Corporate governance standards at Australian companies are getting worse, with a high percentage showing “significant deficiencies” in their boardroom practices, according to a report from accountants WHK Horwath. Less than 16 percent of the country’s 250 largest companies are achieving best practice standards, the firm says.

Among the country’s largest listed companies, 5.6 percent (14 companies) achieved the firm’s lowest possible score of 1 star for corporate governance, on a scale of 1 to 5 stars. This compared with 4 percent (10 companies) last year.

In the mid-caps sector, which includes 150 companies, the number with 1-star ratings more than doubled compared to last year to 23 companies, or 15.6 percent.

“The results are very disappointing and show there has actually been a deterioration in corporate governance across both the large caps and mid-caps sectors,” said John Gavens, a principal at the firm who covers audit and assurance.

“We have the corporate governance framework and guidelines in place and should expect, from an accountability and performance perspective, that companies should be complying, particularly at the larger end of the market.”

The firm uses the University of Newcastle to rank the performance of listed companies on key governance factors such as board composition and independence, auditor independence, having separate audit, remuneration and nomination committees in place and carbon emissions disclosures.

“At the top end our companies would have governance standards that they can be proud of on an international level and would match standards anywhere in the world, but at the bottom end some of our companies are being run like the local tuck shop,” said Jim Psaros, an associate professor at the university.

Trying to explain the decline, Gavens pointed to the changing economy. Over the last year companies with poor corporate governance practices have dropped out of the survey, only to be replaced with companies that have even worse corporate governance practices, he said. “What is unclear is whether this is a short term aberration as these companies may disappear from the mid-cap list as quickly as they have appeared. Time will tell.”

Copies of the firm’s research reports are available via email from edwina.oostergetel@whkhorwath.com.au. Ask for “The 2009 WHK Horwath Large Cap and Mid-Cap Corporate Governance reports”.