Our corporate governance

QIC’s active Boards, Committees and robust policies provide the perspective and structure for efficiency and integrity in corporate governance. Our practices are benchmarked against best practice corporate governance principles.

QIC’s Board of Directors and management are committed to achieving and demonstrating a high standard of corporate governance. QIC’s Board, which is appointed by the Governor-in Council, guides and monitors the Corporation’s business affairs on behalf of our shareholders, to whom the Board is accountable.

In this section, we have summarised the main corporate governance practices established by the Board and in place throughout 2006–2007, to ensure that the interests of shareholders, clients, staff and other stakeholders were well managed.

Corporate governance best practice

QIC is committed to best practice in corporate governance, and our corporate governance practices are continually reviewed and improved to reflect industry guidelines and recommendations. QIC’s corporate governance practices have been compared against the ASX Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations (First Edition), the Standards Australia standard for good governance principles, and recommendations made by the Auditor-General of Queensland. This approach has been reinforced and supported by the introduction of Corporate Governance Guidelines for Government Owned Corporations issued in September 2005 by the Queensland Government.

QIC complies with many corporate governance best practice recommendations. In particular:

QIC’s Chairman is an independent and non-executive Director, and the Board is entirely constituted of non-executive Directors, all of whom are considered by the Board to be independent, as defined by ASX principles.
QIC has a Board Charter which details the functions and responsibilities of the Board.
QIC’s Directors are appointed by the Governor-in-Council, who considers each person’s ability to make a contribution to QIC’s commercial performance and the implementation of our Statement of Corporate Intent.
We have an Audit & Risk Management Committee with its own charter.
QIC has a Code of Conduct and a Code of Ethics that apply to all staff and Directors.
We have a policy on trading in securities where conflicts of interest may arise.
QIC’s principal external auditor is the Auditor-General of Queensland who is appointed to this position on a seven year non-renewable basis. In addition, the Auditor-General has a policy for the regular rotation of audit staff and executives between audits. KPMG have been appointed as auditors to a number of subsidiaries and investment entities which form part of the QIC Private Capital investment structure.

Our shareholders

As a Queensland Government Owned Corporation, QIC’s Shareholding Ministers for the year 2006-2007 were the Honourable Peter Beattie MP, Premier and Minister for Trade, and the Honourable Anna Bligh MP, Deputy Premier, Treasurer and Minister for Infrastructure[1].

Board and management

In accordance with the Government Owned Corporations Act 1993, QIC’s Board is appointed by the Governor-in-Council. The chief executive and senior executives are appointed by the QIC Board with the prior written approval of the shareholding Ministers. The Board wholly comprises non-executive Directors all of whom are considered by the Board to be independent, as measured against the ASX Principles of Good Corporate Governance and Best Practice Recommendations (First Edition). QIC’s materiality thresholds for determining independence are assessed by the Board on a case by case basis.

QIC’s Board, is responsible for directing and controlling QIC’s activities. The Board operates in accordance with the principles set out in its Charter. The Board Charter outlines the key governance principles adopted by the Board including:

Role and responsibilities of the Board
Delegation of certain responsibilities to management
Board structure
Meeting procedures
Board committees
External communication guidelines
Professional conduct, including conflicts of interest
Performance assessment.

QIC is responsible for providing professional, effective investment services, funds management services, and other financial services to public sector superannuation schemes, government investment funds, and other superannuation and investment schemes. In doing this, we are required to conduct a successful commercial enterprise that generates a satisfactory financial return to the Queensland Government. In addition, the Board is responsible for monitoring areas of significant investment and business risk and ensuring arrangements are in place to adequately manage those risks.

QIC has established policies and procedures designed to ensure that Directors, management and staff meet high standards of professionalism and integrity, and adhere to relevant industry standards and legal requirements.

The responsibility for the day-to-day operation and administration of QIC is delegated by the Board to the Chief Executive and the executive management team. The Board ensures that this team is appropriately qualified and experienced to discharge their responsibilities, and has in place procedures to assess the performance of the Chief Executive and the executive management team.

Board performance evaluation

The Board undertakes a formal biannual review of its performance taking into consideration targets specified in the annual Statement of Corporate Intent (SCI), individual directors’ contribution to the Board and the activities of the Board and its Committees. The Board determines the manner and form of this evaluation. During 2006-2007, the evaluation was undertaken through a self assessment questionnaire of all Directors and then a formal discussion between each Director and the Chairman. Each director’s response to the self assessment questionnaire are collated and a summary is provided to the Board for its consideration and discussion. The Board Evaluation Questionnaire requested that directors grade the Board’s performance against a series of questions which can be grouped as follows:

Role of the Board, Strategy and Planning
Board structure
Meeting Processes
Committees
Performance Monitoring
Board and Senior management Behaviour and Relationships
Personal Contribution to the Role
General Comments

Board committees

To assist our Directors to fulfil their responsibilities, several Board Committees operated during 2006–2007:

· The Audit and Risk Management Committee, comprising Marian Micalizzi (Chair) John Allpass (retired as Chairman on 11 September 2006), David Harrison, and Bronwyn Morris (appointed to Committee on 31 July 2006), reviewed matters relevant to financial disclosure in relation to Australian equivalent International Financial Reporting Standards (AIFRS) issued by the Australian Accounting Standards Board, corporate risk management, compliance, and internal and external audit functions.

The Committee aimed to ensure that financial controls and systems addressed key business risks and were of a high standard. Each Committee member has significant accounting and financial services experience.

Ernst & Young conducts internal audit reviews to examine the adequacy of internal controls and to measure compliance with Board and management policies and external regulatory requirements. Internal controls aim to provide reasonable assurance that assets are safeguarded, proper accounting records are maintained, and financial information is accurate and complete. The controls are linked to QIC’s corporate risk management system. The Audit and Risk Management Committee monitors and considers reports from internal audits and monitors any remedial action required.

The Auditor-General of Queensland is the external auditor in accordance with the Government Owned Corporations Act (1993). During the year, KPMG was appointed as External Auditors of a number of entities in the QIC Private Capital investment structure following a detailed assessment by the Committee. The Committee considers external audit reports and management letters and monitors action by management in respect of these reports. The Committee periodically meets separately with the internal and external auditors in the absence of management.

The Committee has enhanced procedures and policies relating to overseeing internal and external auditors’ independence. As such, the internal and external auditors will not provide services: where the auditors would have a mutual or conflicting interest with QIC; be in a position where they audit their own work; function as management of QIC; or have their independence impaired or perceived to be impaired in any way.

· The Human Resources Committee, comprising Ken MacDonald (Chair), Trevor Rowe, David Harrison, Ian Brusasco and Doug McTaggart, considered matters relating to human resource management policies and practices, including staff remuneration.

· The Product Development Committee, comprising Maurice Newman (Chair), Trevor Rowe, John Allpass, Marian Micalizzi, Ken MacDonald and Doug McTaggart, guided QIC’s product development process including the establishment of new funds, production of explanatory brochures and due diligence verification processes.

· The Debt Management Committee comprising John Allpass (Chair), Marian Micalizzi, Doug McTaggart and members of the executive management team, ensure that debt facilities used in QIC products are managed prudently and in an efficient and effective manner.

Other committees

QIC’s Chief Executive is Chairman of three standing committees that ensure the integrated and efficient management of our corporation.

· The Executive Committee consists of the Chief Executive and General Managers. It is a forum for senior managers to address strategic corporate issues, and provides assistance and advice to the Chief Executive, the Chairman, and the Board. The Head of Corporate Strategy participates in and assists the CEO facilitate these meetings.

· The Investment Strategy Committee consists of senior investment staff from each asset division and client service staff. The committee is a forum for discussing market developments and their implications for investment returns, and for monitoring strategic developments in finance and economics.

· The Programme Management Office Executive Committee (formerly the Corporate Projects Committee) is a working Committee of the Executive Committee. The Committee and its sub-committees, with defined delegations of authority, manages QIC’s portfolio of projects.

In addition, during the current period QIC has established the following management Committees:

· The Alpha Committee considers competing sources of alpha and to establish a portfolio of active returns that meets clients’ objectives.

· The Beta Strategy Committee oversees all beta investment activities to ensure that client objectives are achieved in compliance with the relevant scorecards. It also provides a forum for pro-active passage of information on all beta related developments and issues.

Remuneration management

QIC is aware of the need to balance attractive remuneration with controlled costs and accountability as a Government Owned Corporation (GOC).

However, our remuneration and incentive schemes must be competitive within the funds management industry to attract and retain the high quality staff we need in order to give our clients leading investment services.

Remuneration standards

In setting our remuneration and incentive policies we believe they must:

Align with business strategy
Be competitive against industry benchmarks
Comply with relevant legislation and GOC guidelines
Discriminate between high and low performance
Show clear methods of performance assessment, applied fairly to all in the scheme
Enable staff to track their performance against targets.

QIC’s performance framework

The key feature of QIC’s performance-based commissions framework is that performance payments are linked to investment performance as well as to the individual’s contribution to defined key result areas.

For this purpose, the performance of QIC funds is measured against demanding benchmarks, and the full payment is only made if actual performance significantly exceeds those benchmarks, and achieves stretch targets.

Ongoing assessment and approval of remuneration

Our Human Resources Committee advises the Board on appropriate levels of staff remuneration after conducting an annual review of corporate and individual performance, taking into account industry comparisons and independent advice. The Board then decides the remuneration of the Chief Executive and senior management staff, subject to our Shareholding Ministers’ approval.

Our Employment and Industrial Relations Plan is approved annually by our Shareholding Ministers. This plan includes our remuneration policy and practices for all staff.

Directors’ fees

The Governor-in-Council of the State of Queensland determines QIC’s Directors’ fees. Directors are not entitled to performance-based payments and retirement benefits.

Trustee stewardship

In undertaking the role of trustee of a number of investment trusts, QIC ensures that the trusts are efficiently and effectively administered and maintained in accordance with the relevant trust deed, legal requirements and prudential standards.

Independent advice and access to QIC information

Each Director has the right of access to all relevant QIC information, to the Chief Executive, to the executive management team and, subject to prior consultation with the Chairman, may seek independent professional advice at QIC’s expense. A copy of advice received by the Director is made available to all other members of the Board.

Conflicts of interest

To identify and resolve any conflicts of interest, Directors must disclose potential conflicts of interest and may be excluded from participating in Board matters where a potential conflict exists. Nominated staff must disclose transactions in property (excluding their private residences unless the transaction might possibly in any way affect any asset in QIC’s property portfolio), shares, currencies and derivatives of shares and currencies to ensure that there is no actual or perceived conflict of interest. Where the staff member exercises significant influence over the investment activities of another person, (involving both advice and investment execution) those transactions should also be disclosed. The policy also provides for declaration of other business interests by staff. The Chief Executive must obtain approval from the Chairman to conduct his own investment transactions.

Code of Conduct and Code of Ethics

Our Code of Conduct and Code of Ethics apply to the Board and all QIC employees. They reflect funds management industry and Queensland public sector requirements and issues.

As outlined in the Code of Conduct, QIC’s reputation in the marketplace and community is critically important in terms of our shareholders’ expectations, our ability to operate a successful funds management business and the professional standing of our staff. QIC personnel and others working at QIC are expected to exercise good judgement in their professional life and our Code of Ethics provides guidance in terms of the core values and principles of ethical conduct to which they must adhere.

Reporting

As a government-owned corporation, QIC prepares an annual Statement of Corporate Intent (SCI) and a Corporate Plan for our Shareholding Ministers’ approval.

Both of these documents are based on comprehensive strategic planning and budgeting processes. The SCI is a formal performance contract between QIC and our Shareholding Ministers, detailing our proposed undertakings and target performance for the year ahead. The SCI is tabled in Parliament as an accompaniment to this annual report.

Our Corporate Plan is a review of current and future operational strategies and QIC is responsible for meeting forecast profits as detailed in the plan. Corporate performance against planned outcomes is regularly monitored and reported to the Board, and quarterly status reports are provided to our Shareholding Ministers.

QIC liaises with the Office of Government Owned Corporations in order to consult or inform Shareholding Ministers on various matters as required by the Queensland Investment Corporation Act (1991) and the Government Owned Corporations Act (1993). QIC aims to provide Shareholding Ministers with the information they need to make informed assessments of the operations, financial performance and financial position of QIC and its subsidiaries.

Risk management

QIC’s Board and management have adopted a risk management framework that assists us to proactively identify and manage risks to our corporation.

Fraud policy and whistleblowers

The QIC Board is committed to maintaining a highly fraud-resistant corporation and immediately initiating rigorous investigation of any incidents of suspected fraud. The QIC Fraud Policy provides guidance to staff on how to prevent, detect, identify, and report fraud. As employees of a government-owned corporation, QIC’s staff are subject to the Whistleblowers Protection Act (1994).

Freedom of information

The Queensland Freedom of Information Act (1992) applies to QIC as a government-owned corporation. We have policies and procedures that govern freedom of information.

Insurance

QIC maintains adequate insurance cover with reliable underwriters to protect us from known quantifiable liabilities and risks. This cover includes asset protection, employee accident compensation, general public liabilities, and financial loss. The Board, senior management and staff are provided with indemnification.

Corporate governance in the sharemarket

On behalf of our clients, we actively monitor corporate governance issues both at a domestic and international shareholding level.

View the latest Corporate Governance Proxy Voting Report(internal domestic shares) here

Controlling and managing risk

From balancing investment risks and returns for our clients to planning for unforeseen impacts on our business, we are constantly assessing and managing risks.

Risk management at QIC is a multi-faceted process that requires communication, judgment and knowledge of financial products and markets. Our Board is responsible for identifying and managing risks that may affect the future viability of our business as well as reviewing investment strategies that reflect clients’ preferred exposure to risk. The Chief Executive, Chief Financial Officer and General Manager Operations have declared, in writing to the Board, that the financial reporting risk management, operational and associated compliance and controls have been assessed and found to be operating efficiently and effectively, based on representations by management.

Our corporate risk management process, compliant with the AS/NZS 4360:2004 risk management standard, is based on three main principles:

Understanding and valuing risks
Aligning risk management with our corporate governance structure
Implementing and operating a risk monitoring system.

QIC’s Audit and Risk Management Committee oversees our risk management processes, while our Compliance and Risk Management team develops and implements corporate risk management policies and procedures. In summary, our policies are designed to ensure strategic, operational, legal, reputation and financial risks are identified, assessed, effectively and efficiently managed and monitored to enable achievement of our business objectives.

Internal audit conducts regular systematic monitoring of risk control activities, and reports to relevant managers and the Audit and Risk Management Committee.

Each QIC division is responsible for preparing and maintaining risk profiles for their division and for client portfolios. Senior management takes an active role in the risk management process and requires specific administrative and business functions to assist in the identification, assessment and control of various risks.

Management is required, as part of the monthly Due Diligence process, to identify and report any risk events that have occurred and any breaches in authorities, policies or legislative requirements. These reports are endorsed by the executive management team and are included in the Chief Executive’s monthly compliance report to the Board.

Considerable importance is placed on maintaining a strong control environment. There is a corporate structure with clearly drawn lines of accountability and delegation of authority. Adherence to the Code of Ethics and Code of Conduct is required at all times and the Board actively promotes a culture of quality and integrity. QIC personnel should observe the highest level of professional conduct in undertaking their business activities, respecting our core values of excellence, conviction, innovation, teamwork and integrity.

Integrated risk management process

QIC has an integrated risk management process which provides us with centralised and consistent compliance, legal and risk management support and monitoring functions.

As part of the integration, we have expanded our current risk management systems to cater for client service level compliance, and to monitor the results from our new automated portfolio compliance system that delivers independent, robust pre- and post-trade compliance in a multi-product environment. We monitor against client instructions, investment regulations and against our investment policies and guidelines.

Business continuity management

Business continuity management (BCM) within QIC involves the development, maintenance and testing of advance action plans to respond to defined risk events.

This ensures that business processes continue with minimal adverse impact on clients, staff, products, services and brands.

BCM is an essential part of QIC’s risk management process, providing a controlled response to potential operational risks that could have a significant impact on QIC’s critical processes and revenue streams. It includes both cost effective responses to mitigate the impact of risk events or disasters, and crisis management plans to respond to crisis events.

During the year, each entity within the QIC group has maintained, and tested its Business Continuity Management plans.

Risks managed at every level

Our policies are designed to ensure strategic, operational, legal, reputation and financial risks are identified, and effectively managed and monitored to enable achievement of our business objectives.

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[1] In September 2007, the Honourable Peter Beattie MP, Premier and Minister for Trade, who was QIC’s portfolio shareholding Minister during 2006-07, was replaced by the Honourable Anna Bligh MP, Premier.

In September 2007, the then Honourable Anna Bligh MP, Deputy Premier, Treasurer and Minister for Infrastructure, who was QIC’s GOC Minister during 2006-07, was replaced by the Honourable Andrew Fraser MP, Treasurer.