The 4th edition of the Australian Securities Exchange Corporate Governance Principles, which are voluntary and operate on an ‘if not why not’ basis, have placed culture, dishonesty and greed front and centre.
The new guidelines set out initiatives considered essential in rebuilding public trust in corporate Australia. The Royal Commission reinforced the necessity for the focus of Directors to be on the longer term benefit of the organisation and its stakeholders, those stakeholders extending well beyond shareholders.
The 8 principles incorporated:
- Board and management – roles and responsibilities clearly defined and regularly reviewed
- Board – skills, commitment, knowledge of company and related industry
- Company – culture of acting lawfully, ethically and responsibly
- Appropriate processes to verify integrity of corporate reports
- The making of timely, balanced disclosure of all matters having material effect on share value
- The provision to security holders of appropriate information facilities to let them exercise their rights effectively
- Sound risk management framework which itself is to be periodically reviewed
- Pay Directors enough to attract and retain quality Directors and design executive pay to attract, retain and motivate quality senior executives and to align their interests with shareholders.
These guidelines represent the well-established expectations of shareholders and, increasingly, customers and suppliers. They do not represent a dramatic change in the intent of the ASX Corporate Governance Guidelines.
There is an expectation that in meeting their obligations, Directors will take a more forensic view of unaudited reports. This should ensure the integrity of management and the thoroughness of reporting to the Board and ultimately to shareholders.
The new guidelines have also raised the issue of annual elections and a cap on the number of Board seats individuals can hold. This is largely in response to comment arising at the Royal Commission. The guidelines also include recommendations that Boards set measurable objectives for achieving gender diversity at Board, executive and workforce levels.
Revealing a degree of sensitivity to current political debate, there is also guidance on climate change risk including specific reference to the taskforce on climate related financial disclosures.
The Australian Institute of Company Directors, working with these guidelines, is also exploring how they might be implemented while concurrently articulating the market’s expectations of Directors’ roles and obligations.