Australia: New ASX Corporate Governance Principles and Recommendations

Recommendation: Listed entities should undertake appropriate checks before appointing, or putting a person forward as a candidate to become, a director.

Entities should also provide security holders with all information in its possession relevant to the decision whether or not to elect or re-elect the director.

The recommended checks will include character, experience, education, criminal record and bankruptcy. The ASX commentary to the recommendation also includes details as to what information should be disclosed to shareholders. It will include a biography, other material directorships, any adverse information revealed by the background checks,
other interests which could or could be perceived to influence the person's potential independence, a statement as to whether the board supports the election or re-election, and a statement as to whether the person will be considered to be an independent director.

Recommendation: Listed entities should have a written agreement with each director and senior executive setting out the terms of their appointment.

The commentary provides a list of matters that should be included in the agreement. This recommendation will operate in addition to Listing Rule 3.16.4 under which listed entities are required to disclose the material terms of any employment, service or consultancy agreement with its CEO, any director or any of their related parties.

Recommendation: The company secretary should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board.

This is an example of commentary in the previous version that has been elevated to a recommendation. The commentary in the new version now provides that the role of the company secretary should include advising the board and its committees on governance matters, monitoring that policies and procedures are followed and ensuring that the business of the board and committees is accurately captured in the minutes (which, following recent cases, will be a point that company secretaries will no doubt be very familiar with).

Recommendation: A listed entity should have a program for inducting new directors and provide appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their roles as directors effectively.

This is also an example of commentary in the previous version that has been elevated to a recommendation. The commentary provides that the board or nomination committee of listed entities should regularly review whether the directors as a group have the skills, knowldge and familiarity with the entity and its environment to fulfil their role effectively. Where gaps are identified, they should consider what training or development is required to fill those gaps. It also notes that directors should receive ongoing briefing on developments in accounting standards.

Recommendation: A listed entity that has an AGM should ensure that its auditor attends its AGM and is available to answer questions from shareholders related to the audit.

For most listed entities this is merely a reflection of the current requirement under the Corporations Act. However, the purpose of this recommendation is to apply to listed entities which are not required to comply with the corresponding requirement under the Corporations Act (for example, foreign listed entities). As we noted in our October 2013 article, this is one of several amendments made by the ASX to effectively impose on foreign listed entities similar obligations that apply to Australian but not foreign companies under the Corporations Act.

Recommendation: A listed entity should provide information about itself and its governance to investors via its website.

Relative to the previous version, the commentary to the Principles and Recommendations now provides a more detailed list of matters that entities should include under the 'Corporate Governance' part of their website. This will include the directors' biographies, its constitution, charters and corporate governance policies. This is a clear acknowledgment that, 'in the digital age', investors expect information about the entity to be freely and readily available.

Recommendation: A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically.

The commentary notes that the communication should be formatted to be easily readable on computer screens and other electronic devices, as well as being able to be printed.

Recommendation: A listed entity should disclose, if it has an internal audit function, how the function is structured and what role it performs and, if it does not have an internal audit function, the process it employs for evaluating and continually improving the effectiveness of its risk management and internal control process.

The purpose of the internal audit function is to assist a listed entity to achieve its objectives by bringing a systematic, disciplined approach to evaluating and continually improving the effectiveness of its risk management and internal control processes. If a listed entity has an internal audit function, the head of that function should ideally have a direct reporting line to the board or audit committee.

Recommendation: A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages those risks.

As we noted in our October 2013 article, the treatment of risk management in the new version of the Principles and Recommendations is one of the key changes (which we also discuss below). Its intention is to address, in a non-prescriptive manner, the increasing attention being given by the investment community to environmental and social issues and the investment risks they raise.