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On 16 August 2013, the ASX released two consultation papers in relation to its Corporate Governance guidelines: one, proposing updates to the Corporate Governance Principles & Recommendations (Principles & Recommendations); and the other, outlining various corporate governance-related amendments to the Listing Rules and Guidance Note 9 (Disclosure of Corporate Governance Practices).
If adopted, the proposed changes will provide entities with greater flexibility with respect to reporting. They will however also require more detailed reporting from listed entities.
The deadline for comments on both papers is 15 November 2013. The changes are due to take effect in mid-2014 so will affect Annual Reports for financial years beginning on or after 1 July 2014.
The Corporate Governance Council (CGC), in preparing this latest rewrite of the Principles & Recommendations, is clearly focused on incorporating "the lessons of the GFC and other local and global developments in corporate governance since the last edition was published in 2007" (and amended in 2010).
The CGC also warns that if the pressure points that have emerged in recent years in the area of corporate governance are not addressed and the Principles & Recommendations are not regularly updated then Australia may come under pressure to consider a more prescriptive legislative response to governance failures that surfaced from the GFC, as has been the case in Europe.
This is evident from the fact that a number of the proposed changes reflect an increased focus on managing risk. There is also a new requirement that entities disclose whether (and how) they have regard to "economic, environmental and sustainability risks".
In the main, the proposed changes relate to "recommendations" for complying with the current principles (and not to the "principles" themselves) with a number of practices or disclosures recommended in the commentary being elevated into actual recommendations in this rewrite. As is the case currently, listed entities will need to disclose compliance or non-compliance with these recommendations in their Annual Reports or corporate governance statement.
Listed entities will need to be mindful of the following key changes to the guidelines proposed by the CGC:
The changes set out in the consultation paper on proposed governance related amendments to the Listing Rules and associated changes to Guidance Note 9 seek to complement and implement the Principles & Recommendations (discussed above).
With the exception of proposed new Listing Rule 3.19B, which is intended to take effect from 1 January 2014, these changes are expected to take effect from 1 July 2014.
Key changes proposed by the ASX include:
The Listing Rules currently prevent listed entities from allowing directors to acquire shares under an incentive scheme without shareholder approval but they do not apply to on-market purchases under an employee incentive scheme that provides for the purchase of shares by or on behalf of employees or directors. While such purchases will not (under the new rule) require shareholder approval, the ASX is proposing that there should be greater disclosure of the practice.
The new Listing Rule 3.19B will require disclosure, within five business days, of the relevant on-market purchase of shares.
As mentioned above, the deadline for comments on both consultation papers is Friday, 15 November 2013. The ASX is also conducting a national road show during September to inform and request feedback from all interested stakeholders to the proposed changes.
Johnson Winter & Slattery is preparing a submission and would be pleased to hear from our clients about any issues concerning the consultation paper that you think should be included in our submission.
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