fourth edition of ASX Corporate Governance Council’s Principles and Recommendations officially released.February 27, 2019
The fourth edition will see the Principles applicable to listed entities on an “if not, why not,” basis for financial years commencing on or after 1 January 2020.
Significant changes from the third edition
While the eight core principles remain largely intact, in total the number of recommendations has grown from 29 to 35, with the most significant changes being those made to Principle 3 – now expressed as “Instil a culture of acting lawfully, ethically and responsibly” – and its constituent recommendations.
While this might not seem like much of a change from the third edition – “Act ethically and responsibly” – the experience of 2018 showed that there had been too many instances where unlawful behaviour went unchecked and unpunished.
Revised or new recommendations to give effect to Principle 3 include requiring entities to:
articulate and disclose their ‘values’ (3.1);
disclose material breaches of codes of conduct to the board or a board committee (3.2);
to have and disclose a whistle-blower policy with material breaches to be reported to the board or a board committee (3.3); and
to have and disclose an anti-bribery policy with material breaches to be reported to the board or a board committee (3.4).
Having in place robust whistleblowing policies will be particularly critical for organisations to prioritise, with new laws being passed by the Federal Parliament on 19 February 2019 that consolidate and broaden existing protections and remedies.
Importantly, the concept of a “social licence to operate” – the subject of heated debate during the public consultation process on the draft – did not find its way into the final version of the Principles. Stakeholder feedback had demonstrated a wide gulf in opinion between those who saw the concept as pivotal to business operating in a broader societal context, and others, like the AICD, who believed that such a subjective term had no place in a quasi-regulatory document.
Ultimately, in the interests of certainty and more consistent market application, the Council decided that references to “social licence to operate” in the consultation draft should be replaced with references to “reputation” and “standing in the community” in the final Principles.
These changes to Principle 3 have been reinforced by revisions under Principle 1 (“Lay solid foundations for management and oversight”) including mandating board charters (Recommendation 1.1), and more detailed articulation of how management and board responsibilities should be split, including the board’s responsibility for defining the entity’s purpose, approving the entity’s statement of values and code of conduct, and satisfying itself that remuneration policies are aligned with the entity’s purpose, values, strategic objectives and risk appetite.
Commissioner Hayne’s incontrovertible statement that “Boards cannot operate properly without having the right information. And boards do not operate effectively if they do not challenge management”, is also referenced.
Importantly, following on from the Financial Services Royal Commission, and the APRA prudential inquiry into the CBA, the Principles make clear that the senior executive team is responsible for providing the board with accurate, timely and clear information regarding not only financial performance, but also compliance with material legal and regulatory requirements, and any conduct that is materially inconsistent with the entity’s values or code of conduct.
The area of environmental and social risks was another which saw a change from the third to the fourth edition. The commentary to revised recommendation 7.4 (“a listed entity should disclose whether it has any material exposure to environmental or social risks and, if does, how it manages or intends to manage those risks”), now asks entities that believe that they do not have any material exposure to environmental or social risks to “consider carefully their basis for that belief and to benchmark their disclosures in this regard against those made their peers”.
Consistent with the approach taken by regulators like ASIC and APRA over recent years, the Principles now also encourage (rather than require) listed entities with material exposure to climate change risk to consider implementing the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.
30% female directors
In a boost for promoting greater diversity on boards, for the first time, the Principles will see a hard-coded target of 30% female directors applied to the ASX 300 (revised Recommendation 1.5). The move follows on from a year that finished with the AICD’s target of 30% female representation on ASX 200 boards being almost achieved (29.7%). Australia is the first country in the world to achieve 30% gender diversity in top 100 boardrooms without regulatory intervention or quotas.
On corporate reporting, new recommendation 4.3 requires entities to disclose their process for verifying the integrity of any periodic corporate report released to the market that is not audited or reviewed by an external auditor. This final position saw a slight shift in language from the consultation draft in which the use of the word “validate” had made some question whether prospectus level processes were being required (which was not intended by the Council secretariat).
The revised Principles also contain a range of other changes including:
Generally, requiring policies to be disclosed in full, not in summary form;
Amending commentary under indicators of ‘independence’ (Recommendation 2.3) to broaden personal ties to ‘family, friendship or other social or business connections’;
Increasing expectations on director professional development and induction processes (Recommendation 2.6);
Requiring all material ASX announcements to be sent to directors promptly after they have been made (new Recommendation 5.2);
Specifying that all substantive resolutions at a meeting of security holders should be decided by a poll rather than a show of hands (new Recommendation 6.4); and
Amending commentary on remuneration (Recommendation 8.1) to reference the need for listed entities to ensure that incentives encourage senior executives to pursue the growth and success of the entity without rewarding conduct that is contrary to the entity’s values or risk appetite, and to consider the implications for its reputation and standing in the community if it is seen to pay excessive remuneration.
There are also two recommendations that apply only to a small subset of listed entities (additional disclosure obligations for boards with non-English speaking directors, new Recommendation 9.1; and requiring security holder meetings for entities established outside of Australia to be held at a reasonable place and time, new Recommendation 9.2).
We encourage companies coming on to the PCP platform to be aware of these principels and start to adopt them particularly if you are considering stepping from PCP to ASX.
detailed paper is here to download >>> cgc-principles-and-recommendations-fourth-edn
Subscribe to our newsletter
- IPO watch mid year report July 21, 2021
- Intergenerational Report (IGR) July 01, 2021
- ASIC review of 31 December 2020 financial reports June 16, 2021
- 21-129MR ASIC highlights focus areas for 30 June 2021 financial reports under COVID-19 conditions date of release 10/6/2021 June 10, 2021
- HLB’s quarterly newsletter June 08, 2021
- 2021-2022 Federal Budget May 12, 2021
- Climate change risk disclosures and governance of the ASX50 in 2020 May 11, 2021
- ASIC quarterly update January to March 2021 May 06, 2021
- Firms offering debt management services require credit licence to operate May 05, 2021
- New SME Recovery Loan Scheme March 12, 2021
- Federal Government releases guidance to help businesses and employees better understand their rights and responsibilities in relation to the COVID-19 vaccination in the workplace March 02, 2021
- 2021 IPO Watch Report January 29, 2021
- ASIC highlights focus areas for 31 December 2020 financial reports under COVID-19 conditions December 15, 2020
- ASIC to further extend financial reporting deadlines for listed and unlisted entities and amends ‘no action’ position for AGMs November 11, 2020
- Federal Budget Report 2020-21 October 07, 2020
- Protection for bankruptcy extended September 09, 2020
- ASIC provides relief for companies planning an initial public offering August 27, 2020
- JobKeeper changes to be aware of from 3 August 2020 August 17, 2020
- IPO Watch Mid-Year Report July 24, 2020
- PCP extends platform company eligibility July 22, 2020
- PCP share facilitation company Sharetech now open for business July 22, 2020
- How to deal with COVID-19 in the reporting season July 13, 2020
- financial reporting news and insights June 30, 2020
- End of Year Tax Planning Guide – 2019/20 June 02, 2020
- COVID-19 | Reporting deadlines further extended for listed and unlisted entities May 14, 2020
- COVID-19: Signing contracts electronically just got easier for companies May 06, 2020
- ASIC reports on corporate finance regulation – July to December 2019 April 20, 2020
- JobKeeper Payment has now been legislated by Parliament April 14, 2020
- ASIC to provide additional time for unlisted entity financial reports April 09, 2020
- Coronavirus stimulus package to include jobkeeper payments March 31, 2020
- New ASIC guidelines for upcoming AGMs and financial reporting requirements in light of COVID-19 March 25, 2020
- Initial public offers: Relief for voluntary escrow arrangements and preprospectus communications February 24, 2020
- Financial Services Royal Commission Draft Legislation February 04, 2020
- 2020 IPO Watch Report January 30, 2020
- The execution challenge for a new decade January 21, 2020
- Australian Government delays implementation of Open Banking after facing practical issues with the new Consumer Data Right January 13, 2020
- ASIC reports on corporate insolvencies 2018–19 December 19, 2019
- ASIC Financial reporting focuses for 31 December 2019 December 06, 2019
- ASIC releases report on mining and exploration initial public offers December 05, 2019
- Final ASX listing rules reforms – summary of key changes November 12, 2019
- tokenized securities are the next big megatrend of the blockchain revolution November 06, 2019
- CDR privacy safeguards: OAIC guidance released November 06, 2019
- Financial Services Council releases guide to help stop elder financial abuse October 31, 2019
- Final ASX listing rules reforms October 11, 2019
- ATO celebrates 20-year milestone of regulating self-managed superannuation funds October 10, 2019
- ASIC reports on corporate finance regulation – January to June 2019 September 23, 2019
- Does your SMSF investment strategy meet diversification requirements?’ September 19, 2019
- ASIC’s Corporate Plan 2019-2023 August 28, 2019
- Government announces Hayne Royal Commission implementation timetable August 26, 2019
- Countdown to AGM August 20, 2019
- ASIC enforcement update January to June 2019 August 18, 2019
- ASIC Warns On Insider Trading In Small Cap Miners August 03, 2019
- APRA proposes stronger rules on remuneration August 01, 2019
- AASB 16 Leases – get it right as it may have a large impact on your financial reporting July 19, 2019
- FATF releases 2019 guidance on virtual assets: 9 key points and global changes July 18, 2019
- Major financial reporting changes and other focuses June 17, 2019
- ASIC issues guidance to licensees to protect against share sale fraud June 16, 2019
- ASIC consults on proposals to maintain investor protections by restricting retail offers of ‘stub-equity’ in control transactions June 04, 2019
- ASIC releases market integrity report May 31, 2019
- ASIC updates information for businesses on ICOs and crypto-assets May 30, 2019
- Succession Planning May 14, 2019
- Large proprietary company thresholds increased April 16, 2019
- Australia passes new laws regulating streaming of abhorrent violent material by ISPs and other content providers April 15, 2019
- Federal Budget Review April 03, 2019
- ‘Mind the gap’ – consumers confusing different types of financial advice March 28, 2019
- Accounting and Financial Reporting Standards update March 27, 2019
- ATO & Council of Financial Regulators report on SMSF borrowing arrangements March 22, 2019
- fourth edition of ASX Corporate Governance Council’s Principles and Recommendations officially released. February 27, 2019
- ASIC consults on updating its responsible lending guidance February 14, 2019
- Final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry February 02, 2019
- ASIC reports on 2018 annual general meeting season January 31, 2019
- new mandatory wording requirements for service providers under the Australian Consumer Law January 30, 2019
- Protecting your PPSR Registration from Expiry January 30, 2019
- Findings from 30 June 2018 financial reports January 25, 2019
- Western Australia expands its duty base December 18, 2018
- Australian startup and young technology company funding report 2017/18 December 01, 2018
- proposed changes to the ASX Listing Rules December 01, 2018
- Plans to reduce the financial reporting burden for Australian proprietary companies. November 27, 2018
- The SEC reiterates its position on the issuance, trading and investment in digital assets November 23, 2018
- Three companies combining with a common vision of providing coordinated solutions for unlisted companies November 20, 2018