The ASX Corporate Governance Council is consulting on its proposed update to the “Corporate Governance Principles and Recommendations”. The closing date for submissions is 27 July 2018 with the new edition of the Principles and Recommendations expected to come into effect for a listed entity’s first full financial year commencing on or after 1 July 2019.
The Council explains that the proposed changes respond to emerging domestic and global corporate governance issues, including: social licence to operate; corruption; gender diversity at board level; and, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The consultation draft retains the same eight core Principles but proposes significant changes to Principle 3 and nine new Recommendations. The consultation draft preserves the ‘if not, why not’ framework that requires a listed entity to identify where it has not followed a recommendation and outline its reasons for not doing so and what (if any) alternative governance practices it adopted instead.
What are the key proposed changes?
- Redraft of Principle 3: “Instil the desired culture”
Principle 3 is the only Principle that has been significantly amended. The changes aim to address concerns relating to a listed entity’s culture, values and social licence to operate. The commentary relating to Principle 3 has also been revised.
Supporting this Principle are three new Recommendations relating to: core values, whistleblowing policies and anti-bribery and corruption policies.
To better achieve gender diversity outcomes, the Council proposes:
- a measurable objective of at least 30% of directors of each gender for entities in the S&P/ASX 300;
- to clarify that a listed entity’s measurable gender diversity objectives should aim at achieving gender diversity in the senior executive team, the board and the workforce generally;
- requiring full disclosure of diversity policies (not just a summary); and
- that a listed entity’s diversity policy should commit to “embrace diversity at all levels and in all its facets, including gender, marital or family status, sexual orientation, gender identity, age, physical abilities, ethnicity, religious beliefs, cultural background, socio-economic background, perspective and experience”.
- Use of Polls
The Council proposes a new recommendation that listed entities use polls (rather than a show of hands) to determine the outcome of resolutions at security holder meetings.
ASIC’s report on 2017 AGM season expressed concern that a relatively high number of ASX 200 companies still use a show of hands to decide resolutions.
- Consultancy services
The consultation draft provides that a listed entity should only enter an agreement to be provided consultancy or similar services by a director or senior executive or by a related party of a director or senior executive:
- if it has independent advice that:
- the services being provided are outside the ordinary scope of his or her duties as a director or senior executive (as applicable);
- the agreement is on arm’s length terms; and
- the remuneration payable is reasonable; and
- with full disclosure of the material terms to security holders.
- if it has independent advice that:
- Carbon risk
Pursuant to the recommendation by the Senate Economics References Committee, the Council proposes to, among other things, encourage entities that have a material exposure to climate change risk to consider implementing the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.
- Language barriers for directors
The consultation draft includes a new Recommendation that a listed entity with a director who is not fluent in the language, in which board or security holder meetings are held or key documents are written, should disclose how it will ensure the director understands and can contribute to the discussions at those meetings and can discharge his or her obligations in relation to those documents.