The ASX has released a consultation paper addressing the disclosure of security acquisitions on market for executive incentive schemes without prior approval by shareholders.
Securities cannot be acquired under an employee incentive scheme without the acquisition being approved by shareholders, except if the securities are purchased on market under the terms of a scheme providing for the purchase.
This exclusion was originally introduced on the basis that the purchases would not dilute the holdings of existing security holders and because the purchases relate to the remuneration arrangements of Directors, which are traditionally governed by legislation and accounting standards rather than the listing rules.
There are concerns, however, that the exclusion is being abused. Proxy advisor Ownership Matters released a report on the issue in May, investigating how much money Australian organisations spend purchasing securities for employee schemes.
It concluded that, in some cases, buying such securities through employee share trusts may be more costly to shareholders than issuing new securities and called for the introduction of additional disclosure and shareholder approval requirements for shares purchased on market for incentive schemes.
Although the ASX said it did not necessarily agree with the concerns, it has proposed a new listing rule such that any on-market purchases under the terms of a scheme providing for the purchase of securities by or on behalf of Directors and their related parties should be disclosed to the market within five business days – the same time period provided to disclose changes in a Director’s notifiable interests.
Organisations should disclose the total number of securities purchased and the average price at which they were purchased. If any or all of the securities were purchased on behalf of a Director, or related party of a Director, the organisation should disclose the name of the Director or related party, the number purchased for that Director or related party and the average price per security at which the securities were purchased on behalf of that Director or related party.
The new rule is proposed to come into effect on and from 1 January 2014. It is one of a number of proposed listing rule changes released by the Council mid-August. Submissions to the proposed changes are due on Friday, 15 November 2013.
Flexibility for corporate governance reports
In the same consultation paper, the ASX has also proposed changes to allow a listed entity to choose whether it includes its corporate governance statement in its annual report or on its website. If it chooses to do the latter, it must provide the URL of the relevant webpage in its annual report and it must lodge a copy of the corporate governance statement with the ASX at the same time as it lodges its annual report. This statement must be current as at the effective date specified within it.
The reason for requiring the provision of a statement despite the information being on the website is that when websites change, old versions are replaced with new. The statement will provide a contemporary and permanent record kept on the market announcements platform, allowing interested parties to follow changes in governance practices from year to year.
In either case, the entity must also state when the corporate governance statement was effective (being the balance date or later) and state that it had been approved by the Board. The ASX said this change was proposed to make sure corporate governance was treated as seriously as the financials, and not palmed off to advisors to complete.
It also proposed that in the case a listed entity does not follow an ASX Corporate Governance Council recommendation for any part of the reporting period, the entity should identify the recommendation and the period it was not followed and state the reasons for not following it as well as any alternative governance practices it adopted instead.