By James Beck
On 16 August 2013, the ASX Corporate Governance Council released for consultation a draft third edition of the ASX Corporate Governance Principles and Recommendations, with an accompanying consultation paper, which provides commentary on the proposed changes. Consultations close on 15 November 2013 and it is intended that the final version of the revised ASX Principles will be released in early 2014 to take effect for an entity’s first full financial year commencing on or after 1 July 2014.
In the consultation paper, the Council notes that the third edition seeks to:
- capture and reflect global developments in corporate governance matters since the second edition was amended in 2010 to include diversity; and
- improve readability and to assist listed entities to comply with their governance disclosure obligations under the ASX Listing Rules.
Unlike the second edition of the ASX Principles, which reduced the number of principles from ten to eight, there has been no change to the principles in the third edition. Thus, the third edition is built around the existing eight principles, with 30 recommendations intended to give effect to these principles. However, a number of practices and/or disclosures have been elevated from the commentary in the second edition into recommendations in the third edition, reflecting the fact that they now represent contemporary governance standards against which entities should be required to report rather than mere guidance. For example, it is recommended that listed entities have a program for inducting new directors and providing professional development throughout their role. Further, the reporting requirements for each principle contained in the ‘Guide to reporting on Principle [#]’ have been removed; instead, the reporting requirements are self-contained within each recommendation to make it clear to listed entities what has be disclosed.
Other major changes to the ASX Principles include:
- giving greater flexibility to listed entities to make their governance disclosures on their website rather than in their annual report;
- adding alternative approaches within a recommendation to recognise that smaller listed entities may legitimately have different governance practices to larger entities, thereby allowing them to report that they comply with a recommendation rather than having to explain why they do not comply;
- recommending that listed entities should ensure that appropriate checks (such as criminal record, bankruptcy, education and character reference checks) are undertaken before appointing a person, or putting forward to security holders a new candidate for election, as a director;
- introducing new and strengthened recommendations in relation to risk (principle 7) with the recommendation that the board itself review the risk management framework at least annually;
- expanding the relationships which may affect the independence of directors to include service on the board for more than nine years;
- amending the diversity recommendations to give listed entities the option to report their ‘Gender Equality Indicators’ under the Workplace Gender Equality Act 2012 (Cth) instead of reporting the respective proportions of men and women on the board, in senior executive positions and across the whole organisation;
- strengthening the commentary on the meaning of ‘measurable objectives’ in the diversity recommendations and on the steps a listed entity can take to measure its achievements against the diversity objectives set by its board, in support of greater representation of women in management and on boards; and
- recommending that entities put in place a policy for the clawback of performance-based remuneration from senior executives in certain circumstances, such as where payment of such remuneration was not warranted or where there has been a material misstatement of the entity’s financial results.
In conjunction with the release of the proposed ASX Principles, the ASX has also released some proposed corporate governance related amendments to the Listing Rules. These changes are intended to complement and give effect to the changes proposed to the ASX Principles. For example, Listing Rule 4.10.3 has been amended to provide listed entities with flexibility to disclose their corporate governance statements on their website rather than in their annual report. Consultation on the revised Listing Rules also closes on 15 November 2013 and as with the third edition of the ASX Principles, they are also expected to take effect on 1 July 2014.
The ASX is also taking the opportunity to make a number of other minor governance-related changes to Listing Rules 3.16, 10.1, 10.14, 10.16, 14.11 and certain related definitions in Listing Rule 19.12, and to introduce a new Listing Rule 3.19B requiring the disclosure of on-market purchases of securities on behalf of employees or directors or their related parties. These changes are proposed to come into effect on 1 January 2014.
For more information on the proposed changes, see http://www.asx.com.au/regulation/corporate-governance-council/corporate-governance-press-releases.htm.