The age of compliance: is your company ready to adopt the new ASX corporate governance principles and recommendations?

Further, it has been specified that under its charter, the listed entity should be satisfied that an appropriate framework exists for relevant information to be reported by management to the board, and that whenever required, the board challenge management and hold it to account.
Companies that do not already do so should consider adopting a board charter.

A well-constructed board charter will provide clarity for the board and management regarding their respective roles and responsibilities, form a foundation for the induction of new directors and assist the board with its work planning.

1. undertake appropriate checks before appointing a director or senior executive or putting someone forward for election as a director; and
2. provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director.

Further, when providing information to security holders about a candidate standing for election or re-election as a director, in addition to a statement by the board as to whether it supports the election or re-election of the candidate, listed entities should also provide a summary of the reasons as to why the board has taken this view.

The Council is aware that some directors of listed entities supply their services through a “personal services company” and have their fees paid to that company rather than to the director personally. New notes added to the Recommendation state that, provided the director has a personal letter of appointment with the listed entity setting out the director’s duties and responsibilities, such an arrangement is not inconsistent with this Recommendation. However, the new notes go on to say that such arrangements do raise other issues that listed entities and directors should consider and take advice on.

While written agreements with executives are quite commonplace, organisations that don’t provide appointment letters for directors are missing a valuable governance opportunity. These documents can greatly assist with: director induction; the setting of expectations regarding their role and responsibilities; define obligations in relation to issues such as confidentiality and entitlement to information; and are a key component of any entity’s governance processes.

The Council has extended its commentary to remind boards to think beyond just gender diversity when considering board composition. Boards composed of directors with varied ethnicities, ages and backgrounds can further assist with the broadening of the perspective of the group and reduce the risks of cognitive bias influencing decision making.

Emphasis has been put on the company to explain the information in its skill matrix to investors, with the Principles now suggesting that the company explain:

1. what it means when it refers to a particular skill in its board skills matrix; and
2. the criteria a director must meet to be considered to have that skill.

To provide meaningful and genuine assistance to a board, a skills matrix needs to be constructed with rigour and should consider not only breadth, but also depth, of experience.  A properly constructed skills matrix will assist a board to target its succession planning and further develop the skills of its members.

A well-developed induction program is a key component of a governance framework and a critical foundation for the successful integration of new directors to a board.

It should incorporate a variety of means by which new directors are inducted to the organisation, its operations, strategy and key employees, as well as to the board’s culture, processes and systems.

The Council’s commentary reinforces the messages outlined in the Hayne Royal Commission report that boards need to sharpen their focus on setting, overseeing and monitoring the culture of their organisation.

1. have and disclose a whistleblower policy; and
2. ensure that the board or a committee of the board is informed of any material incidents reported under that policy.

This recommendation is reflective of a shift towards encouraging a culture of corporate accountability in light of the recent Royal Commission.

A vital element of ensuring any whistleblower policy and procedures work as a board intends is to ensure they are fully integrated into the entity’s wider organisational governance framework and that oversight and monitoring of the implementation and operation of this framework occurs regularly.

1. have and disclose an anti-bribery and corruption policy; and
2. ensure that the board or a committee of the board is informed of any material breaches of that policy.

The Council also implemented these recommendations to capture the approximate 10% of ASX-listed entities that are established outside Australia, and may not be subject to whistleblowing and anti-bribery legislation in their country of registration.

The Principles clarify that this new disclosure can be made either in the report itself, or more generally in the listed entity’s governance disclosures in its annual report or on its website.

Recommendation 5.2 has been added to ensure there is equality of information across all investors. The Council has stated that this recommendation is not intended to apply to private meetings between a listed entity and an investor or analyst. However, any entity that has such a meeting must be careful not to disclose any information in the meeting that a reasonable person would expect to have a material effect on the price or value of its securities that has not already been disclosed to the market.

If they do not do so already, listed entities should ensure they review these new Recommendations.

If they do not already do so, listed entities should be prepared to decide substantive (i.e. non-procedural) resolutions by a poll.

Listed entities should ensure that when reviewing risk, they include contemplation of these key areas.

For the first time, the Principles recognise the critical importance of a listed entity having a risk management framework that deals adequately with cyber-security. This is of particular relevance given the new obligations on companies under the Australia Notifiable Data Breaches Scheme (as discussed here).

Recommendation 7.4 (disclosure of material exposure to environmental or social risk) has been expanded to make specific reference to environmental risks related to climate change. This includes risks related to the transition to a lower-carbon economy and physical risks (changes in water availability, extreme temperature changes etc.). This applies to all listed entities, not just those directly involved in mining or consuming fossil fuels.

1. a listed entity with a director who does not speak the language in which board or security holder meetings are held or key corporate documents are written disclosing the processes in place to ensure that director understands and contributes to discussions at those meetings;
2. a listed entity established outside Australia ensuring that meetings of security holders are held at a reasonable place and time; and
3. a listed entity established outside Australia and an externally managed 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.