Australian Securities Exchange, Turmoil and Good Corporate Governance
By Sorin Blaga

The American housing and stock market trouble sends waves to entire world. All the market indicators plunged and many reputable banks and financial institutions are in difficulties. Shares lost most of their last year's gains and banks are now getting government financial support.

In this "tough time", as President Bush characterized the actual situation, all companies should cooperate in avoiding the most undesirable situation, recession. Australia is not an exception. Our economy is in much better shape then the American one, thanks to the resources sector, but we still are under various pressures. We are all suffering from high interest rates, inflation is high and further interest rates rises and higher petrol price are not ruled out.

There are a few things in the Australian economy at the moment that both worry government bodies and are under journalists' scrutiny. The ASX is worried about whether their corporate governance reforms at the CEO and Directors levels have sparked changes or not, and if these changes are efficient.

In linking CEO and Directors' earnings to shares and options with a view to bringing additional value to shareholders, some of the executive packages may damage the company. As Mark Johnson Chairman of AGL told The Australian Financial Review: "Boards are now on notice that if board members or executives get into an exposed position they might be doing damage to the company" by selling their portfolio.

This will have a domino effect on the share price. In these circumstances it is essential for ASX to impose new changes in policy for Director and CEO allocation of shares and options, and also in disposing of them. In some circumstances this can be viewed as inside trading and bring about prosecution.

The changes are more than necessary and can improve corporate social responsibility and ethics. The stability of the stock market is paramount in the specifically managerial phase of capitalism. This situation does not contribute to managerial decision transparency, accountability of CEOs, Directors and their fiduciary and other duties. It affects market confidence. Therefore changes are strongly advocated by reputable specialists and journalists.

Market confidence should be installed into the market, and not merely contemplated.
Short-selling as a technique of market efficiency gives more fluidity to the market and also ensures a degree of leveraging.

But in the meantime it keeps potential buyers and small shareholders in the shadows. As John Green the reputable journalist of The Australian Financial Review wrote in his 14th March article - "Act now to short-circuit debilitating mood swings . . . "shareholders and potential buyers are still cowering in the shadow," The Reserve Bank of Australia is pushing for even tougher measures such as ASX should guaranty all stock market trades as it is adopted in other overseas markets.

ASX should act now in restoring confidence in the principles of good Corporate Governance and best practice, as published in 2003 amended in Corporation Act in 2004 by clarifying this issues: that of selling executive portfolios, short-selling; and, that of spreading rumors. The integrity of the rules and the confidence in the market depend on the accuracy of the information the shareholders have and their intelligent and informed application within corporate governance depend on how quickly the ASX reacts, and how quickly will set an example by directors being investigated and prosecuted for breaches.

This will establish discipline in the corporate managerial elite and restore the real value of stock which at present is quite under valued.

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