Corporate Governance
The Babcock & Brown Group has adopted a corporate governance framework around its specialised funds platform. This includes a number of key principles to ensure the independence of each of its specialised funds. These principles are outlined below. Unless stated, BBC intends to comply with these principles.
• BBC, which will be publicly listed on ASX, will report on its corporate governance framework and adopt, where considered appropriate, the best practice recommendations contained in ASX’s corporate governance guidelines, other than the exceptions noted in this Section.
• Other than the exceptions noted in this Section, BBC will adopt most of ASX Principles of Good Corporate Governance and Best Practice Recommendations (ASX Guidelines) and will report on its compliance with these in its Annual Report, the first of which will be for the period ending 30 June 2008.
• A majority of Directors of the Boards will be independent and appropriately qualified. The definition of independent is the definition set out in ASX Guidelines. The chairman (Professor Sloan), Mr Andrew Love and Mr Graeme Martin are considered Independent Directors of BBC. BBC will depart from ASX Guidelines at the time of listing by not having an outright majority of Independent Directors on the BBCG Board. The proposed Boards consider the current composition of the Boards and in particular the equality of independent and non-Independent Directors to be appropriate given that the independent chairman has a casting vote.
• Where the chairman of a Babcock & Brown fund is an executive, a lead independent non-executive director is appointed. There is no need for this appointment at this stage as the chairman, Professor Sloan, is not a Babcock & Brown Group executive.
• BBC will have its own Chief Executive Officer whose primary responsibility will be to oversee the operations and management of BBC. BBC will have a separate Manager. The Management Agreements explicitly states that the Manager must act in the best interests of the investors of BBC.
• The management of BBC will be carried out by Key Executives who will report to the Chief Executive Officer of BBC with respect to their responsibilities and who understand that their primary duty in performing such responsibilities is to the investors of BBC. These staff will be seconded by Babcock & Brown to the Manager and will be dedicated to the management of BBC. BBC’s Board will develop specific key performance indicators for the senior management providing services to them.
• The Boards will monitor the performance of the Manager and the employees of the Manager providing services to BBC and there will be an established process for the provision of feedback on their performance. The Manager will provide periodic reports to the Boards confirming that it has complied with its obligations under the Management Agreements.
• The Independent Directors of the Boards will be given the opportunity to provide formal input to Babcock & Brown on the performance of the Manager as a whole and the key employees of Babcock & Brown who perform services for them. This input is to be taken into account in determining the proposed remuneration of those key employees, as it relates to their services to BBC, and the Independent Directors are to be consulted on that proposed remuneration. The Chief Executive Officer of BBC may only be removed by agreement between the independent non-executive directors of BBC and Babcock & Brown, unless the Chief Executive Officer has accepted an alternative role within Babcock & Brown or has resigned from Babcock & Brown or whose employment with Babcock & Brown has been terminated for cause by Babcock & Brown.
• Under the Management Agreements, all matters to be approved by the Boards must be recommended by the Manager. All recommendations to BBC will be prepared by the staff managing BBC and all information and analysis supporting the recommendation to BBC will be reviewed or prepared by the staff managing BBC.
• The Boards are under no obligation to act on any recommendation of the Manager but cannot act without one.
• The Boards will have the right to seek independent professional advice (including legal, accounting and financial advice) at the expense of BBC on any matter connected with the discharge of their duties. Therefore, Directors of the Boards have, if they require, access to information relevant to investment and management decisions that is free from material conflicts of interest.
• For a particular transaction (including any investment opportunity that Babcock & Brown may offer to BBC), the team of staff and advisers assisting with the development of the proposal (transaction team) will report to the Chief Executive Officer of BBC in connection with that opportunity. The members of the transaction team will also understand that their primary duty in performing such responsibilities is to the investors of BBG. For transactions that involve other Babcock & Brown entities, there will be separate transaction teams acting for BBC and the related entity.
• Related party transactions with Babcock & Brown Group members will be clearly identified and governed by rules requiring that they be undertaken on arm’s length terms. BBC will adopt a conflicts of interest policy that sets out the principles and processes for managing conflicts of interest that may arise from time to time between BBC, the Manager and Babcock & Brown.
• Only the Independent Directors of BBC will make decisions about transactions that involve any member of the Babcock & Brown Group. Babcock & Brown executives who are Directors of the Boards will not vote on related party matters.
• Any fees to be paid to members of the Babcock & Brown Group which introduce transactions or otherwise provide services to BBC will require approval by the independent non-executive directors of BBC. It is intended that a framework for the setting of fees to be paid to members of the Babcock & Brown Group which introduce transactions or otherwise provide services to BBC be developed (where such framework is not already in place) and be approved by the Boards. Fee schedules and mandate terms and conditions for transactions or services conducted by the Babcock & Brown Group are based on market conditions and must be on arm’s length terms.
• BBC does not have an exclusive right to participate in investment opportunities originated or identified by the Manager or the Babcock & Brown Group. As between funds managed by the Babcock & Brown Group, in determining whether BBC is offered an opportunity, the Babcock & Brown Group will have regard to the following principles:
– whether the opportunity is within BBC’s investment objectives and policy; and
– whether BBC is able to finance the investment at that time and at what cost.
• Where the Babcock & Brown Group is offering an investment opportunity to one or more of the funds managed by the Babcock & Brown Group and that opportunity is of interest to and within the investment objectives and policy of BBC and other Babcock & Brown managed entities, the Babcock & Brown Group will determine whether and to whom to offer the opportunity after taking into account each entity’s investment strategy, policy and objectives and each entity’s willingness to acquire less than all of the investment. BBC will decide whether or not to accept any investment opportunity offered to it by the Babcock & Brown Group.
• The external auditor of BBCG will not be the auditor of Babcock & Brown or any of its subsidiaries.
• Both the BBCG and the BBCIS Boards will adopt formal charters that clearly state:
– the responsibilities of the Board including the specific matters reserved for determination by the Board;
– the roles and responsibilities of the chairman, lead Independent Director (if applicable) and the Chief Executive Officer; and
– those matters delegated to the Manager (Boards charter) and to management of the Manager (Manager Board charter).
• Each employee of Babcock & Brown who performs services for BBC is subject to the Babcock & Brown Group’s risk management and other policies and BBC adopts, where appropriate, policies consistent with those maintained by Babcock & Brown.
• In addition, the Boards will adopt the Babcock & Brown Limited Code of Conduct (Code of Conduct). The Code of Conduct applies to all Babcock & Brown Group staff which includes the specialised funds staff. The objectives of the Code of Conduct are to ensure that:
– high standards of corporate and individual behaviour are observed by all employees in the context of their employment with the Babcock & Brown Group;
– employees are aware of their responsibilities to the Babcock & Brown Group under their contract of employment and always act in an ethical and professional manner; and
– all persons dealing with the Babcock & Brown Group, whether it be employees, shareholders, suppliers, clients or competitors can be guided by the stated values and practices of the Babcock & Brown Group.
• BBC’s Independent Directors are offered the opportunity to meet with the Independent Directors of Babcock & Brown without executive management, at least annually.
• BBC will make publicly available all relevant constituent documents such as charters, policies and constitutions, and a summary of their Management Arrangements.