Changes to Corporate Governance Principles – Effective Already
Whether you are a director, officer or the company secretary of a listed entity, it appears that the ASX Corporate Governance Council has added some new and improved corporate governance principles to your new year’s resolution list.
From 1 January 2011, the ASX Corporate Governance Council amendments to the second edition of the Corporate Governance Principles and Recommendations are in effect. Although directed at listed companies, companies including unlisted public companies, pty limited companies and other entities are encouraged to take the principles into account in their own strategy and policies.
History
On 30 June 2010, the ASX Corporate Governance Council released amendments to the Second Edition Corporate Governance Principles and Recommendations in relation to diversity, remuneration, trading policies and briefings. This is the third iteration since 2003. The Recommendations are now called the Corporate Governance Principles and Recommendations with 2010 Amendments.
A Reminder of the Principles
Principle 1 Lay solid foundations for management and oversight.
Principle 2 Structure the Board to add value.
Principle 3 Promote ethical and responsible decision-making.
Principle 4 Safeguard integrity in financial reporting.
Principle 5 Make timely and balanced disclosure.
Principle 6 Respect the rights of shareholders.
Principle 7 Recognise and manage risk.
Principle 8 Remunerate fairly and responsibly.
So what is new?
Principle 2.4 – that the Board should establish nomination committee, now has additional commentary dealing with the selection and appointment process of directors and re-election of directors.
Principle 2.5 that companies should disclose the process for evaluating the performance of the Board, its committees and individual directors, now has additional commentary in relation to director induction programs and director ongoing education.
Principle 2.6 that companies should provide the information indicated in the Guide to reporting on Principle 2, now specifies additional matters to be included in the Corporate Governance Statement in an annual report.
Principle 3.2 that companies should establish a policy concerning trading and company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy, has been deleted. This has been replaced by the recommendation that companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The Principles further contain suggestions for the content of a diversity policy.
Principle 3.3 is new and provides that companies should disclose, in each annual report, the measurable objectives for achieving gender diversity set by the Board in accordance with the diversity policy and progress towards achieving them.
Principle 3.4 is new and provides that companies should disclose, in each annual report, the proportion of women employees in the whole organisation, women in senior executive positions and women on the Board.
Principle 6.1 that companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings has been enhanced with commentary on dealing with significant group briefings (for example, results announcements).
Principle 8.2 is new and deals with the composition of the remuneration committee. It provides that the remuneration committee should be structured so that it:
- consists of a majority of independent directors;
- is chaired by an independent chair; and
- has at least three members.
The Recommendation that companies should clearly distinguish the structure of non-executive director’ remuneration from that of executive directors and senior executives is now set out in Principle 8.3.
The ASX Approach
The Recommendations are not prescriptions, they are guidelines only. The ASX has clearly stated that if a company considers that a Recommendation is inappropriate to its particular circumstances, it has the freedom not to adopt it subject to the requirement to explain why, that is, the “if not, why not” approach.
Lena Banoob
Senior Associate
T: +61 2 9390 8308
E: lena.banoob@holmanwebb.com.au