Reminder: ASX Corporate Governance revisions take effect on 1 July 2014
The ASX Corporate Governance Council released a new 3rd Edition of the Corporate Governance Principles and Recommendations (3rd Edition) earlier this year. The majority of the changes are a refinement, rather than a rewrite, of the 2nd Edition, however, there are some new guidelines and in order to comply with the new edition, ASX listed companies will need to take preparatory action.
What has changed?
The 3rd Edition is built around the existing eight principles and includes nine new recommendations. Some of the key new and modified recommendations relating to Director appointments and risk management and are detailed below.
Directors & Management
The 3rd Edition recommends that listed entities:
- undertake appropriate background checks before appointing a person, or putting forward to security holders a candidate for election, as a director;
- provide shareholders with all material information relevant in determining whether or not to elect or re-elect a director;
- enter into a formal written agreement with each director and senior executive setting out the terms of their appointment.
New directors should also be appropriately inducted into the company and appropriate professional development opportunities should be provided on an ongoing basis to enable directors to develop and maintain the skills and knowledge needed to perform their roles effectively.
The 3rd Edition also expands the factors determining the independence of directors to include the consideration that overly long service as a director may indicate that director is no longer independent.
The best practice recommendations for risk management have also been expanded under the 3rd Edition as follows:
- listed entities should have a committee to formulate and oversee the strategy for dealing with risks which has at least three members, a majority of whom are independent directors and is chaired by an independent director;
- the entity must also disclose the charter of the committee, the members of the committee and, as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; and
- if a listed entity does not have a risk committee that satisfies the above, that entity must disclose that fact and the processes it employs for overseeing the entity’s risk management framework.
An annual review of the risk management framework should be undertaken to confirm that the framework continues to be sound, and, in relation to each reporting period, disclosure should be made as to whether such a review has taken place.
A listed entity should also disclose whether it has an internal audit function and:
1. if it has an internal audit function, how the function is structured and what role it performs; or
2. if it does not have an internal audit function, the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes.
A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks.
Auditor Attendance at AGM
A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit
What has not changed?
The existing structure of core principles with supporting recommendations and commentary remains, as well as the ‘if not, why not’ approach to disclosure. ASX Listing Rule 4.10.3 requires ASX listed entities to benchmark their corporate governance practices against the 3rd Edition. If your board considers that a recommendation is not appropriate to its circumstances, it must explain why it has not adopted the recommendation.
The 3rd Edition will take effect on and from an entity’s first full financial year commencing on or after 1 July 2014. Therefore, if your company has a 30 June or 31 December balance date, you will be expected to measure your governance practices against the updated recommendations commencing with the financial year ended 30 June or 31 December 2015 respectively.
Changes to ASX Listing Rules
The implementation of the 3rd Edition also necessitated certain amendments to the ASX Listing Rules, requiring organizations to make additional and new disclosures to the market. These are detailed in our separate Specialist alert which can be found here. The amendments are intended to come into effect on 1 July 2014, subject to receipt of the necessary regulatory approvals under the Corporations Act 2001 (Cth).
Should you require any assistance in implementing the changes to the ASX Listing Rules or other changes to the 3rd Edition of the Corporate Governance Principles and Recommendations, please contact us.
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