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News and discussions from Novus Capital

New edition of ASX Corporate Governance Council’s Principles and Recommendations Released

Gavan Farley - Thursday, April 04, 2019

 

On 27 February 2019, the ASX Corporate Governance Council (Council) released the fourth edition of the ASX Corporate Governance Principles and Recommendations (Recommendations). The Recommendations apply to all entities listed on the ASX, but are also useful for non-listed companies that are looking to implement best practices.

The updated Recommendations will take effect on 1 January 2020 for entities with a 31 December balance date, and on 1 July 2020 for entities with a 30 June balance date. Entities are encouraged to adopt these Recommendations earlier if possible.

What has changed?

The key changes to the Recommendations revolve around the culture and values of entities in the context of community trust and confidence. The Council ‘considers it imperative’ that listed entities align their culture and values with community expectations in light of a number of examples of listed entities falling short.

The wording in the Recommendations has been changed to state that an entity must ‘instil’ and ‘continually reinforce’ the culture of the organisation, suggesting that there is an ongoing positive obligation on the Board to maintain the appropriate cultural standards and oversee its progress. The new Recommendations contain 35 recommendations as compared to the 29 recommendations in the 3rd edition of the ASX Corporate Governance Principles and Recommendations.

Out of thirty-five Recommendations, the following are entirely new recommendations for listed entities:

  • Recommendations 3.1 – to articulate and disclose its values to the public;
  • Recommendation 3.3 – to establish maintain and disclose a whistle-blower policy and ensure that the board (or a committee of the board) is informed of any material incidents reported;
  • Recommendation 3.4 – establish and disclose an anti-bribery and corruption policy, and ensure that the board or a committee of the board is informed of any breaches;
  • Recommendation 4.3 – to disclose its process to verify the integrity of any periodic corporate report that it releases to the market that is not audited or reviewed by an external auditor. This raises the bar for corporate reporting best practices;
  • Recommendation 5.2 – ensure that its board receives copies of all material market announcements promptly after they are made;
  • Recommendation 5.3 – a listed entity that gives a new substantive investor or analyst presentation should release a copy of the presentation materials on the ASX Market Announcements Platform prior to the presentation in order to ensure equality of information among investors;
  • Recommendation 6.4 – ensure that all substantive resolutions at a meeting of security holders are decided by a poll, rather than by a show of hands, as a show of hands is thought to be inaccurate; and

The following four Recommendations have been updated and elaborated:

  • Recommendation 1.5 –disclose the full text of its diversity policy and disclose measureable objectives set for a reporting period to achieve gender diversity. The suggested objective is no less than 30% of each gender for directors. Previously, the Recommendations suggested that entities only disclose a summary of their diversity policy;
  • Recommendation 2.2 – it is suggested that a board should now disclose and regularly review its skills matrix to help the board identify any gaps in collective skills of the entity that need to be addressed. This will also assist with succession planning for management; and
  • Recommendation 2.6 – it is recommended that a listed entity should have a program for inducting new directors. There should also be a program for periodically reviewing if there is a need for existing directors to undertake professional development, legal training on framework and duties as a director, as well as induction training.
  • Recommendation 8.1 – in addition to the board of a listed entity being required to have a remuneration committee with at least three members, a majority of whom are independent directors, a listed entity included in the S&P/ASX 300 Index is now required under Listing Rule 12.8 to have a remuneration committee comprised solely of non-executive directors for the entire duration of that financial year.

There are also new Recommendations which are perhaps more uniquely relevant to some listed entities:

  • Recommendation 9.1 – if a director of a listed entity does not speak the language that board meetings are held in, the entity should disclose the process it has in place to ensure the director understands and contributes to discussions at board meetings (such as providing translation copies of material documents to be tabled). This is to assist the director to discharge his/her directors’ duties; and
  • Recommendation 9.2 – if a listed entity is established outside Australia, it should ensure that meetings of securityholders are held at a reasonable place and time;
  • Recommendation 9.3 – if a listed entity is established outside Australia has an AGM, or where an externally managed listed entity has an AGM, the entity should ensure that its external auditor attends its AGM and is available to answer questions from securityholders relevant to the audit.

What remains the same?

The new Recommendations maintains the same flexible non-mandatory ‘if not, why not’ approach to disclosure, whereby a Board is entitled to not adopt a principle, but must explain why it has not adopted the recommended approach.

The new Recommendations have the same structure of eight core principles and accompanying supporting recommendations. The eight core principles are as follows:

  1. Lay solid foundations for management and oversight: A listed entity should clearly delineate the respective roles and responsibilities of its board and management and regularly review their performance.
  2. Structure the board to be effective and add value: The board of a listed entity should be of an appropriate size and collectively have the skills, commitment and knowledge of the entity and the industry in which it operates, to enable it to discharge its duties effectively and to add value.
  3. Instil a culture of acting lawfully, ethically and responsibly: A listed entity should instil and continually reinforce a culture across the organisation of acting lawfully, ethically and responsibly.
  4. Safeguard the integrity of corporate reports: A listed entity should have appropriate processes to verify the integrity of its corporate reports.
  5. Make timely and balanced disclosure: A listed entity should make timely and balanced disclosure of all matters concerning it that a reasonable person would expect to have a material effect on the price or value of its securities.
  6. Respect the rights of security holders: A listed entity should provide its security holders with appropriate information and facilities to allow them to exercise their rights as owners effectively.
  7. Recognise and manage risk: A listed entity should establish a sound risk management framework and periodically review the effectiveness of that framework.
  8. Remunerate fairly and responsibly: A listed entity should pay director remuneration sufficient to attract and retain high quality directors and design its executive remuneration to attract, retain and motivate high quality senior executives and to align their interests with the creation of value for security holders and with the entity’s values and risk appetite.

How does this affect you?

You should consider the latest Recommendations in detail and update your policies where necessary to comply with the new Recommendations.

If you are a listed entity with a full financial year commencing on or after 1 January 2020, you are required to report against these new Recommendations from 1 January 2020.

If you are a listed entity with a full financial year commencing on or after 30 June 2019, you are required to report against these new Recommendations from 1 July 2020.