be built into the governance structures of a CRC to
address the key issues identified in the Principles for CRC Governance.
6.1 What are the underlying factors that influence the
Governance Arrangements?
(a) Commonwealth’s requirements
The primary requirements under the Commonwealth Agreement that
impact on the structure and composition of the board of the CRC are as
follows:

The board must function to the same fiduciary standards and good
governance as the board of a company regardless of whether they
are a company board or a joint venture board.

The chairperson must be independent.

The board must be comprised of a majority of members who are
independent of the research participants.
16Australian Securities Exchange. (2003) Principles of good corproate governance and best practice recommendations. ASX Corporate Governance Council page 3. http://www.asx.com.au/documents/about/principles-and-recommendations-march-2003.pdf
Page 26 of 39

The chairperson and the CEO must be different people.
These requirements articulate directly into Principle 1: Lay solid
foundations for management and oversight, as outlined in the Principles
for CRC Governance.
(b) Other factors
The other two factors that significantly influence the governance
arrangements are:

Legal structure: as discussed above, the legal structure of a CRC
sets the framework within which the governance arrangements are
established and implemented. Depending on the structure chosen,
the board of the CRC may be a UJV board or the board of a
company. A UJV board obtains its powers and duties from the joint
venture (Participants) agreement. The board of a company obtains
its powers and duties from the constitution of the company under
both statute and common law.

Participant/stakeholder expectations: The governance structure must
ensure each of the different participant/stakeholder groups have an
appropriate mechanism for engaging with the CRC. This is in line
with Principle 6: respecting the rights of shareholders/participants.
The impact this has on the governance arrangements are discussed
further below.
6.2 Establishing a CRC board
(a) Composition of the board

Principle 2: structure the CRC board to add value – a CRC board
should have an effective composition, size and commitment to
adequately discharge its responsibilities and duties. An effective
board is one that facilitates the effective discharge of the duties
imposed by law on the directors and adds value in a way that is
appropriate to the particular company’s circumstances.

There are a number of key factors to consider in determining the
composition of a CRC board, including that there should be a
balance of skills, diversity, experience and independence on the
board appropriate to the nature and extent of a CRC’s operations.
(b) Skills base
In order to structure the CRC board to add value so that it can discharge
its mandate effectively, the board should comprise directors possessing
an appropriate range of skills and expertise. For the purpose of
determining the composition of the board, it is common for CRCs to
develop a skills matrix that encompass the skills required to govern the
CRC effectively and oversee the business operations of the CRC.
While this matrix would generally include someone with knowledge of
the field of research the CRC will engage in, it is now expected that the
board skills mix would also cover an appropriate mix of other business
skills and corporate governance experience. Given the stringent financial
Page 27 of 39
accountability requirements of a CRC, it would generally be expected
that the board include a board member who is appropriately qualified or
experienced in finance or accounting.
The skills identified as being desirable for a CRC can be entrenched in
the governance structure by including the skills matrix in the constituent
documents of a CRC. This can inhibit the flexibility to add or remove
skills if an amendment to those documents is required. An alternative to
including the skills matrix in the constituent documents is to leave the
board, or a nominations committee (in keeping with Principle 2), to
determine what skills are required at the time the relevant appointments
are to be made and enables the board to change as the needs of the
CRC change over time.
(c) Independence
Early CRCs often had wholly representative boards with each Essential
Participant given the right to appoint a board member. This was often a
function of them being established as a UJV. Such boards were not
subject to the usual corporate directors’ duties, and in particular were not
required to act in the best interests of the CRC as a whole. While this
has been addressed by the inclusion of the obligation in the
Commonwealth Agreement to ensure that good governance standards
and duties equivalent to corporate boards legally apply, there is often a
difficulty in applying this at a practical level. Some of the issues that can
arise include:

Conflicts of interest inevitably arise for decisions that may benefit the
participants. This can include anything from the payment of monies
for the conduct of research to the granting of rights to use IP.

Participants can expect their representative to participate in
decision-making and vote according to the interests of the appointing
participant rather than the CRC as a whole.

As representative board members are usually employees of the
appointing participant they can feel conflicted and constrained to
vote according to their employer’s wishes.
If representative board members are included it is therefore important
that both the board member and the participant they represent
understand that the duty the board member owes to the CRC overrides
the duties they owe to the participant that appointed or employs them.
There has also been a move away from fully representative boards as it
is difficult to get the right skills mix where each individual participant is
appointing the person that they consider is best to represent them on the
board rather than the person who meets the required skill profile for the
CRC.
In order to structure the CRC board to add value, a majority of board
members should be independent and the Principles for CRC
Governance endorses this as a principle that should be applied to CRC
boards. Therefore, if a CRC elects to adopt a board structure that
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consists principally of representative board members, it will need to
justify this departure from the principles.
(d) Qualifications
The question of what qualifications board members should have is an
extension of the application of Principle 2: Structure of the CRC board to
add value in that a CRC should consider the qualifications that are
relevant to the specific skill sets it is seeking from its board members.
But this question also harks back to Principle 1. As the Principles for
CRC Governance indicate, part of Principle 1: laying the foundation of
good management and oversight is to ensure the board members of a
CRC have qualifications or training on the role of a director, in addition to
the specific skills they bring in their field, and have access to ongoing
professional development. On this point, the DIISRTE strongly
recommends that at least 80% of directors have received specific
training on the role and duties of a director. This type of training is most
usually obtained through the Australian Institute of Company Directors or
Chartered Secretaries Australia either in the form of their recognised
courses or by providing in-house training that can be tailored specifically
for the CRC.
It is important to note that the inclusion of qualified persons on the board
does not absolve the other board members from fully informing
themselves and exercising their own judgement in relation to oversight of
the CRC’s operations. Other board members cannot simply rely on the
relevantly skilled board member’s advice.
(e) Size of the board
The board needs to be large enough to ensure it has the skills and
diversity required to provide proper oversight of the CRC and to add
value to the CRC as required by Principle 2: Structure of the board, but
not so large as to inhibit its effective operation. The Principles for CRC
Governance indicates that the optimal size of a CRC board is five to
eight board members. As suggested in the Principles for CRC
Governance, board advisory committees can be constituted around
specific areas of expertise or relevant stakeholders to scrutinise
particular issues and draw in any additional skills not already available
on the board.
Many CRC boards are larger than what would be considered the optimal
size, usually to accommodate representation of the participants. Where
boards are wholly representative or include significant participant
representation it can be difficult to keep the board to a workable size.
Whatever the size of the initial board, it is important that flexibility is
preserved to change this should the need arise over the life of the CRC.
This need can arise for many, often unforeseeable, reasons, for example
due to a skills deficiency being subsequently identified or where
additional skills may be required to match the life stage of the CRC. In
the case of boards that have representative members, the addition or
removal of a participant may impact on the size of the board.
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The size of the board may also be dictated by legal requirements if a
company is part of the governance structure. A company limited by
guarantee must have a minimum of three directors while a proprietary
company only requires one board member. These minimums will not
generally be a factor in establishing the CRC board, however, they may
be more relevant where a special purpose company is established either
as the Managing Entity in a CRC UJV or as an IP holding company.
(f)
The process of selecting and appointing board members
The process of appointing board members generally consists of two
stages: nomination and appointment. Although Principle 2: Structure of
the CRC board to add value recommends that a nominations committee
be established, it does recognise that a nominations committee is most
appropriate for larger listed companies and may not be as useful for
smaller companies.
Some examples of the ways CRCs have selected and appointed board
members, and their pros and cons are:

Nomination and election by the participants. This option is often
considered to be the most usual and equitable arrangement. It is
akin to the right of shareholders in a company nominating and
electing directors. However, it does have the potential for a
stalemate and no clear result. If each participant puts forward one
nominee and then votes for its nominee there will be no clear winner
of the election. Further, this process can make it difficult to obtain the
right skills and diversity mix if that is what is being sought rather than
just representation.

Nomination by the participants and appointment by the board. This
option allows for participant involvement but allows the existing
board to choose from the nominees the individuals that would be the
right fit for the board particularly on a skills and diversity basis. This
option may be an issue where there are fixed rotation periods for the
board members and a significant number of board members rotate
off the board leaving only a small number to act to appoint new
board members.

Nomination by the board and appointment by the participants. This
allows the board to choose nominees that have the right skills and
right fit for the board but allows the participants to elect their
preferred candidate. Often this can be seen as the board simply
making the choices with the participant’s role being a perfunctory
endorsement of the board’s preferred candidate.

Open nomination and appointment by the board. Open nomination
involves advertising vacancies and taking applicants from all sources
including participants, the board itself, recruitment agencies and
those responding to advertisements. This makes for a very
transparent appointment process particularly for independent board
members. It can be useful where the board is partially representative
and it is those representative board members who then advertise
and appoint the independent board members.
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
Nominations committee and appointment by the board. This is
common for independent positions and positions that are
representative of a sector of participants e.g. one director appointed
to represent the research participants. The nominations committee
usually calls for nominations and chooses the most appropriate
candidate which is then recommended to the board who makes the
appointment. This approach is also consistent with Principle 2:
Structure of the CRC board to add value.
It should be noted that different positions on the board may be subject to
different appointment processes depending on the role of the particular
board member. It is not uncommon for the appointment process of the
chair to differ from the other board members. Given the critical
importance of the chair to the success of the CRC, the participants may
seek some role, even if it is only final endorsement of recommended
nominee.
While the above processes are built into the constituent documents of
the CRC, the process for the selection and appointment of the first CRC
board may or may not be consistent with these processes. Some CRCs
appoint an interim board that allows the company to be incorporated and
the interim board then carries out the agreed nomination and
appointment process. Alternatively, a selection process is agreed by the
participants and the initial board members appointed prior to
incorporation or execution of the Participants Agreement.
(g) Binding appointments
Where the CRC board is the board of a UJV, membership of the board
does not legally subject the board member to all the duties and
obligations in relation to the operation of the CRC UJV that a director on
a company board would assume on being appointed to the board of the
company. This can be a risk for the participants, and in particular the
Managing Entity, as the terms of the Commonwealth Agreement require
the Managing Entity to ensure that the CRC UJV board functions in a
manner akin to a company board. As there is no automatic legal
relationship between the CRC UJV and the board members (as is the
case with a company), this has to be achieved contractually.
This is not such an issue for board members who are employees or
officers of a participant and are appointed to the board as representative
of that participant. In this role they would assume the legal obligations
that are imposed upon the participant under the CRC UJV agreement,
which would include the obligation to ensure they act as if they were
company directors. This is one of the reasons most CRC UJV boards
tended to consist of predominantly representative directors.
However, there is no reason why independent skills-based members
cannot be appointed to a CRC UJV board. In fact it is a requirement to
include one such board member, namely the chairperson. While
independent board members are not contractually bound to either the
Participants Agreement or any individual participant, it simply means that
they need to be separately legally bound to comply with the Participants
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Agreement and Commonwealth Agreement in the performance of their
board responsibilities. This would usually be achieved by a contract with
the CRC Managing Entity. It is normal for this contract to also include
protections for the independent board members, such as an indemnity
from the CRC Managing Entity. Therefore, the formal letter of
appointment of a board member outlined in Principle 1: Lay solid legal
foundations for management and oversight should be converted into a
contract that includes these additional obligations as well as IP
assignments and confidentiality undertakings.
(h) Role of essential and other participants
Consideration should be given as to whether the role of appointing or
participating in the board should be limited to essential participants only
or should also involve other participants.
(i)
Term of office
There needs to be a balance between bringing in new talent and
retaining corporate memory. It is preferable to avoid a situation where all
board members have the same term and retire at the same time.
Consideration should also be given to whether board members are able
to renominate, and if so how many times.
6.3 Securing participant engagement in the
governance of the CRC
Principle 6 states that the rights of shareholders must be respected. In a
publicly listed company structure the shareholders are the owners of the
company. Translated to the CRC context, the participants are the equivalent
of the shareholders as they make a financial contribution to the establishment
and operation of the CRC in the same way shareholders contribute to the
capital of a listed company.
The legal structure adopted by the CRC impacts quite significantly on the
legal rights of the participants and therefore on how the principles are applied
to ensure their engagement and participation in the CRC. If the board is not
representative of the participants then consideration needs to be given to how
participants may be involved in the strategic planning and decision-making
process of the CRC to retain its collaborative nature. The most common
mechanisms to achieve this and any issues related to them are set out in the
following.
(a) general meetings
In either of the incorporated legal structures, the CRC companies are
required to conduct general meetings of their member/shareholders. In a
traditional corporate structure these meetings would be a means of
reporting to and engaging with the members. This is fundamental to
satisfying Principle 6: Respect the rights of shareholders/participants.
However, in a CRC context general meetings may not function in this
manner. This may be because the CRC is unincorporated or because
not all participants are members of the company. Therefore, many CRCs
include in their governance framework an obligation to hold an annual
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participant meeting to report to, and engage with, the participants akin to
a company holding its annual general meeting. They may also provide
participants with rights akin to those of a company member to call a
meeting of the participants. If these meetings are the primary
engagement mechanism and are not supplemented by other processes
(such as committees) they may be held more frequently. Often
governance frameworks provide for quarterly reporting with participant
meetings to be held to coincide with these reports.
(b) Reporting
Principle 5 requires a company to make timely and balanced disclosure.
In applying this to a CRC, the Principles for CRC Governance states that
all participants must have equal and timely access to material
information concerning the CRC. Again, depending on the legal structure
adopted, the participants may not have this entitlement as of right.
Further, the reports the participants should receive may not be only
those of the company but the CRC as a whole, which may include the
joint venture, the CRC company and any IP company or trust. It is
therefore important that the governance framework include the full
reporting obligations to the participants as well as their rights to access
the records of all component parts of the structure of the CRC.
(c) Role of committees
Committees enable a concentration of expertise, focus or interest on a
subject or issue. In the traditional UJV structure used by CRCs,
participant engagement was most often secured by board
representation. However, with the push away from representative
boards, alternative means of maintaining participant engagement in the
CRC have been utilised. Participant advisory committees and/or
research advisory committees are the most common means of securing
participant engagement and satisfying their desire for representation in
the decision-making processes of the CRC without compromising the
effectiveness of the governance framework.
As already referenced in this section, committees are also a common
and useful tool used in CRC governance to focus attention and expertise
on an issue. Such special purpose committees are able to draw in
additional expertise from outside the board as is needed. Committees
can be delegated power by the board and therefore make decisions that
would usually be taken by the board. Committees can also be advisory,
in which case they would make recommendations to the board which it
may, but does not have to, act on. It is important that a board does
independently turn its mind to the decision and whether the advice
should be followed. Where a company board is in the habit of following
whatever recommendation is given by an advisory committee there is
the potential for the members of the advisory committee to be shadow
directors and therefore take on all the duties, responsibilities and
liabilities of a director.
Most CRCs have some board committees that are common in any
corporate structure. The ASX Principles themselves, and as applied in
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the Principles for CRC Governance, refer to a number of these and how
they function in and contribute to a good governance framework. These
are:

A nominations committee - Principle 2.

An audit committee - Principle 4.

A risk committee - Principle 7.

A remuneration committee - Principle 8.
In addition to these usual committees, CRCs often have special purpose
committees that are particular to the unusual character of a CRC. As
mentioned above, committees can be a way of maintaining stakeholder
engagement. It can also be a way for the board to obtain expert advice.
Examples of such committees are scientific advisory committees,
commercialisation committees, research committees and end-user
committees.
A committee can either be constituted as a normal board committee
under the powers given to the board to establish advisory and subcommittees (which gives the discretion to the board to change them and
their roles as they deem appropriate) or can be expressly set out in the
constitution or the Participants Agreement, (which cannot be changed
without the agreement of the participants). Where committees are critical
to either the proper governance of the CRC (such as an audit committee
established for the purpose of Principle 4) or the engagement of the
participants or other stakeholders, they are usually embedded in the
constituent documents of the CRC.
(d) Decisions reserved for the participants (Principle 6)
The Principles for CRC Governance, in applying Principle 6, refers to the
right of the participants to reserve certain decisions to themselves, taking
them outside the remit of the board. Examples of such decisions include:
the admission of new participants; the expulsion of existing participants;
amendments to the Participants Agreement; amendments to the
constitution of a CRC company; approval of the annual budget; and
appointment of the chair.
In reserving such decisions to the participants it ensures they retain the
right to decide things they consider fundamental to their continued
participation in the CRC. Care does need to be taken where a CRC
company has been created to be the Recipient as taking such decisions
outside the control of the board of the company can compromise the
company’s ability to comply with its obligations under the
Commonwealth Agreement.
7
Conclusion
This Guide highlights the complexity of establishing a good governance
framework for a CRC. In particular, it is important to understand how the
different aspects of the legal, governance and IP ownership structures interact
with each other and with the tax system in designing the governance
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framework of a CRC. In addition, there is also the need to factor in the
requirements of the Commonwealth; the wishes of a usually disparate group
of participants with different and sometimes competing objectives; and the
long term strategy for exiting the CRC Program. A decision made for good
reasons on one of these aspects of the governance framework can have very
unintended consequences on another component of the structure. It is
therefore important to maintain an understanding of the overall governance
framework and to ensure that decisions on different aspects of the framework
are not made in isolation.
The need to deal with the multiplicity of factors at play in developing a CRC
governance framework highlights the need to begin the process of discussing
not only the intended research activities of the CRC, but also the governance
framework, as early as possible in the process of bidding for, establishing or
restructuring a CRC. It is also critical that the CRC seeks advice from legal
and taxation advisors who are experienced in advising CRCs and have a
good understanding of the issues that can arise. It is equally important that
these advisors work with each other, the CRC board and management and
any other advisors or consultants involved to ensure that everyone
understands the overall framework as well as their own component and how
they all come together to establish the good governance framework to be
adopted.
The use of the template sheet can assist with this process and is highly
recommended. However, in order to properly complete the term sheet, those
instrumental in designing the governance framework need a more in-depth
understanding of the detail that underpins the framework chosen than what is
ultimately set out in the term sheet. The process of selecting the governance
framework appropriate to a particular CRC must take into account the issues
outlined in this paper as well as those set out in the Principles for CRC
Governance, the Guide to IP and the CRC Program Guidelines. Choosing a
structure that does not properly fit the CRC and its objectives can have both
an immediate detrimental effect on securing participant commitment and
Commonwealth funding and a long term impact on the success of the CRC.
Accordingly, dedicating time and resources to understanding the issues up
front and developing a good governance framework that is tailored to your
CRC is worth the commitment and investment it entails.
8
Glossary
Term
Description
ASX Principles
Australian Stock Exchange Corporate Governance
Principles.
CGT
capital gains tax.
CRC Activities
the activities carried out by the CRC under the
Commonwealth Agreement.
CRC Program
Cooperative Research Centres program.
CRC Program
Guidelines
The CRC Program Guidelines available at:
https://www.crc.gov.au/Information/ShowInformation.aspx
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Term
Description
ASX Principles
Australian Stock Exchange Corporate Governance
Principles.
?Doc=about_programme&key=bulle- tin-boardprogramme&Heading=The Program
CRCs
Cooperative Research Centres.
CRC UJV
the CRC unincorporated joint venture.
GST
goods and services tax.
Guide to IP
the Intellectual Property Management Guide for CRCs
available at:
https://www.crc.gov.au/Information/ShowInformation.aspx
?Doc=for_crcs&key=bul- letin-board-information-forcrcs&Heading=Information for CRCs
IP
intellectual property.
Managing Entity the entity appointed by the CRC participants to provide
management and administrative services to the CRC.
Principles for
CRC
Governance
the Principles for CRC Governance available at
https://www.crc.gov.au/
Information/ShowInformation.aspx?Doc=for_crcs&key=bul
letin-board-in- formation-for-crcs&Heading=Information for
CRCs.
SME
small and medium enterprises.
UJV
unincorporated joint venture.
Page 36 of 39
9
Annexure – Legal Structure Diagrams
9.1 Appendix 1 – UJV with Managing Entity
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9.2 Appendix 2 – Incorporated Joint Venture
Page 38 of 39
9.3 Appendix 3 – Incorporated CRC
Page 39 of 39