ASX Corporate Governance Principles and Recommendations take effect

The new ASX Corporate Governance Principles and Recommendations (3rd Edition, 2014) (ASX CGPRs) take effect for a listed entity’s first full financial year commencing on or after 1 July 2014. This means that if you have a 30 June 2014 balance date you will not need to report against the new ASX CGPRs until the second half of 2015.  If you have a 31 December 2014 balance date you will not need to report against the new ASX CGPRs until after 31 December 2015. Critically however, you will need to report the extent of your compliance during the 2014-15 financial year when you do report. We foreshadowed these changes, and their themes in a previous post.

Some practical steps

The reporting requirements mean that you should take practical steps now to comply with the new ASX CGPRs if you want to be in a position to report that you were compliant with them during the course of the 2014-15 year (if your balance date is 30 June 2014). As most readers will now be aware the new ASX CGPRs have been completely re-written and re-ordered. Whilst the ASX has provided a Translation Table  it is very high level and not particularly helpful for time strapped executives who need to ensure ongoing compliance.

Corporate Governance Statement

First thing to note is that the new ASX CGPRs, supported by changes to the ASX Listing Rules, now give you greater flexibility with respect to how you publish your Corporate Governance Statement, being the statement through which you disclose the extent to which you have followed each of the recommendations during the reporting period.  Amendments to Listing Rule 4.10.3 mean that entities can now either publish their Corporate Governance Statement in their Annual Report or on their public website.   We suspect that most entities will take the website disclosure option as it offers more flexibility to ensure that their disclosures are current.  If you are publishing your Corporate Governance Statement on your public website don’t forget to ensure that you specify the date at which it is current and state that it has been approved by your board.  Under ASX Listing Rule 4.7.4 you will also need to give ASX a copy of your Corporate Governance Statement, current at its effective date, at the same time that you lodge your Annual Report.

New Appendix 4G

When the 2014/15 annual report is lodged, ASX Listing Rule 4.7.3 will require entities to lodge an ‘Appendix 4G’, which is essentially a detailed checklist of each of the recommendations set out in the ASX CGPRs through which an entity must disclose whether they follow a recommendation and “if not why not”.  Whilst, in the past, many ASX entities have provided detailed, recommendation by recommendation disclosure, in a tabular format, many others have provided long rambling corporate governance statements which have made it difficult to clearly identify their levels of compliance. Presumably “Appendix 4G” has been developed to create greater transparency, as all entities will now be required to adopt the tabular disclosure format.

Additional Specific Disclosure Requirements

In addition to the detailed disclosures required in an entity’s Corporate Governance Statement and Appendix 4G, the new ASX CGPRs also specify that when the word “disclose” is used in a recommendation, that information must be included in an entity’s annual report, or on its public website.  To understand the extent of this requirement it is necessary to read each and every recommendation, identify where the word “disclose” is used, and ensure that you comply with this disclosure requirement.

Because this new format effectively combines some of the old “annual report” disclosure requirements (e.g. directors details) with the old “public website” disclosure requirements, and then adds a whole lot of new disclosure requirements, it really requires some detailed analysis.  Without doubt it will require ASX listed entities to review and update their current website disclosures.

To assist ASX entities in this regard CompliSpace has developed a 2014 ASX Disclosure Checklist which sets out each of the recommendations which have specific disclosure requirements.  The 2014 ASX Disclosure Checklist will be available shortly.

Key Changes

As noted above, the new ASX CGPRs have been completely re-written and re-ordered from the 2nd Edition (2010) which has led to many obvious and not so obvious changes.  You need to start complying with these changes from the beginning of your next reporting period that commences after 1 July 2014 if you want to be able to say that you are compliant in your next Corporate Governance Statement (published in 2015 or 2016). Key changes include:

1.2(a) Background Checks for New Directors

Entities need to ensure that they undertake appropriate background checks (such as criminal record, bankruptcy, character, experience) prior to appointing a new director, or putting a candidate forward for election.

1.2(b) Candidate Information for Directors

Entities are also required to disclose to security holders all material information in their possession relevant to a decision about whether or not to elect or re-elect a director. Entities will need to ensure that they keep this information to hand so that it can be provided.

1.3  Written Contracts of Employment

Ensure that you have a written agreement with each director and senior executive setting out the terms of their appointment

1.4 Company Secretary

You should review reporting lines and ensure that your company secretary is accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board.

1.5 Diversity

Review your Diversity Policy. Note the enhanced commentary on how to define “measurable objectives”.

2.2 Board Skills Matrix

Consider your board directors’ skills matrix. You should pay attention to the level of specificity around the skills, and ensure that the matrix is not just a collection of motherhood statements (commercially sensitive information can be excluded).

2.3 Director Independence

Review the independence of each director against the changes made to box 2.3, having particular regard to the ‘close family ties’ and long term appointments criteria.  If you have developed internal independence guidelines these should be reviewed.

2.6 Director Induction

Review your program for director inductions and ensure that it is sound and also provides appropriate professional development opportunities for directors to develop and maintain their skills and knowledge.

4.3 External Auditors

Entities should ensure that their external auditor attends their AGM and is available to answer questions.

6.1 Provide information on website

Entities should provide information about themselves and their corporate governance to investors via their website.

6.4 Option for Electronic Communications

Establish an email address for security holder communications and publicise it.   Make sure that someone is monitoring emails at least daily.  Confirm with your securities registry that it gives the option for security holders to communicate with it electronically.

7.1 Risk Committee(s)

Ensure that you have clearly established how risk is overseen through your board or board committees, and that the relevant charters reflect your practice. In addition, make sure that committees overseeing risk have at least 3 members, the majority of whom are independent (with an independent chair).

7.2 Risk Framework

Make sure that you have a properly articulated risk framework that is working in practice. You should do this because the board is now going to have to conduct annual reviews of the effectiveness of your risk systems.

7.3 Internal Audit (Risk Compliance Oversight)

If you have an internal audit function make sure that you are clear as to its role. If you don’t have an internal audit function you will need to be able to articulate the processes you employ for evaluating and continually improving the effectiveness of your risk management and internal control (compliance) processes.

7.4 Material Risks

Entities are now required to disclose whether they have any ‘material exposure’ to economic, environmental and social sustainability risks. These are now all defined terms.

Risk management gets more serious

The new ASX CGPRs have a greater emphasis on risk management and consistently refer to the requirement for boards to establish an entity’s ‘risk appetite’ although what is meant by this is not explained.  As in previous editions of the ASX CGPRs the ASX Corporate Governance Council refers to the ISO 31000 International Risk Management Standard as a useful reference point for entities seeking to establish a risk management framework.

For those ASX listed entities who still think that risk management is something you do once a year and have a documented risk management program which means little to staff, senior management and/or the board of directors … well  you may be in for a bit of a shock.  AS/NZ ISO 31000 makes it clear that risk management involves a lot more than simply documenting a program, formulating a risk register on an excel spreadsheet and tabling it with the board.


How can CompliSpace help?

CompliSpace has been working with ASX listed entities for over 10 years, assisting them to develop risk and internal control systems that allow them to meet their compliance obligations and most importantly to obtain real value from their investment in robust governance, risk and compliance infrastructure.

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