CORPORATE GOVERNANCE STATEMENT
In March 2003 the ASX Corporate Governance Council released its ‘Principles of Good Corporate Governance and Best Practice Recommendations' that it believes will set an appropriate benchmark for the governance of Australian companies. Ten principles of corporate governance have been developed, supported by best practice and implementation recommendations. The Council has recognised that these principles and recommendations do not contain a “one size fits all” solution and that it will be necessary for companies to adopt a “fit for purpose” solution in the adoption of these practices.
The Board has resolved to aspire to “best practice” in corporate governance and has adopted corporate governance practices that are commensurate with the size and scope of the Company and its activities as a junior explorer. Accordingly, the Company's policies, procedures and structures have been designed with the best interests of the Company and its shareholders in mind, and which are practical and efficient to implement, notwithstanding that these are not in all instances consistent with the specific recommendations of the ASX Corporate Governance Council.
Under ASX listing rule 4.10, companies are required to disclose the extent to which they have followed the best practice recommendations set by the ASX Corporate Governance Council during the reporting period. The following Corporate Governance Statement summarises the corporate governance practices that have been formally reviewed and adopted by the Board with a view to ensuring continued investor confidence in the management and operations of the Company and endorsing the corporate governance principles relevant to a company of Adelphi's nature and size. This Statement also highlights and addresses any non-compliance by the Company in terms of the Best Practice Recommendations.
The Company's Corporate Governance System is reviewed at least annually for relevance and compliance with current legislation. The date of last review and adoption by the Board was 18 July 2005.
To provide effective implementation of the 10 core principles requires the development of appropriate systems and policies which must be endorsed by the Board. Policy development guidelines and approved policies are part of Adelphi's Corporate Governance System which include policies for Health, Safety and Environment and Share Trading.
All policies and guidelines referred to in this Corporate Governance Statement are available on the Company's website (www.adelphienergy.com.au) and are available for viewing at the Company's offices for those shareholders who do not have access to the internet.
1. Recognizing and Distinguishing the Respective Roles of the Board and Management
The Board of Adelphi endorses the following description of the respective roles/duties of the Board and Management:
1.1 Division of Responsibility
In principle, the Board reserves to itself the responsibility for setting the direction and objectives of Adelphi and for setting limitations on the means by which management may achieve those ends. The limitations are primarily imposed by approved corporate budgets and corporate strategy. The Board delegates to management the responsibility for developing the capability to achieve Adelphi's aims and objectives and employing that capability within the limitations set by the Board.
1.2 Purpose of the Board
The purpose of the Board is to govern on behalf of all owners. The Board's specific job outputs are to maintain a link between the shareholders and the operational company and to create and maintain governance policies that address the broadest levels of all decisions and situations.
Accountability of the Board
The Board has the sole responsibility within Adelphi to exercise the owner representative role. This role cannot be delegated. The Board's accountability for these responsibilities is fulfilled by delegating a portion of its authority through management limitations policies and holding the Executive Chairman accountable. It also recognizes in its policies the accountability to law, non-equity stakeholders and the broader Australian society.
Unity of Control
The mandate to lead the Company is placed by shareholders in the hands of the entire Board. The principles endorsed by the Board are as follows:
• No person within the Company, whether a Board member or a member of management, can have any authority unless the Board grants that authority.
• All Board members are accountable individually and as a whole for any lapses of performance or behaviour of Adelphi.
• The Board possesses authority only as a group. The Chairperson and individual Directors have no power unless specifically given it by the group. No individual Director may advise or decide unless so directed by the group.
Roles
A detailed description of the roles of Directors has been agreed and is formalised in the Adelphi Corporate Director and Employee Handbook which is available to all Directors and employees.
A Director or other officer of the Company who makes a business judgment will have met the requirements of Adelphi's Corporate Governance System and their equivalent duties at common law and in equity, if they:
• make the judgment in good faith for a proper purpose; and
• do not have a material personal interest in the subject matter of the judgment; and
• inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
• rationally believe that the judgment is in the best interests of the corporation.
The Director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.
1.3 Terms of Appointment
The Board ensures that Directors and management of Adelphi clearly understand corporate expectations. The formal terms of appointment and key terms and conditions relative to the appointment of Directors are contained in the Corporate Governance System. Any particular condition attaching to the appointment of an individual Director would be formalized in a separate letter. There are no such terms for any Director. Executive Directors have the terms of their employment set out in individual contracts.
2. Structuring the Board so it has an effective composition, size and commitment to adequately discharge its responsibilities and duties
2.1 Composition of the Board
Details of the current Directors and their relevant skills, expertise, experience and term of office, are set out in the Directors' Report. The Board assesses the independence of each Director annually in light of the interests declared by them.
The status of each Director as of 30 June 2005 is as follows:
Director |
Non-Executive |
Independent (as defined by ASX) |
A Forcke (Executive Chairman) |
No |
No |
C C Hodge (Exec. Director - Exploration) |
No |
No |
P O'Connor |
Yes |
Yes |
E C Streitberg |
Yes |
No |
G D Riley |
Yes |
No |
At present only one of the five Directors can be classified as independent based on the ASX definition of an independent director which has been accepted by Adelphi. Whilst both Mr Eric Streitberg and Mr Graham Riley are non-executive directors of the Company, they are not considered independent due to their current or recent directorships with Adelphi's major shareholder, ARC Energy Limited (ARC). Adelphi's Chairman is also not independent, with that role at present being undertaken by Mr Alex Forcke in an executive role. Mr Forcke has also been a non-executive director of ARC within the last three years.
Whilst it is the Company's medium term objective to have a majority of independent directors on its Board, given the size and nature of the Company's current operations and the relationship with ARC (which provides the Company with significant synergies and benefits), the Board considers that it is appropriately structured to discharge its duties in a manner that is in the best interests of the Company and its shareholders at the present time. The Board is further of the view that there is an appropriate balance between independent representation and maintaining sufficient relevant experience for the Board to fulfil its objectives. The Board's record of unanimous voting on resolutions also supports its current composition.
Further, no real benefits are considered to be gained by appointing an independent chairman at present but this will be reviewed as the Company grows in terms of its scope and operations.
The Board recognizes that its current composition is contrary to the ASX Best Practice Recommendations but is firmly of the belief that it is acting in the best interest of all shareholders to adequately discharge its duties and responsibilities for the reasons mentioned above.
2.2 Independent Professional Advice
Each Director has the right of access to all relevant company information and, subject to prior consultation with the Chairman, may seek independent professional advice at Adelphi's expense. No Director sought such advice during the year.
2.3 Nomination Committee
Because of the present size of Adelphi, the Board as a whole has agreed to act as the Nomination Committee. The Board has a detailed charter and process for the nomination process and thus acts as one in seeking additional Board members when it is appropriate to do so.
2.4 Nomination Criteria
The Board reviews its composition on at least a bi-annual basis to ensure the Board has the appropriate mix of expertise and experience and all members can be effective. The Board aims to align its composition to the needs of the business strategy.
2.5 Election of Directors and Term of Office
Directors appointed by the Board are subject to election by shareholders at the following annual general meeting and thereafter Directors (other than the Managing Director/Executive Chairman) are subject to re-election at least every three years.
The tenure for Executive Directors is linked to their holding of executive office and in the event the executive duties are relinquished, the Executive Director will retire unless the remainder of the Board, acting as the Nomination Committee, invites the Director to remain on the Board as a non independent, non executive Director.
2.6 Frequency of Meeting
The Board meets at least six times per year and will hold as many additional meetings as required to properly carry out its function and as determined by the operations of Adelphi. Board meetings are normally rescheduled to ensure all Directors can attend. The number of board meetings and Directors' attendance at them each year is detailed in the Annual Report.
3. Promoting ethical and responsible decision making
The Board subscribes to all the principles of the code of conduct and the trading policy as recommended by ASX. All Directors and employees are expected to act in accordance with these codes and with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of Adelphi.
3.1 Code of Conduct
Directors and officers of Adelphi are required to follow the code of conduct which has been formally adopted by the Directors. The code of conduct articulates a number of practices and is designed to enhance the ethical conduct of Adelphi and promotes the minimum level of integrity which is expected of the Directors and officers. The code of conduct addresses amongst other things:
• Conflicts of interest and the manner in which they should be dealt with;
• Corporate opportunities and the prevention of Directors and officers deriving personal gain with information gained from Adelphi;
• Compliance with all laws and regulations; and
• Reporting of unlawful or unethical behavior and protection for ‘whistleblowers'.
The Company's performance under this Code and its regular review is the responsibility of the Board.
3.2 Share Trading Policy
Directors, officers, employees and contractors who work directly with Adelphi are restricted from trading in the Company's securities without informing the Company Secretary prior to purchasing or selling securities. Clear restrictions are also placed on timing of when transactions are allowed to occur. These restrictions are detailed in Adelphi's Share Trading Policy which is available on its website.
4. Establishing and maintaining a structure to independently verify and safeguard the integrity of Adelphi's financial reporting
4.1 Process
The Board has put in place a structure to independently verify and safeguard the integrity of Adelphi's financial reporting. This includes:
• The review and consideration of the accounts by an independent audit committee of the Board.
• The process to maintain an independent and competent external auditor to report to the Audit Committee.
• Certification of the accuracy and integrity of the financial reports and reporting systems by the Executive Chairman and Company Secretary, who also serves as the most senior financial officer.
4.2 Audit committee charter
The Audit Committee has a documented charter, approved by the Board, which is available on the Company's website. The qualifications of the members of the Audit Committee, together with the number of meetings held and attendance records during the previous year, are detailed in the latest Annual Report.
The principal terms of the Charter of the Audit Committee are as follows:
• The membership of the Audit Committee shall consist of at least two and up to three members, each of whom are appointed by the Board. The Audit Committee of Adelphi currently consists of two members given its size and composition of the Board, with its Chairperson (see below) being independent. The majority of members shall have significant experience with financial and business matters.
• The Board should appoint the Committee Chairperson and determine the period for which they shall hold office. The Chairperson of Adelphi shall not be eligible to be appointed as Chairperson of the Audit Committee. Mr O'Connor is the current Chairperson of the Audit Committee.
• In order to minimise the risk of any conflict of interest that might be seen to give rise to an unacceptable influence, the Audit Committee Chairperson and members of the Audit Committee should be rotated on a regular basis where this is possible.
The members of the Audit Committee as at 30 June 2005 are:
- Mr Patrick O'Connor (Chairperson)
- Mr Graham D Riley
The Committee will meet as required each year and at such additional times as the Committee decides. The Chairperson may convene a meeting at any reasonable time.
5. Making timely and balanced disclosure of all material matters concerning Adelphi
Adelphi has put in place mechanisms designed to ensure compliance with ASX Listing Rule requirements so that all investors will have equal and timely access to material information concerning the Company, including its financial situation, performance, ownership and governance. These processes also ensure that public announcements are factual and presented in a clear and balanced way disclosing both positive and negative information.
All employees, officers and Directors of Adelphi have been made aware of the obligation to ensure that Adelphi complies with ASX Listing Rule 3.1. This duty is discharged by employees and officers by bringing such information to the attention of the Executive Chairman. Upon consultation with other Directors and managers, the information must be released to the market. This information can be relevant to the technical, legal or financial affairs of the Company.
The Executive Chairman and the Board are accountable for ensuring that no investor is disadvantaged through inappropriate disclosure. In general, all ASX releases are prepared under the direction of the Executive Chairman. Two Directors of the Company or a Director and the Company Secretary consider any announcement before it is released. The Executive Chairman must ensure that the information is not released to any other person until the Company has released the data to ASX and received an acknowledgment that ASX has received and released the information to the market.
6. Acknowledging the rights of shareholders and facilitating the effective exercise of those rights
The Board of Adelphi demonstrates respect for the rights of its owners by communicating effectively with them, giving them ready access to balanced and understandable information about the Company, and making it easy for them to participate in general meetings.
To this end it has developed a detailed Public Relations and Communications System that is used for internal control purposes.
The following information is communicated to shareholders:
- the Annual Report and notices of shareholder meetings;
- quarterly reports reviewing the operations, activities and financial position of the Company; and
- all documents that are released to ASX are made available on the Company's website.
6.1 Electronic communication
Where possible, Adelphi uses email to provide information updates to its investors. Where investors do not have access to email, Adelphi will provide information on request by facsimile or post.
6.2 Meetings
In order to use general meetings effectively to communicate with shareholders and allow reasonable opportunity for informed shareholder participation, Adelphi has adopted the ASX guidelines for notices of meeting as set out in Attachment A of the Principles of Good Corporate Governance and Best Practice Recommendations document of 2003.
6.3 Adelphi Website
The Board is committed to complete transparency and publishes all relevant information about Adelphi on its website which is updated on a regular basis.
6.4 External auditor at the AGM
The Board will always request the attendance of Adelphi's external auditor at the annual general meeting and that they be available to answer shareholders' questions about the conduct of the audit and the preparation and content of the auditors' report.
7. Establishing and maintaining a sound system of corporate and commercial risk oversight and management and internal control
7.1 Risk Management
The Adelphi Board as a whole works to establish and maintain a sound system of corporate and commercial risk oversight and management and internal control by identifying assessing, monitoring and managing the Company's risk exposure. It also informs investors of any material changes to the Company's risk profile should they occur. Given the Company's present status as an exploration company with no operational activities, it is not considered necessary to develop a comprehensive risk management system at this point in time.
Further, given the Company's contractual relationship with ARC in terms of ARC providing Adelphi with comprehensive administrative, financial and company secretarial services, Adelphi relies primarily on ARC's well established internal controls and systems in relation to these matters. However, the requirement for a formal risk management system will be reviewed on an ongoing basis as the Company grows its operations in Australia and overseas with a view to documenting a risk profile as a means to an effective risk management system.
The risks involved with an oil and gas exploration company and the specific uncertainties for Adelphi are being regularly monitored and the full Board of the Company meets on an annual basis to formally review such risks. In addition, all exploration and investment proposals reviewed by the Board include a conscious consideration of the issues and risks of each proposal.
The Company has also appointed senior staff with broad-ranging industry experience to effectively manage and monitor the potential exposures facing the Company. Additionally, it is the responsibility of the Audit Committee to assess the adequacy of the Company's internal control systems and that its financial affairs comply with applicable laws and regulations and professional practices.
7.2 Certification
The Executive Chairman and the Company Secretary are required to state to the Board in writing that:
• The statement given on the integrity of financial statements is founded on a sound system of risk management and internal compliance and control, which implements policies adopted by the Board.
• Adelphi's risk management and internal compliance and control system is operating efficiently and effectively in all material respects.
This certification is made after enquiry of, and representation by, appropriate levels of management and prior to the directors' approval of the release of the annual and six monthly accounts.
8. Reviewing organisation performance and actively encouraging board and management effectiveness
Adelphi acknowledges that the minimum standard for ensuring Board and Management effectiveness is that Directors and key executives must be equipped with the knowledge and information they need to discharge their responsibilities effectively, and that their individual and collective performance be regularly and fairly reviewed. Board effectiveness is monitored through Board as a whole assessment and assessment of Directors individually.
Formally evaluating the performance of individual Directors is considered important as part of being able to demonstrate good governance and to support the re-appointment of Directors when appropriate.
In addition to Board evaluation, good governance requires an assessment procedure for the Executive Chairman and key executives.
8.1 Procedure
A review of the Board's own performance and effectiveness is conducted at least bi-annually. The review is prepared by the Executive Chairman and evaluated by the Board. Each director completes a questionnaire and the collective responses are discussed by the Board to identify strengths and areas for improvement.
8.2 Board Development
Directors have access to continuing education to update and enhance their skills and knowledge and to enable them to fully participate in all the decision making of the Board.
9. Establishing and maintaining a level and composition of remuneration that is reasonable and is related to corporate and individual performance
The Board recognises that it must ensure that the level and composition of remuneration is sufficient and reasonable and that there is a clear link between remuneration and individual and corporate performance.
9.1 Objectives
Adelphi's remuneration policy is structured to attract and maintain talented and motivated Directors, executives and employees and to encourage their contribution to the enhanced performance of the Company.
9.2 Remuneration Committee
The Board has established a Remuneration Committee to advise on remuneration policies and implementation of those policies to meet the needs of Adelphi and enhance corporate and individual performance.
The members of the Remuneration Committee as at 30 June 2005 are:
- Mr Eric Streitberg (Chairperson)
- Mr Patrick O'Connor
Meetings are to be held at least once a year as part of the annual remuneration review. The Committee draws on third party advice and comparable industry surveys to establish remuneration levels for management. The remuneration of non-executive directors is set by the executive directors of Adelphi solely on third party reviews and surveys.
The charter and structure of the Remuneration Committee is set out in the Corporate Director and Employee Handbook.
In performing its duties the Remuneration Committee ensures objectivity through:
• Accessing independent third party advice in relation to the remuneration of non-executive Directors.
• Ensuring no Director or manager is involved in any decisions as to his or her own remuneration except as noted above.
• Take into account all factors that it deems necessary in determining such policy. The objective of such policy is to ensure that members of the executive management of Adelphi are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Company.
The Company has implemented an incentive option scheme (“Scheme”) which was approved by shareholders at a general meeting on 3 June 2005. The purpose of this Scheme is to attract key personnel and to allow them to participate in the future growth of the Company at an appropriate level. The Scheme has been benchmarked against other similar option plans and its full terms can be accessed on Adelphi's website. Under the Scheme options may be issued to the Company's employees, consultants and Directors, with any options issued to Directors requiring the prior approval of shareholders in accordance with the Corporations Act and ASX Listing Rules.
Whilst the issue of options to non-executive directors is contrary to ASX Best Practice Recommendations, given Adelphi's current size, it is considered more appropriate for its non-executive directors to be compensated in part by a performance related option issue rather than by increased directors' fees which are modest in comparison to other listed companies of a similar size. This policy will however be reviewed as part of the Company's overall remuneration to its Non-executive Directors as the Company develops and grows its asset base and cash flow.
Full details of executives' and Directors' remuneration are set out in the Directors' Report and the Notes to the Financial Statements in the Company's Annual Report.
10. Recognising legal and other obligations to all legitimate stakeholders
The Board recognises that Adelphi has a number of legal and other obligations to non-shareholder stakeholders such as employees, clients/customers and the community as a whole beyond the traditional notion of social responsibility. The Board believes that organisations can create more value by better managing natural, human, social and other forms of capital. It is therefore important that Adelphi demonstrates its commitment to appropriate corporate practices in respect to these stakeholders.
The Board has adopted a Code of Conduct toward non-shareholder stakeholders which is available on its website as part of its Corporate Governance System.