Corporate governance

QIC’s active Board, committees and tailored policies provide the perspective and structure for efficiency and integrity in corporate governance.

Our practices are benchmarked against best practice corporate governance principles and comply with the Corporate Governance Guidelines for Government Owned Corporations issued by the Queensland Government, which are largely based upon the ASX Principles of Good Corporate Governance and Best Practice Recommendations (Second Edition).

In this section, we have summarised our operating environment and the roles, processes and practices in place at QIC to ensure that the interests of shareholders, clients, staff and other stakeholders are actively managed.

Our regulatory environment

QIC Limited is a company government-owned corporation (GOC) constituted under the Queensland Investment Corporation Act 1991 (Qld) (“QIC Act”). QIC is regulated by Queensland State Government legislation pertaining to GOCs (Government Owned Corporations Act 1993) (“GOC Act”) in addition to the Australian Corporations Act 2001 (“Corporations Act”).

QIC does not hold an Australian financial services (“AFS”) licence and certain provisions (including the financial product disclosure provisions) of the Corporations Act do not apply to QIC. However, QIC does operate wherever practical as if it was licensed and we have adopted key compliance and governance policies to operate on a consistent level to that of licensed institutions. QIC utilises a number of subsidiaries to conduct our investment activities. These entities are not exempt from any part of the Corporations Act and, where required, hold AFS licenses.

Our shareholders

As a Queensland GOC, QIC’s shareholding Ministers are the Honourable Anna Bligh MP, Premier and Minister for the Arts, and the Honourable Andrew Fraser MP, Treasurer and Minister for Employment and Economic Development. QIC reports to shareholding Ministers and regularly liaises with the Office of Government Owned Corporations.

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. There have been minor modifications to the SCI during the year relating to more detailed disclosure of sponsorship, advertising, corporate entertainment and donation activity.

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 regularly with the Office of Government Owned Corporations to inform shareholding Ministers on various matters as required by the QIC Act and the GOC Act. 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.

Foundations of management and oversight

In accordance with the GOC Act, QIC’s Board is appointed by the Governor-in-Council. The Board comprises eight non-executive directors, all of whom are considered by the Board to be independent, as measured generally against the ASX Principles of Good Corporate Governance and Best Practice Recommendations (Second Edition). In assessing the independence of directors, the following factors are considered:

Whether, in the last three years, the director has been employed in an executive capacity by QIC
Whether, in the last three years, the director has been a principal of a material professional adviser, or a material consultant to the company or an employee materially associated with a service provided to QIC
Whether the director is a material supplier, a customer of QIC or associated with a material supplier or customer
Whether a material contractual relationship exists between QIC and the director, other than in their capacity as a director
Whether the director has any interest and any business or other relationship that could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of QIC

Family ties and cross-directorships may be relevant in considering interests and relationships which may compromise independence and should be disclosed by directors to the Board. The Board determines materiality thresholds relevant for the purposes of assessing independence on a case-by-case basis. In supporting this view, but not in isolation, the Board refers to accounting standard AASB1031 – Materiality. In line with this standard, a relationship may generally be considered material when, over a 12-month period, it represents >10% of fee revenue or >10% of costs (excluding salary expense) of either QIC or the entity/person being considered. When applying this test, less than 5% is presumed not to be material unless there is evidence or convincing argument to the contrary. When the quantum represents between 5% and 10%, the Board will judge materiality based on the facts and circumstances associated with the relationship. The independence of each director is reviewed on each occasion a new disclosure of interest is given under the Disclosure of Relevant Interests - Board Members Policy.

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 and QIC’s Constitution. These documents outline the key governance principles adopted by the Board including:

Role, responsibilities and powers of the Board
Delegation of certain responsibilities to management
Directors' duties and interests
Board structure
Remuneration
Meeting procedures
Board committees
External communication guidelines
Access to independent advice
Professional conduct, including conflicts of interest and independence
Performance assessment

Directors, the Chief Executive and any other person who takes part in the management of QIC (“officer”) are also bound under the provisions of the GOC Act and Corporations Act that relate to the duties and liabilities as officers of a Company GOC. Officers also have common law duties which they must adhere to.

In addition to attending board and committee meetings, the directors are required to allocate sufficient time to prepare for meetings and consult with management as required. The Chairman commits further time and meets with the Chief Executive on a regular basis.

The responsibility for the day-to-day operation and administration of QIC is delegated (in accordance with the Corporate Delegations and Investment Delegations policies) by the Board to the Chief Executive and the Executive Leadership team. These executives are appointed by the QIC Board with the prior written approval of the shareholding Ministers. Prior to consideration by Ministers, candidates must disclose any shareholdings or trading and property ownership that may create a conflict of interest. An independent probity review and criminal check is also undertaken. 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 Senior Executive team, which are outlined in the ‘Alignment of Performance with Remuneration’ section.

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. QIC’s expectations are clearly articulated and documented in its Code of Conduct and Code of Ethics. An overarching Conflicts of Interest Policy covers all policies and arrangements to effectively manage conflicts that may arise. This is supported by specific procedures outlined in more detailed policies including:

Gifts and Benefits Disclosure
Disclosure and Approval of Personal Investments and Business Interest for Employees and Disclosure of Relevant Interest for Board Members
Fraud and Corruption Policy
Corporate Procurement Plan
Outsourcing Policy
Information Barriers Policy
Entertainment Policy

Understanding and compliance with the above policies is confirmed by employees at the beginning of their employment period, and annually thereafter. Training on specific policies is also provided as required. An overview of these policies is also included in the Compliance Induction Program. The policies apply to directors, employees of QIC and its subsidiary companies, temporary staff and contractors.

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.

QIC’s trading policy is incorporated in the Code of Conduct, the Disclosure and Approval of Investments and Business Interest policy for employees and the Disclosure of Relevant Interest Policy for Board Members. QIC takes holdings in listed securities and, while security selection decisions are made by QIC’s asset management teams (within the guidelines of client investment mandates) and not the Board, the directors disclose trading in listed securities where QIC (as a group) holds more than 4%.

Nominated staff must disclose transactions in property (excluding their private residences unless the transaction might possibly affect any asset in QIC’s property portfolio), shares, currencies and derivatives of shares and currencies to ensure 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.

Board Committees

To assist our Directors to fulfil their responsibilities, several Board Committees are operational. The membership of these committees is shown below.

The Audit and Risk Management Committee, comprising Bronwyn Morris (Chair), Lyn Gearing and David Harrison reviewed matters relating to financial reporting and assurance, corporate risk management, compliance and internal and external audit functions. The Committee has a formal charter which outlines its role and obligations.

The Committee aims to ensure that financial controls and systems address key business risks and are of a high standard. Each committee member has significant accounting and financial services experience.

Internal audit provides management and the QIC Board with an independent risk-based examination of controls operating within QIC and advises on any remedial action required. The Audit and Risk Management Committee monitors and considers reports from internal audits and monitors any resulting remedial action. The scope of internal audit is driven by a risk-based Assurance Framework that includes key business activities across all divisions. Ernst & Young currently provides the internal audit services to QIC and was appointed as internal auditor for a three-year term (with an option to extend following a detailed tender process). This engagement has been extended for an additional two-year period commencing 1 July 2009 with an option to extend for a further one-year period to 30 June 2012.

The Auditor-General of Queensland is the external auditor of QIC Limited and its controlled entities in accordance with the Auditor-General Act 2009. The Auditor-General of Queensland has also been appointed as the external auditor on a number of trusts in accordance with the respective Trust Deed or on a by-arrangement basis. KPMG has been appointed as external auditor of a number of trusts within the QIC Private Capital investment structure for a three-year term, concluding with the audits relating to the year ended 31 December 2009.

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 specific policies relating to the oversight and management of internal and external auditors’ independence. Internal and external auditors are not permitted to provide services where the auditors have a mutual or conflicting interest with QIC, are 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. Both the internal and external auditors are required to comply with QIC’s Auditor Independence Policy and provide an annual explicit declaration of independence to the Audit and Risk Management Committee.
The HR and Remuneration Committee, comprising Ken MacDonald (Chair), David Harrison, Lyn Gearing and Doug McTaggart, considered matters relating to human resource management policies and practices, including staff remuneration, performance management, occupational health and safety, organisational structure and design and succession planning at the senior executive level and for other business-critical roles.
The Product Development Committee, comprising Maurice Newman (Chair), Ken MacDonald, Bradley Bowton, Lyn Gearing 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 Bronwyn Morris (Chair), Bradley Bowton, Doug McTaggart and members of the executive management team, ensured that debt facilities used in QIC products were managed prudently and in an efficient and effective manner.
The Strategy and Operations Committee comprising Peter Young (Chair), David Harrison, Brad Bowton and Doug McTaggart oversees the strategies and initiatives to implement QIC's corporate strategy as part of Program Galaxy. This Committee is not a standing committee and will be terminated at a time deemed appropriate by the Chairman.

Other Committees

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

The Executive Committee consists of the Chief Executive and other senior managers. It is a forum to address strategic corporate issues and provides assistance and advice to the Chief Executive, the Chairman and the Board.
The Investment Strategy Committee consists of senior investment staff from each asset division and client services 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 Program Management Office Executive Committee is a working Committee of the Executive Committee. The Committee and its sub-committees, with defined delegations of authority, manage QIC’s portfolio of projects.

QIC has the following Management Committees:

The Alpha Committee considers competing sources of alpha and works 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.
The Valuation Committee reports to the Audit and Risk Management Committee and is responsible for the QIC Group Investment Valuations Policy, investigation and resolution of valuation discrepancies and issues and monitoring of the assurance framework adopted for the valuation of investments.

Alignment of performance with remuneration

The nature of QIC’s business is such that we rely almost entirely on the efforts of our people to achieve results. Therefore, managing individual performance is a key strategy for ensuring QIC’s success.

QIC is aware of the need to balance attractive remuneration with controlled costs and accountability as a GOC and refers to the principles of Governance Arrangements for Chief and Senior Executives issued by shareholding Ministers.

Our remuneration and incentive schemes must be competitive within the funds management industry to attract and retain the high-quality staff we need 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.

To measure individual contribution, a formal performance management program (PMP) exists for all employees, including the Chief Executive. The program sets out processes for planning, communicating, monitoring and reviewing an employee’s or team’s performance and work-related behaviour. The People, Change and Culture team monitors compliance with the required PMP schedule.

The investment 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.

QIC's various incentive schemes have been reviewed by the Queensland Audit Office and external benchmark providers.

As part of Program Galaxy, our reward and recognition framework will be further refined.

Ongoing assessment and approval of remuneration

Our HR & Remuneration Committee advises the Board on appropriate levels of staff remuneration after conducting an annual review of corporate and individual performance and taking into account industry comparisons and independent advice. The Board then determines the remuneration of the Chief Executive and senior executives and advises the shareholding Ministers.

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

QIC directors are paid by way of fees for their services. The amounts, if any, are approved by the Company in general meeting. Directors are not entitled to performance-based payments and retirement benefits.

Board Performance Evaluation

The Board Charter details the process for the performance evaluation of the Board, Board Committees and directors. During 2008-2009, the evaluation was undertaken through a formal questionnaire completed by each director, one-on-one discussions between each director and the Chairman and a full Board discussion encompassing the following topics:

Role of the Board, strategy and planning
Board structure
Meeting processes
Subsidiary and committee reporting
Performance monitoring
Induction and continuing education
Board and senior management behaviour and relationships
Individual competencies and contribution to the role
Suggestions to improve Board effectiveness.

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, the Company Secretary and the Executive Leadership team. Subject to prior consultation with the Chairman, directors may seek independent professional advice at QIC’s expense. A copy of advice received by a director is made available to all other members of the Board.

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.

Right to information

The Right to Information Act (2009) does not apply to QIC Limited or its subsidiaries, except where they relate to community services obligations. We do, however, comply with the Queensland Government's Publication Scheme, which is a framework for the increased publication of information relating to GOCs.

Corporate governance in the sharemarket

On behalf of our clients, we actively monitor corporate governance issues at both a domestic and international shareholding level (refer to the Corporate Governance Proxy Voting Report)..

Anti-Money Laundering and Counter-Terrorism Financing

QIC takes preventing money laundering and terrorism financing seriously and has implemented processes to meet our obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

Controlling and managing risk

The QIC Board and Executive Leadership team have adopted a risk management framework that assists us to proactively identify and manage risks to our corporation. This will be further supported during 2009-2010 with the establishment of an independent Organisational Risk and Legal divison, which reports directly to the Chief Executive. Management regularly reviews the risk registers and reports the effectiveness of QIC’s management of its material business risks to the Board, Executive Leadership team and the Audit and Risk Management Committee.

From balancing investment risks and returns for our clients to identifying and managing 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 exposures to risk. The Chief Executive and Chief Financial and Operating Officer have declared, in writing to the Board, that the financial reporting risk management and controlsystem has been assessed and found to be operating efficiently and effectively in all material respects, based on representations by management.

Our corporate risk management process, compliant with the ISO 31000 risk management standard, is based on three main principles:

Identifying, understanding and asessing 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 Organisational Risk and Legal division develops and implements corporate and investment risk management policies and procedures. In summary, our policies are designed to ensure strategic, operational, legal, reputational and investment risks are identified, assessed, effectively and efficiently managed and monitored to enable us to achieve our business objectives.

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

Management is required, as part of the monthly mangement reporting process, to identify and report any risk events that have been identified and any breaches in authorities, policies or legislative requirements. These reports are aggregated into the Chief Executive's regular compliance and risk 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. People and process changes that result from Program Galaxy will be carefully considered to maintain the integrity of our formal documentation and controls around delegations. Adherence to QIC’s policies, including the Code of Ethics and Code of Conduct is required at all times and the Board actively promotes a culture of risk awareness, quality and integrity. QIC personnel are required to observe the highest level of professional conduct in undertaking their business activities, respecting our core values of passion, excellence, engagement, achievement and innovation.

The global financial crisis (GFC) has presented unprecedented challenges for all organisations, including QIC. In September 2008, the QIC Executive Leadership team formed a GFC response group, which was Chaired by the Chief Executive and comprised key staff from the front, middle and back offices. The group committed to a number of actions to manage the events arising from the crisis and these actions were prioritised and actively monitored. Because of this and our robust risk management framework, QIC was well positioned to minimise the risks presented by the GFC.

The learnings we gained through this experience have been an important contribution to the review of our risk management and compliance assurance framework and how we will articulate the roles and responsibilities of our three lines of defence within the structural changes resulting from Program Galaxy.

Investment Product Compliance

We have continued to expand our current risk management systems to cater for compliance with client service levels, and to monitor the results from our automated portfolio compliance system, which delivers independent, robust compliance in a multi-product environment. We monitor against client instructions, investment regulations and against our investment policies and guidelines. During 2009, QIC entered into a contract to implement a new multi-asset trading, portfolio management and risk reporting system (Sophis Value), which will be launched in 2010.

Project Management Office

The Project Management Office (PMO) supports and monitors QIC’s high-value projects (generally >$100,000) by providing a structured governance framework for these high-spend activities. Reporting to the Executive Leadership team, the PMO processes ensure efficient allocation of internal resources across a wide range of projects, consistent design and review methodology and assessment of project benefit realisation.

Business continuity management

The business continuity management (BCM) program within QIC involves the development, maintenance and testing of action plans to respond to a wide range of risk events.

The program provides assurance that business processes will be able to 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.

Fraud and Corruption Policy

The QIC Board is committed to maintaining a highly fraud-resistant corporation and immediately initiates rigorous investigation of any incidents of suspected fraud or corruption. The QIC Fraud and Corruption Policy provides guidance to staff on how to prevent, detect, identify, and report fraud or corruption.

Insurance and indemnities

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, Executive Leadership team and staff are, to the extent permitted by law, provided with indemnification against:

liability to third parties arising out of conduct undertaken in good faith in their capacity as a QIC officer
the costs and expenses of defending legal proceedings arising out of conduct as described above.

QIC Limited

As of 30 September 2008, the organisation converted from a statutory GOC to a company GOC and was renamed QIC Limited. Our ACN is 130 539 123. Our ABN is 95 942 373 762.

QIC Corporate Policies

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