COOPERATIVE RESEARCH CENTRES PROGRAM
PRINCIPLES FOR CRC GOVERNANCE
OCTOBER 2012
Principles for CRC Governance
Introduction
“Corporate governance is concerned with holding the balance between economic
and social goals and between individual and communal goals. The governance
framework is there to encourage the efficient use of resources and equally to
require accountability for the stewardship of those resources. The aim is to align
as nearly as possible the interests of individuals, corporations and society.”
Sir Adrian Cadbury, UK, Commission Report: Corporate Governance, 1992
“Corporate governance is different from management. Management runs the
enterprise. The board or governing body ensures that it is being run well and in
the right direction.”
Robert Tricker, 1984
CRCs are required to follow best practice in their governance arrangements. This document
has been developed with guidance from the CRC committee, and is intended to assist
applicants for CRC funding as well as existing CRCs to meet that requirement. Where a CRC
(or applicant) has chosen to depart from these principles, they will need to provide an
appropriate rationale.
Governance has been described by the OECD1 as a set of relationships between a company’s
management, its board, its shareholders and other stakeholders. Good governance is essential
for high performing enterprises, whether incorporated or unincorporated. The presence of
good governance practices clarifies authority, simplifies decision-making, and ensures people
and organisations are accountable for their actions and decisions.
Experience has shown that the quality of a CRC’s governance is a critical factor in
determining its performance. Research from the Australian Treasury2 suggests that better
governed firms outperform poorer governed firms in a number of key areas. This finding is
also supported by other Australian and overseas studies. A company’s corporate governance
structure influences a number of aspects of its business model including: the setting of
company objectives and how those objectives are to be achieved; the monitoring and
assessment of risk; and performance optimisation.
To assist CRCs in developing a sound governance model, the eight good governance
principles (each of equal importance) identified by the Australian Securities Exchange (ASX)
Corporate Governance Council3 have been adapted to the needs of the CRC program. The
ASX good governance principles set out best practice. The principles, as adapted for CRCs,
set out minimum requirements to optimise corporate performance and accountability. They
are incorporated into the CRC Program Guidelines4, the Commonwealth Agreement and other
1
Organisation for Economic Co-operation and Development. (2004) OECD principles of corporate governance.
http://www.oecd.org/dataoecd/32/18/31557724.pdf
2
Brown, Rebecca and Gørgens, Tue. (2009) Corporate governance and financial performance in an Australian context.
Canberra, Australian Treasury. http://www.treasury.gov.au/documents/1495/PDF/TWP_2009-02.pdf
3 Australian Securities Exchange. (2007) Corporate Governance Principles and Recommendations with 2010 Amendments.
2nd ed. ASX Corporate Governance Council.
http://www.asxgroup.com.au/media/PDFs/cg_principles_recommendations_with_2010_amendments.pdf
4 Program guidelines: Cooperative Research Centres Program. (2012) Canberra, Department of Industry, Innovation, ,
Science, Research and Tertiary Education.
https://www.crc.gov.au/HTMLDocuments/Documents/PDF/CRC%20Program%20Guidelines%202012%20(Janv2).pdf
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CRC program guidelines issued by the Department of Industry, Innovation, Science,
Research and Tertiary Education (DIISRTE).
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. In endorsing the current edition of the good governance principles5, the ASX
Corporate Governance Council also noted that: “… there is no typical organisation and no
single readily identifiable model for corporate governance … At different times and stages in
a company’s life, some governance structures may be better for the (benefit of investors) than
others ….”
If not why not?
CRCs are strongly encouraged to follow all of the ASX principles and guidance provided in
this document. It is also recognised, however, that in individual circumstances it may not be
in the best interest of the CRC to follow the suggested approach. In such cases the ‘if not,
why not?’ test should be adopted to ensure the highest level of standards are enshrined in a
CRC’s governance design and implementation.
A well-reasoned case for not conforming to a particular ASX principle/s may be perfectly
valid, but the rationale for doing so needs to be articulated. The CRC should demonstrate that
the relevant issues raised by its alternative practice have been examined and should explain
how these issues have been better addressed by the alternative approach chosen. The CRC’s
approach should stand up to external scrutiny. The ‘if not, why not’ approach to corporate
governance is consistent with international best practice.
In a CRC funding application, applicants should briefly describe their proposed governance
arrangements, identifying any elements of the principles they would not be following and
succinctly explain why their alternative approach is more appropriate. The application should
also identify the Chair and chief executive officer (CEO) designates or, if that is not possible,
reasons and a process for recruiting need to be outlined [it is recognised that some candidates
may want to remain anonymous until funding has been secured]. Applicants must avoid
simply restating the principles and indicating that they will follow them. Applicants should
also be able to explain how their proposed approach aligns with these principles or justify
why their arrangements are appropriate.
The CRC Program Guidelines provide a flexible approach towards a CRC’s choice of
governance arrangements, i.e. a CRC can decide to adopt an incorporated or an
unincorporated structure, but the Guidelines require that the CRC demonstrates good practice
in both the design and implementation of its governance model. Further, there are two
important requirements (set out in the CRC Program Guidelines) that apply where a CRC is
unincorporated:
 Where a CRC decides to be unincorporated, the relevant CRC board will have an
ongoing obligation to demonstrate that it operates and manages the CRC to the same
fiduciary and good governance standards required by law of incorporated bodies
(paragraph 5.1.5); and
5
Australian Securities Exchange, Op cit.
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 All CRCs must appoint a single party, acceptable to the Australian Government, that
has the authority to negotiate and enter into the Commonwealth Agreement on behalf of
the CRC (paragraph 7.1.2).
Principle 1: Lay solid foundations for management and oversight
Fundamental to any corporate governance structure is establishing the roles of the board and
senior executives. Board members must have confidence in the CEO that the operational
issues of the CRC are being managed effectively.
Key issues for consideration:
 Are the chair of the CRC and the CEO two different people?
 While the chair and CEO share responsibility for the leadership of the CRC, they
have distinct roles and contribute to the CRC’s leadership in different ways.
 Are the roles of the Chair and the CEO clearly defined?
 Lack of clarity about the distinctions between the roles of Chair and CEO has caused
problems in some CRCs
 The Chair’s role is to provide vision and strategic leadership to the CRC; making
sure the board has the information to undertake effective decision-making;
developing an on-going relationship with the CEO; managing the evaluation of the
board and individual directors; and guiding the effectiveness and development of the
board.
 The CEO’s role is to manage the day-to-day operations of the CRC and to keep the
Chair informed of all developments that may be of interest to the board.
 Is the time commitment and capacity of the Chair sufficient to enable him/her to fulfil
their responsibilities and add value to the work of the CRC?
 A minimum 10% time commitment for the Chair is strongly recommended, although
it should be recognised that there will be times, such as during the CRC’s
establishment period, when the Chair’s time commitment will have to be greater.
 Are the roles of the board and the CRC management team clearly defined?
 The role of the board is to provide strategic direction to the CRC (within the context
of its Commonwealth Agreement and taking into account the CRC’s exit (transition)
strategy and its life cycle), oversee the financial management of the CRC, monitor
senior management performance, develop succession plans and ensure the CRC
adheres to a high ethical standard.
 The role of the management team is to ensure the CRC delivers against the
Commonwealth Agreement, business plan and complies with all legal, financial and
ethical requirements to the highest standard.
 Is the process for board appointments and dismissals clear, transparent and agreed to by
all participants?
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 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?
 A board that meets infrequently will impair the CRC’s decision making abilities and
inhibit it from operating effectively, while a board that meets too often will draw
management support and attention away from the operation of the CRC.
 The frequency of meetings should change depending on the life stage of the CRC,
with more meetings required at establishment and towards the end of CRC program
funding.
 It is recommended that the CRC board meet between 4-6 times a year, on average.
 Do directors have access to continuing professional development to maintain and
update skills?
 It is strongly recommended that 80% of board members should have received
director training by the time of the CRC’s first performance review.
 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
There should be a balance of skills, experience and independence on the board appropriate to
the nature and extent of a CRC’s operations. The ASX definition of independence, redefined
for CRC purposes, is that a Chair or independent director should not have had an association
or business relationship with a participant for at least three years prior to appointment to the
board.
A number of CRCs use directors drawn from participants in the CRC. Such directors are not
independent and while they may bring highly relevant knowledge, experience and skills to
the board, there are also conflict of interest challenges that need to be managed transparently.
Key issues for consideration:
 Is the Chair independent?
 The CRC Guidelines and the ASX Principles specify that the Chair must be
independent.
 The ASX Principles also state that a CEO should not go on to become chair of the
same company. “A former CEO will not qualify as an “independent” director unless
there has been a period of at least three years between ceasing employment with the
company and serving on the board”.
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 Are the majority of directors independent?
 The CRC Guidelines require the majority of the directors to be independent of the
CRC’s research participants. However, it is strongly recommended that CRCs
conform to ASX principle 2 which recommends a majority of directors should be
independent [i.e. of participants, both research and end-user].
 The Treasury working paper6 suggests that firms with independent boards yielded
higher returns.
 Independent directors are not conflicted when acting in the CRC’s interests (which
they are required to do). Non-independent directors are conflicted if the interests of
the CRC run counter to those of the organisation/participant that they are
representing.
 One argument advanced for including non-independent directors on a CRC board is
that specialised knowledge of the research area or industry is an essential skill
required of the board. However, there are other mechanisms available to a board; for
example, specialist or expert advisory committees could provide that advice to the
board and facilitate participant engagement in decision making processes.
 CRCs are strongly encouraged to maximise the number of independent directors and
to seek alternative mechanisms for expert advice.
 All directors, whether independent or not, should bring an independent judgement to
bear on board decisions.
 Is the board skills-based?
 All boards should be skills based and should demonstrate collective expertise in
corporate governance, research and development, adoption of research and
development outcomes, technology transfer, marketing, commercialisation,
intellectual property management, financial and business management.
 The ASX concept of skills-based is generic and applies to the fields listed above. It
does not mean persons with an intimate knowledge of a research field or an industry.
Again, advisory committees reporting to the board can provide this
intimate/additional understanding of a CRC’s activities.
 In addition to the above skills, it is recommended that the board should also have
available to it, either through its membership or committees, an understanding of the
obligations imposed by government support programs, education and training
requirements, and issues faced by SMEs.
 The skills requirements of the board may change as circumstances and situations in
the external and internal environments change throughout the life of the CRC. For
example, the skills required at start-up are different to those required as the CRC
nears the end of its CRC program funding and prepares for transition.
 How large is the board?
6
Brown and Gørgens, op. cit.
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 The ASX recommends that boards should be large enough to incorporate a variety of
perspectives and skills; however, not so large that effective decision-making is
hindered.
 The Treasury working paper7 suggests that limiting a board’s size leads to improved
performance.
 A board of 5 – 8 members is sufficient size to cover the required skills set.
 Representatives of several CRCs have previously noted that large boards do not
work effectively.
 There should be a healthy interaction between the supervisory function and the
management function.
 This could include either the CEO having a regular appearance before the board or
the CEO being a member of the board.
 Is there diversity on the board?
 Diversity promotes broader thinking and CRCs are encouraged to look beyond the
predictable candidates when appointing board members. Renewing and refreshing
boards with diversity in skills, gender and cultures can reinvigorate a board.
 Are performance evaluations of the board as a whole undertaken regularly?
 Is the process for evaluating the performance of the board, its committees and
individual directors known to participants?
 There are a number of training providers with courses aimed at director and board
evaluation.
Principle 3: Promote ethical and responsible decision-making
There is a basic need for integrity among those who can influence a CRC’s strategy and
performance, including financial performance, together with responsible and ethical decisionmaking which takes into account not only legal obligations but also the interests of
stakeholders.
Key issues for consideration:
 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?
 How are other conflicts of interest handled at the board level?
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Ibid
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 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
Meeting the information needs of the CRC’s participants, as well as the CRC Program’s
stakeholders, is also paramount in terms of accountability and attracting investment and
participation from end-users. Presenting a CRC’s financial and non-financial position
requires processes that safeguard, both internally and externally, the integrity of CRC
reporting.
Key issues for consideration:
 Has a finance and audit committee been established?
 The committee should not include any executive directors
 Is the chair of the committee independent and not the Chair of the board?
 Does the committee have an independent external person with finance and audit
skills?
 Are there at least three members on the committee?
 Does the committee exercise independent judgement?
 Does the committee have a formal charter which sets out its roles, responsibilities
and composition?
 Does the committee meet often enough to be effective?
Principle 5: Make timely and balanced disclosure
CRC reporting must provide a timely and balanced picture of all material matters. The CRC
should ensure that all participants and the Commonwealth have equal and timely access to
material information concerning the CRC – including its financial position, performance and
governance.
Key issues for consideration:
 Are policies in place to ensure company announcements about financial and nonfinancial 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?
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 Is commentary on financial results issued to enhance the clarity and balance of
reporting?
 Are senior management core entitlements disclosed to participants?
 Are board evaluations disclosed to participants?
Principle 6: Respect the rights of shareholders/participants
The rights of CRC owners (the participants), need to be clearly recognised and upheld.
Key issues for consideration:
 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
Every business decision has an element of uncertainty and carries a risk that can be managed
through effective oversight and internal control. Assessment of risk begins with the
application phase and is reported annually to the Commonwealth throughout the life of the
CRC.
Key issues for consideration:
 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 committee?
 Are the policies disclosed to participants, for example, by being placed on the CRC’s
website?
 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?
 Is the CRC meeting its performance obligations to the Commonwealth?
 It is strongly recommended that the CRC board regularly review the performance
milestones agreed to in the Commonwealth Agreement.
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Ultimate responsibility for risk oversight and management rests with the full board, whether
or not a separate risk committee exists.
Principle 8: Remunerate fairly and responsibly
Rewards are needed to attract the skills required to achieve the performance expected by the
Commonwealth and stakeholders.
Key issues for consideration:
 Is the level of board remuneration sufficient and reasonable?
 Competitive remuneration packages are one key mechanism by which companies
attract board members and managers with the skills required to achieve the
performance expected by stakeholders.
 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 longterm growth and success of the CRC?
 Is there a balance between fixed and incentive pay?
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