The report by the University of Newcastle and accounting firm BDO Kendalls shows that many companies do not have an independent chairman or a proper auditing process in place.
When insurance firm HIH collapsed and shareholders lost millions of dollars, it emerged that there were very few independent checks and balances done on the business. It highlighted the lack of corporate governance.
Since then, the majority of large-sized listed companies now have the right checks and balances in place.
But the same can not be said for medium-size firms.
The BDO Kendalls report has found more than 40 per cent of mid-size companies listed on the Australian Stock Exchange do not meet corporate governance standards.
The director of BDO Kendalls, Andrew Pearce, says there are many more mid-size companies emerging in the mining sector due to the resources boom.
"A lot of new companies have come into the mid-cap size that perhaps the year before weren't certainly large enough, and that's particularly been happening because of the resources, the mining boom that we all talk about," he said.
"If you look at the companies that have come into our mid-cap report, something like 24.5, about 25 per cent of those in the mid-caps are actually resources stocks."
The report found less than 50 per cent of mid-cap companies have an independent chairman and only 25 per cent have a majority of independent directors on their board. It also found 14 per cent of companies did not have a code of conduct or a risk-management policy in place.
Mr Pearce says having the right corporate governance structures in place can make a big difference in how effectively a company is run.
"It's [corporate governance] nothing new. It's just something that certainly came into vogue after a number of high-profile failures in the US and also here in Australia about five or six years ago," he said.
Room for improvement
Mid-size companies can rank anywhere from 251 to 400 on the Australian Stock Exchange index. Many investors have flocked to these smaller companies in the past few years because of the resources boom.
But mining analyst Mark Niutta says when the company is doing well financially, corporate governance issues are often forgotten.
"I think once again, when the market is strong, people do forget about that side of it, and if they're making money - dare I say it - they don't care as long as the stocks they're in are going up - remembering a lot of them are speculative," he said.
"There is a lot of room for improvement, you know, there's certain areas, for example, [that are] a bit of bone of contention."
Mr Niutta says there are a few issues of governance that mid-size companies are unsure of, such as how to judge whether a board of directors is considered independent.
"They're wondering whether the boards are supposed to be looking after the shareholders ... or themselves. And I'm not saying they're doing anything wrong, it's just a question that does come up quite often," he said.
The Australian Shareholders Association (ASA) is concerned about the figures. It is encouraging shareholders - large and small - to ask questions at shareholder meetings.
The Association's Stuart Wilson says shareholders have the rights and the power to make changes to the structure of companies.
"The first thing to do is to approach the company with their concerns. Good corporate governance in our view will ... drive good company performance," he said.
"If there is a lot of resistance from the company, the shareholders always have the right to band together and force change upon the company - either by seeking to change its constitution or, at the end of the day, they have the right to remove and replace directors."
The Australian Stock Exchange has a council, made up from a range of businesses and industry groups, which sets the corporate governance guidelines.
The council says while companies are encouraged to follow these guidelines, it is not mandatory. © 2007 Australian Broadcasting Corporation