Corporate Governance

Magellan Flagship Fund Limited (the “Company”) is a listed investment Company whose shares are traded on the Australian Securities Exchange (ASX). The Board and Management of the Company recognise the importance of good corporate governance. The Company’s corporate governance framework, policies and practices are designed to ensure the effective management and operation of the Company, and will remain under regular review.

1.        THE BOARD

1.1      The Board of Directors

R. Warburton A.O (Chairman, independent non-executive director)

J. Ballard (independent non-executive director)

A. Hogendijk (independent non-executive director)

C. Mackay (non-executive director)

H. Douglass (non-executive director)

Details of each Board member’s background and attendance at Board meetings are set out in the Directors’ Report.

The Board is responsible for the overall operation and stewardship of the Company and is responsible for its overall success and long-term growth and corporate governance. The Board will act in the best interests of the Company to ensure the business of the Company is properly managed.

1.2      Board Composition and Independence

There must be a minimum of three Directors and a maximum of ten Directors. The Board has a majority of independent non-executive Directors.

The Board must comprise:

  • Directors with an appropriate range of skills, experience and expertise;
  • Directors who can understand and competently deal with current and emerging business issues; and
  • Directors who can effectively review and challenge the performance of the Investment Manager and exercise independent judgment.

The Board currently comprises five non-executive Directors, three of whom are independent non-executive Directors.

A Director must retire from office no later than the later of the third annual general meeting of the Company or three years following the Director’s last election or appointment.

An independent non-executive Director is a non-executive Director who is independent of the Investment Manager and free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgment.

The Board is confident that each of the Directors will bring skills and qualifications to the Company which will enable them to effectively discharge their individual and collective responsibilities as Directors of the Company.

The Board considers that the number of Directors is sufficient to enable it to effectively discharge its responsibilities. However, the composition of the Board will be reviewed periodically and its independence, and that of the individual Directors, will be assessed as part of those reviews.

The Board has authorised the Investment Manager to make decisions concerning the Company but has expressly reserved certain matters requiring a decision of the Board.

1.3      The Role of the Board and Delegation

The Company’s corporate governance policies revolve around its Board Charter, the purpose of which is to:

  • promote high standards of corporate governance;
  • clarify the role and responsibilities of the Board; and
  • enable the Board to provide strategic guidance for the Company and effective operational oversight.

The Board Charter will apply subject to applicable legal and regulatory requirements, including duties and obligations imposed on the directors by statute and general law. The Board may review and amend the Board Charter at any time.  The Board Charter is available from the Company by contacting the Company Secretary.

The principal responsibilities of the Board include:

  • assessing the Company’s overall performance;
  • reporting to shareholders;
  • exercising all rights conferred on it and performing all obligations imposed on it under the Investment Management Agreement;
  • reviewing at regular intervals relevant aspects of the Investment Management Agreement;
  • reviewing and having input into overall target portfolio composition;
  • providing strategic guidance to the Investment Manager on investments;
  • monitoring and assessing the performance of the Investment Manager under the Investment Management Agreement;
  • reviewing at regular intervals relevant aspects of the Administrative Services Agreement;
  • monitoring and assessing the performance of the Investment Manager under the Administrative Services Agreement;
  • monitoring and ensuring compliance with best practice corporate governance requirements; and
  • ensuring the risk management systems, including internal controls, operating systems and compliance processes, are operating efficiently and effectively.

Subject to legal or regulatory requirement and the Company’s Constitution, the Board may delegate any of the above powers to individual directors, committees of the Board or the Investment Manager. Any such delegation shall be in compliance with the law and the Company’s Constitution.

1.4      Non-executive Directors’ remuneration structure

The independent non-executive Directors’ fees are $85,000 per annum for the Chairman, $50,000 per annum for each Director, and an additional $25,000 per annum for the Chairman, and $12,500 per annum for each other member, of the Audit & Risk Committee, plus in each case reimbursement of expenses such as travelling expenses.

The Non-independent Directors, Chris Mackay and Hamish Douglass, did not receive any fees in relation to acting as Directors of the Company or, in the case of Chris Mackay, as a member of the Audit & Risk Committee.

The maximum aggregate sum fixed for payment of the total non-executive Directors’ fees is $500,000 per annum until the shareholders, by an ordinary resolution, approve some other fixed sum. This amount is to be divided amongst the Directors as they may determine.

1.5      Evaluation of Performance

The Board reviews its performance in terms of Company objectives, Company results and achievements of the Investment Manager.   The Company has no employees and a result, the evaluation of the performance of senior executives is not applicable.  This represents a departure from Recommendations 1.2 and 1.3 of the ASX Principles as the Company has not disclosed the process for the evaluation of the performance of senior executives.

1.6      Access to Information and Independent Advice

Directors have access to any information they consider necessary to fulfil their responsibilities and to exercise independent judgment when making decisions.

Directors may obtain independent professional advice at the Company’s expense, subject to making a request to, and obtaining the prior authorisation of, the chairperson of the Board. Where the chairperson of the Board wishes to obtain independent professional advice, he or she is required to make a request to, and obtain the prior authorisation of, the chairperson of the Audit and Risk Committee of the Board.

2.        BOARD COMMITTEES

The Board may from time to time establish committees to assist it in the discharge of its responsibilities. To date, the Board has only found a need to establish the Audit & Risk Committee.

Other committees may be established by the Board as and when required. Membership of Board committees will be based on the needs of the Company, relevant legislative and other requirements and the skills and experience of individual Directors. The Board expects that, over time, the Directors will rotate on and off various committees. Committee members will be appointed for a three year term of office. The Company does not have a Nomination Committee.  This represents a departure from Recommendations 1.2 and 1.3 of the ASX Principles as a Nomination Committee is not required given the size and nature of the Company.

Performance of all committee members will be reviewed periodically by the Board.

Audit & Risk Committee

The Audit & Risk Committee is comprised of:

  • A. Hogendijk (Chair, independent non-executive director)
  • J. Ballard (independent non-executive director)
  • C. Mackay (non-executive director)

Details of each Committee member’s background and attendance at Audit & Risk Committees are set out in the Directors’ Report.

The Chairman of the Audit & Risk Committee is an independent non-executive Director and is not the Chairman of the Board.

The objective of the Audit & Risk Committee is to assist the Board to discharge its responsibilities in relation to:

  • effective management of financial and operational risks;
  • compliance with laws and regulations;
  • accurate management and financial reporting;
  • maintenance of an effective and efficient audit; and
  • high standards of business ethics and corporate governance.

These objectives form the foundation of the Audit & Risk Committee’s Charter.  A copy of this Charter is available from the Company by contacting the Company Secretary.

The Audit & Risk Committee will endeavour to:

  • maintain and improve the quality, credibility and objectivity of the financial accountability process;
  • promote a culture of compliance within the Company;
  • ensure effective communication between the Board, the Investment Manager and the Investment Manager’s senior financial and compliance management;
  • ensure effective audit functions and communications between the Board and the Company auditor;
  • ensure that compliance strategies and compliance functions are effective; and
  • ensure that Directors are provided with financial and non-financial information that is of high quality and relevant to the judgments to be made by them.

3.        ETHICAL CONDUCT

The Company has a Corporate Code of Conduct (the “Code”) that applies to Directors of the Company and to Directors and employees of the Investment Manager.  The purpose of this Code is to:

(a)  articulate the  high standards of honest, ethical and law-abiding behaviour that the Company expects of its Directors and the Directors and employees of the Investment Manager;

(b)  encourage the observance of those standards so as to protect and promote the interests of shareholders and other stakeholders;

(c)   guide the Company’s Directors and the Directors and employees of the Investment Manager as to the practices thought necessary to maintain confidence in the Company’s integrity;           and

(d)   set out the responsibilities and accountabilities of Directors and employees of the Investment Manager to report and investigate reports of unethical practices.

A copy of the Corporate Code of Conduct is available from the Company by contacting the Company Secretary.

4.        MARKET DISCLOSURE

The Company is committed to complying with its continuous disclosure obligations under the Corporations Act 2001 and the Listing Rules, as well as releasing relevant information to the market and shareholders in a timely and direct manner and to promoting investor confidence in the Company and its securities.

The Board has adopted a Continuous Disclosure Policy that is designed to ensure that the Company:

  • as a minimum complies with its continuous disclosure obligations under the Corporations Act 2001 and the ASX Listing Rules;
  • provides shareholders and the market with timely, direct and equal access to information issued by it; and
  • that information which is not generally available and which may have a material effect on the price or value of the Company securities (price sensitive information), be identified and appropriately considered by the Directors and senior executives for disclosure to the market.

The Policy, which is available from the Company by contacting the Company Secretary, also sets out procedures which must be followed in relation to releasing announcements to the market and discussions with analysts, the media or shareholders.

The Company market announcements will also be available its website after they are released to ASX.

5.        SHAREHOLDER COMMUNICATIONS

The Board is committed to ensuring that shareholders are fully informed of material matters that affect the Company’s position and prospects. It seeks to accomplish this through a strategy which includes:

  • the Half Year Results released in February each year;
  • the Full Year Results released in August each year;
  • the Chairman’s Letter to Shareholders each year;
  • the Annual Report released in September each year;
  • the Chairman’s and Chief Investment Officer’s addresses to the Annual General Meeting;
  • the posting of the Company’s weekly and Monthly NTA on the Company’s website as soon as it is disclosed to the market; and
  • the posting of significant information on the Company’s website as soon as it is disclosed to the market.

The Company holds its Annual General Meeting in October and a copy of the notice of Annual General Meeting is posted on the Company’s website and mailed to shareholders. The Board encourages shareholders to attend the Annual General Meeting or to appoint a proxy to vote on their behalf if they are unable to attend. The formal addresses at the Annual General Meeting are disclosed to the market.

The Company’s external auditor will be invited to attend any annual meeting and will be available to answer questions about the conduct of the audit and the preparation and contents of the auditor’s report.

6.        SHARE TRADING

The Board has adopted a policy which sets out the circumstances in which Directors of the Company and Directors and employees of the Investment Manager may deal in:

  • the Company’s securities, which includes any shares in the Company, debentures (including convertible notes) issued by the Company and options to acquire or subscribe for shares in the Company; and
  • other financial products, which includes any shares, options, derivatives (including market index derivatives), debentures any other financial product able to be traded of any company, trust or other organisation, local domestic and international, in which the Company invests or proposes to invest,

with the objective that no Director or employee will contravene the requirements of the Corporations Act 2001, the ASX Listing Rules or any other applicable law.

The purpose of this policy is designed to protect the reputation of the Company and to ensure that such reputation is maintained or perceived to be maintained by persons external to the Company.

An overriding principle of the policy is that the Directors and employees who possess non-public price sensitive information must not deal in the Company’s securities.

A copy of the Company’s Trading Policy is available from the Company by contacting the Company Secretary.

7.        RISK MANAGEMENT

The Board, through the Audit and Risk Committee, is responsible for ensuring that:

  • there are adequate policies for the oversight and management of material business risks to the Company;
  • there are effective systems in place to identify, assess, monitor and manage the risks of the Company and to identify material changes to the Company’s risk profile; and
  • arrangements are adequate for monitoring compliance with laws and regulations applicable to the Company.

Risks assessed include:

  • implementing strategies (strategic risk);
  • operations or external events (operational risk);
  • legal and regulatory compliance (legal risk);
  • changes in community expectation of corporate behaviour (reputation risk); and
  • being unable to fund operations or convert assets into cash (liquidity risk).

The Investment Manager, Magellan Asset Management Limited, has implemented risk management and compliance frameworks. These frameworks ensure that:

  • emphasis is placed on maintaining a strong control environment;
  • accountability and delegations of authority are clearly identified;
  • risk profiles are in place and regularly reviewed and updated;
  • timely and accurate reporting is provided to Management and respective Committees; and
  • compliance with the law, contractual obligations and internal policies (including business rules of conduct) is communicated and demonstrated

The Investment Manager reports periodically to the Audit and Risk Committee on the effectiveness of its risk management and compliance frameworks with respect to services undertaken for the Company.

8.        CORPORATE REPORTING

In respect of the year ending 30 June 2009 the Chief Investment Officer and Chief Financial Officer of the Investment Manager have made the following certifications to the Board:

  • the financial records of the Company for the financial period have been properly maintained in accordance with section 286 of the Corporations Act 2001 (Act);
  • the financial statements and notes referred to in paragraph 295(3)(b) of the Act for the financial period comply with the accounting standards;
  • the financial statements and notes for the financial period give a true and fair view (as per section 297 of the Act);
  • any other matters that are prescribed by the Corporations Regulations in relation to the financial statements and the notes for the financial period are satisfied;
  • the integrity of the Company’s financial statements is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; and
  • the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

9.        REMUNERATION

The Investment Manager is entitled to be paid management and performance fees in accordance with the Investment Management Agreement between the Company and the Investment Manager.

Persons involved in management the of the Company’s portfolio are employees of the Investment Manager and are not remunerated by the Company.  As the Company does not pay any remuneration to executives, the Company considers that the requirement to disclose its remuneration policies and to establish a remuneration committee are not relevant to the Company.  This represents a departure from the ASX Recommendation 8.1 and 8.3, as the Manager has not established a remuneration committee.