Proposed update to ASX corporate governance guidelines

Articles Written by John Keeves (Partner), Alice Hudson

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.

Principles & Recommendations


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.

Key changes

Listed entities will need to be mindful of the following key changes to the guidelines proposed by the CGC:

  • Establishment of risk committee - The revised guidelines will recommend that listed entities establish a risk committee (either as a standalone committee or as part of the audit committee). Companies who choose not to will need to provide an explanation as to why not and as well, the board's approach to risk management. The revised guidelines will also focus on further requirements for risk management systems. Currently, entities need only disclose whether management has designed and put in place a risk management system. Management must also report to the board about its effectiveness. If the changes are adopted, there will be a greater responsibility on the board (either itself or through a board committee) to review the risk management framework with management at least annually so as to satisfy itself that the framework is sound and whether there have been any changes in material business risks to ensure that they remain within the risk appetite of the board.
  • Disclosure regarding "economic, environmental and sustainability risks" - The revised guidelines will recommend that entities disclose whether, and if so how, they have regard to economic, environmental and social sustainability risks. While this requirement is somewhat vague, at least it does not impose prescriptive and potentially onerous reporting requirements.
  • Changes relating to directors - there are three main changes relating to directors:
    • Choosing potential directors: The guidelines will recommend that entities undertake "appropriate checks" before appointing a director, or putting a person up for election for the board. This may include checking, for example, whether they have a criminal record, whether they have been bankrupt, their educational qualifications, or any character references. The guidelines will also expressly require all material information relevant to an election decision to be provided to members.
    • Director independent criteria: This proposed recommendation has been amended to include a statement that directors holding office for more than nine years are no longer prima facie considered to be "independent". If an entity decides that a director with more than nine years' service is still independent, it will be required to explain to members why it has reached that conclusion. This recommendation might be regarded as somewhat controversial given that since the Second Edition, the guidelines have not been prescriptive about length of service being a matter impairing independence, despite earlier moves in other jurisdictions. A length of service criterion was deliberately omitted when the Second Edition was adopted. Apart from consistency with other jurisdictions, there does not appear to be a compelling reason for this proposed change.
    • Induction program: It is to be recommended that entities run an induction program for new directors and provide ongoing professional development for directors to ensure that they are able to carry out their duties effectively.
  • Investor relations program - The revised guidelines will recommend that entities should design and implement an investor relations program. We query whether this is a necessary recommendation, but it is unlikely to do any significant harm.
  • Diversity reporting - The revised guidelines will allow reporting against "Gender Equality Indicators" under the Workplace Gender Equality Act 2012, along with greater guidance on the meaning of "measurable objectives" and measures of achievement against such objectives.
  • Clawback policy - The revised guidelines will recommend that entities be required to have a policy for claw back of performance based pay, disclose the policy (or a summary) and disclose each year details of any claw backs under the policy.
  • Overseas entities - The revised guidelines will recommend that foreign incorporated entities comply with certain Corporations Act requirements which would not otherwise apply, including the CEO and CFO sign-off requirement and availability of auditors at AGMs.

Proposed changes to Listing Rules


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

Key changes proposed by the ASX include:

  • A new Listing Rule 3.19B - New Listing Rule 3.19B will require disclosure to the ASX of all on-market purchases by or on behalf of employees, directors or other related parties under employee share schemes. This change was prompted by calls by proxy advisory firm Ownership Matters (and various media publications) to subject the practice of on-market purchases to greater disclosure including:
  • the on-market purchase of shares for employees and directors whose equity incentives were vesting;
  • the on-market purchase of shares, through a trust, for employees and directors whose incentives had still to vest.

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.

  • Streamlining disclosure - Entities will be permitted greater flexibility by being given the option of making corporate governance disclosure on their website rather than in their Annual Report. If the corporate governance statement is disclosed on the entity's website, then a copy of it must also be lodged with the ASX at the time of lodging the annual report.
  • New Appendix 4G - This new Listing Rule will require that listed entities lodge an Appendix 4G with their Annual Report. New Appendix 4G will give entities a checklist of corporate governance-related disclosures required by listed entities which will help investors find corporate governance disclosures and assess the corporate governance practices in place. Additionally, listed entities will be better able to verify that they are complying with their disclosure obligations.

Deadline for feedback - 15 November 2013

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.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).