ASX Corporate Governance Principles 4th Edition Consultation Paper Released

22 May 2018

The ASX Corporate Governance Council (Council) has released its consultation paper for the fourth edition of the ASX Corporate Governance Principles and Recommendations (CG Principles) proposing a range of changes relevant to listed entities’ governance structures and reporting requirements.

Whilst the Council acknowledges that Australian corporate governance operates at a high level in comparison to international standards, it emphasises the ‘need to regularly assess and evolve the Principles and Recommendations’ and address ’emerging domestic and global issues’ in the regulatory sphere.

The eight core principles contained in earlier editions of the CG Principles are to be retained, however the consultation paper flags a substantial change to Principle 3. The proposed re-wording of a listed entity’s duty to “act ethically and responsibly” is targeted at its social licence to operate and the need to act lawfully, ethically and in a socially responsible manner to preserve that licence. The Council is of the view that merely acting for the benefit of security holders is not sufficient and that listed entities must take into consideration the interests of a broader range of stakeholders. In line with this goal, listed entities will be encouraged to “instil and continually reinforce a culture across the organisation of acting lawfully, ethically and in a socially responsible manner.” This follows on from recent policy positions taken by ASIC in trying to ‘improve corporate culture’ in Australia.

The Council is also proposing to include an additional nine Recommendations in the CG Principles directed at ‘anticipat(ing) and respond(ing) to some of the governance issues identified’ in recent ASX enquiries, including areas such as corporate reporting, policy, culture and voting procedure.

The proposed Recommendations are that listed entities should:

  • Recommendation 2.7 – …disclose the processes in place to ensure that directors, who are not fluent in the language in which proceedings are undertaken, are able to understand, contribute and discharge their obligations;
  • Recommendation 3.1 – …articulate and disclose core values;
  • Recommendation 3.3 – …have and disclose whistleblower policies and ensure the board is informed of any material concerns raised under these policies;
  • Recommendation 3.4 – …have and disclose an anti-bribery and corruption policies and ensure the board is informed of any material breaches of these policies;
  • Recommendation 4.4 – …have and disclose a process to validate market releases as being accurate, balanced and understandable;
  • Recommendation 5.2 – …ensure that the board receives copies of all announcements under Listing Rule 3.1 promptly after they have been made;
  • Recommendation 5.3 – …release a copy of presentation materials for any new investor or analyst presentation to the market ahead of time;
  • Recommendation 6.4 – …ensure that all resolutions at a meeting of security holders are decided by a poll rather than by a show of hands; and
  • Recommendation 8.4 – …only ever enter into an agreement for the provision of consultancy or similar services by a director, senior executive or related party, with independent advice and full disclosure of material terms.

The Council is also proposing to amend the following existing Recommendations:

  • Recommendation 1.1 – it is recommended that a listed entity should have and disclose a board charter;
  • Recommendation 1.2 – it is recommended that a listed entity should undertake appropriate background checks on senior executives and directors before engaging them;
  • Recommendation 1.5  – to promote better diversity outcomes, the Council proposes to amend this Recommendation (among others) by having a requirement that entities in the S&P/ASX 300 set a measurable objective to have a minimum of 30% of directors of each gender on their boards by a specified date;
  • Recommendation 1.6 – there should be annual board and management reviews rather than periodic reviews as was previously the case;
  • Recommendations 2.2 and 2.6 – the amendments to these Recommendations relate to the importance of ensuring boards have the necessary skills to address new or emerging issues including around culture, conduct risk, digital disruption, cyber-security, sustainability and climate change, that regular reviews of board skills be undertaken and that professional development programs address any skills gaps;
  • Recommendation 2.3 – the Council has amended guidance as to who should be considered an independent director . For example, directors receiving performance-based remuneration (including performance rights or options) should not considered independent;
  • Recommendation 3.2 (formerly recommendation 3.1)–amended to require the board to be informed of any material breaches of a listed entity’s code of conduct by a director or senior manager and of any other material breaches of the code that call into question the culture of the organization; and
  • Recommendation 7.4 – amended to refer to ‘environmental and social risks’ rather than ‘economic, environmental and social sustainability risks’ and to expand the commentary accompanying the recommendation.

As is currently the case, listed entities will be required to disclose against the Recommendations and where it does not comply, it must explain why it does not.

A full explanation of the proposed Recommendations can be found in the consultation paper and draft Principles and Recommendations.

The Council has flagged the following relevant dates:

  • 27 July 2018 – Submissions for the consultation period close;
  • Early 2019 – Final version proposed to be released; and
  • 1 July 2019 – Proposed commencement date.

More information will be provided once the final version comes to hand.

This article was written by Sam Dwyer, Partner, Tam Vuong, Senior Associate and Taylor Burt, Trainee Solicitor.

Sam Dwyer

P: +61 3 8644 3558


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