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Biota, Sirtex top governance report

Nick Evans
Thursday, 9 July 2009

MID-cap life science companies fared very well in a review of corporate governance standards among listed companies, released yesterday by accounting group WHK Horwath.



Biota chief executive Peter Cook

While the last 12 months of market carnage have thinned the number of life science companies in the large-cap and mid-cap review, the majority of those listed fared well.

The report, compiled by researchers at the University of Newcastle for WHK Horwath, compares a company’s corporate governance standards to the ASX corporate governance guidelines, ranking companies into a league table.

The model used by the researchers examines publicly disclosed information on the existence and structure of a company’s board and associated committees, the level of perceived independence of the company from the external auditors, disclosures relating to the existence of a code of conduct, risk management and share trading policy. It also considers the clarity of corporate governance disclosures.

The report, which has been running annually since 2002, looked at the top 400 ASX-listed companies by market capitalisation, with the top 250 listed as large-caps and the next 150 as mid-caps.

Biota and Sirtex topped the tables for the life science sector, ranking equal fifth in the mid-cap report and receiving the highest-possible five-star rating, indicating their “structures met all best-practice standards and could not be faulted”.

According to the report, they “demonstrated unequivocal independence in all key areas, including their board of directors, audit committees, remuneration committees and nomination committees”.

“The board and related committees met regularly and disclosure on related party transactions was clear and unambiguous. The level of non-audit fees paid to the external auditor was within acceptable parameters and/or a rigorous policy was in place with respect to the provision of non-audit services by the external auditor. In addition, there was a documented code of conduct, policies on risk management and share trading, and clarity with respect to corporate governance disclosures.”

Overall, less than 5% (7 companies in total) of mid-cap companies demonstrated best-practice governance standards in the 2008 financial year, according to the report.

In all, four life science companies ranked in the top quarter of the league table, with Cellestis sitting at number 19 with a 4.5-star rating and Australian Pharmaceutical Industries at number 27, with a four-star rating.

Arana Therapeutics received a 3.5-star rating, indicating its corporate structures were generally good and met most best-practice standards, but ChemGenex and Acrux (ranked 106 and 108 out of 150 respectively) got a poor write-up, with the report saying their two-star ranking indicated that “corporate governance structures were lacking in some key areas”.

“The board of directors and associated committees contained few independent members and there were significant corporate governance weaknesses in other areas.”

Of the larger caps, Pharmaxis fared the best, with its 4.5 stars ranking the company at number 40 of the top 250 companies.

Cochlear and CSL also received 4.5-star ratings, ranking at number 43 and 53 respectively.

There weren’t enough biotech and pharma companies included in the report for the sector as a whole to be ranked, according to WHK Horwath, but those included were far from the worst performing.

That dubious honour goes to the mining and metals industry, where the mid-caps received an average of 2.12 stars and their large-cap cousins 2.88 stars.

The mid-cap report said that in “several Horwath Corporate Governance reports, it has been noted that many mining companies often seem to show little concern for good corporate governance. The findings of the 2009 WHK Horwath Mid-Cap Corporate Governance Report seem to confirm this.”