Giles Rafferty, Corporate Communications and Media Advisor
The Financial Services Royal Commission is shining a light on governance failures at some of Australia’s largest businesses. It has also revealed a clear need to restore trust in Australian listed companies. The ASX Corporate Governance Council is seeking to address the trust deficit by updating the Principles and Recommendations that underpin good governance in Australia. The Council is currently looking for feedback on its plans to address the current governance failures and other issues. The closing date for submitting feedback is Friday the 27th of July 2018.
The “if not/why not” approach to the Principles and Recommendations remains, meaning the Board of a listed company can choose not to adopt areas of the Principles and Recommendations but in doing so must explain why.
The update of the ASX’s guidance on governance is the first since 2014 and will create the 4th edition of the Principles and Recommendations. The 4th edition will cover areas such as a listed company’s purpose, social license to operate; its values and culture; whistleblower policies; gender diversity and remuneration policies.
The proposed 4th edition of the code retains the same eight core principles contained in the third edition but with a significant change to Principle 3, which states a listed entity should act ethically and responsibly. The Corporate Governance Council is recommending principle 3 be amended to “a listed entity should instill and continually reinforce a culture across the organisation of acting lawfully, ethically and in a socially responsible manner”.
In addition, it is proposing 3 new supporting recommendations to Principle 3 to cover disclosure of a company’s core values, whistle blower policy and anti-bribery and corruption policy.
The Council has indicated that the key purpose of revising Principle 3 is to ensure listed entities:
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- value the importance of their social license to operate, and
- acknowledge that in administering this license they cannot simply focus on the interest of their shareholders at all costs.
The ASX is also looking to beef up Principle 1 by adding to the list of usual responsibilities of the board thus:
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- defining a company’s purpose
- approving a company’s statement of core values and code of conduct
- overseeing management in instilling a company’s values
- ensuring a company’s remuneration is aligned with its purpose and values
- ensuring the information provided to the Board includes any instance where there has been a breach of a company’s values or code of conduct
In total the proposed fourth edition of the code will have 38 recommendations compared to the current 29. Details of the new recommendations and their rationale can be found in the ASX Corporate Governance Council consultation paper.
The ASX will be conducting a national road show in June 2018 to inform and seek feedback from listed entities and other interested stakeholders about these proposed changes. Dates and venues will be released shortly.
The current plan is for the fourth edition of the code to be released early in calendar 2019 and come into effect for a company’s first full financial year commencing on or after 1 July 2019.
Companies with a 30 June balance date will be expected to benchmark their governance practices with the fourth edition commencing with the financial year ended 30 June 2020, while entities with a 31 December balance date will be expected to do so commencing with the financial year ended 31 December 2020.