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The ASX Corporate Governance Council (ASX) released the fourth edition of its Corporate Governance Principles and Recommendations (Principles and Recommendations) earlier this year.  All entities admitted to the ASX Official List must report against the Principles and Recommendations. The new Principles and Recommendations take effect for a listed entity’s first full financial year commencing on or after 1 January 2020, although the ASX encourages them to be adopted earlier.

The increased attention by regulators on corporate governance resulting from recent events including the Royal Commission into Misconduct in the Banking, Financial Services and Superannuation Industry (Banking Royal Commission) means it is critical that all companies, not just those that are ASX listed, implement appropriate policies and practices.

The fourth edition Principles and Recommendations have a strong focus on culture and values, in a similar vein to the final report of the Banking Royal Commission (for more on the Royal Commission read our Briefing Note). In her Foreword, Chair of the ASX Corporate Governance Council, Elizabeth Johnstone, noted this focus has been “fuelled by recent examples of conduct by some listed entities falling short of community standards and expectations”.

Reporting against the Principles and Recommendations

All entities on the ASX official list must report against the Principles and Recommendations on an “if not, why not” basis. That is, compliance with the Principles and Recommendations is not mandatory. Each ASX listed entity must publish an annual corporate governance statement either in its annual report or on its website that discloses the extent to which the entity has followed the Principles and Recommendations.

If the entity has not followed a recommendation for any part of the reporting period, its corporate governance statement must identify that recommendation and state its reasons for not following the recommendation and what (if any) alternative governance practices it adopted instead.

Key Differences between the 3^rd and 4^th edition of the Principles and Recommendations

The ASX has made updates to the Principles and Recommendations that include the following:

Lay solid foundations for management and oversight

In relation to the roles and responsibilities of the board and management:

• A listed entity should adopt a board charter that clearly delineates the respective roles of the board (including responsibility for approving the entity’s statement of values and code of conduct) and management.
• A listed entity should have a written agreement with each director and senior executive that is executed personally with that individual.

Structure the Board to be effective and add value

In relation to support and training for directors:

• Training in relation to directors’ legal duties and responsibilities as well as ongoing briefings on material developments in the law.

Instil a culture of acting lawfully, ethically and responsibly

In relation to a company’s obligations to act lawfully, ethically and responsibly to protect its reputation and standing in the community:

• A listed entity should articulate and disclose its values. The statement of values should be effective in establishing a culture across the organisation with the aim of building long term sustainable value for the company’s security holders and protecting the company’s reputation and standing in the community and with key stakeholders.
• A listed entity should articulate the standards of behaviour expected of its directors, senior executives and employees in a code of conduct that complies with the ASX’s revised requirements. The board should be informed of any material breaches of the entity’s code of conduct.
• A listed entity should have and disclose a whistleblower policy (read our Briefing Note on the new whistleblower regime).
• A listed entity should have and disclose an anti-bribery and corruption policy that complies with the ASX’s revised requirements.

Make timely and balanced disclosure

In relation to disclosure of matters concerning the entity that a reasonable person would expect to have a material effect on the value of its securities:

• A listed entity should ensure that its board receives copies of all material market announcements promptly after they have been made.
• A listed entity should release a copy of new and substantive presentation materials on the ASX Market Announcements Platform ahead of the presentation.

Respect the rights of security holders

In relation to facilitating the exercise of the rights of security holders:

• A listed entity should ensure that all substantive resolutions at a meeting of security holders are decided by a poll rather than a show of hands. This is in line with the principle of ‘one security one vote.

The ASX has published a detailed checklist of required changes which can be accessed here: https://www.asx.com.au/documents/regulation/transitioning-to-the-fourth-edition.pdf.

Most listed entities will need to make significant changes to their practices and procedures to comply with the fourth edition Principles and Recommendations.

Contact Us

We would be pleased to meet with you to discuss the changes that you would like your entity to make and assist you in implementing them. Please contact Automic Group.