Australia: Listed Companies take note - key changes to ASX Listing Rules relating to Trading Policy and Board Diversity

1. Background

From 1 January 2011 listed companies need to comply with the following key changes to the ASX Listing Rules:

• Key Management Trading Policy – new content requirements for the trading policy under which key management and executives can trade in the listed company's securities require disclosure of restrictions on trading that apply to the company's key management personnel, which must include specified closed periods‟.
•  Board diversity – changes to the ASX Corporate Governance Principles and Recommendations require listed companies to include gender in their considerations for Board nominations and remuneration policies. Disclosure of the company's mix of skills and diversity and measureable objectives for achieving gender diversity and progress in achieving them is required in the listed company's annual report statement of compliance with the ASX Corporate Governance Principles and Recommendations.

2. ASX Listing Rules – Trading Policy

New ASX Listing Rules 12.9 to 12.12 require listed companies to have a trading policy that complies with the content requirements set out in Listing Rule 12.12 (see below), and for the trading policy to be given to the ASX Company Announcements office for release to market. Companies that did not provide a copy of their new Trading Policy to the ASX by 31 December 2010 can expect enquiries from the ASX in early 2011.

Material changes to the trading policy must be released to market through the ASX Company Announcements office within 5 business days of the changes taking effect.

The content requirements set out in Listing Rule 12.12 include that a listed company's trading policy specifies the company's closed periods. A "closed period" is a fixed period during which a company's key management personnel are generally prohibited from trading in the company's securities.

The listed company's trading policy may comply with the requirement to specify closed periods by:

• prohibiting trading by key management at all times (ie, the closed period is the whole year), except during certain defined "trading windows"; or
• defining fixed periods (called "black-out periods") throughout the year where trading in the listed company's securities is generally prohibited.

 A trading policy must also define what trading is not subject to the trading policy.

The ASX has published a new Guidance Note 27 to assist listed companies to comply with the new Listing Rules.

3. ASX Corporate Governance Principles and Recommendations –Diversity changes

Changes have been made to Principles 2, 3, 6 and 8 of the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations (2nd edition).

ASX listed entities are required to comply with the amended and new Recommendations, or explain in their annual report why that haven't done so (on an 'if not, why not' basis)¹.

Principle 2 Structure the board to add value

• Recommendation 2.4 now contains additional commentary under the heading "Selection and appointment process and re-election of directors". The board nomination committee should disclose the board selection process and report to shareholders, including details of the board skills matrix used, process of identification and selection of candidates, the steps taken to ensure a diverse range of candidates are considered, and the factors taken into account in the selection process. There is also additional commentary under the heading "Election of directors" that the information given to shareholders should include a statement by the board as to whether it supports the nomination of the candidates for director appointments. As additional commentary, rather than a binding Recommendation, non-compliance with this commentary does not require an explanation in the company's annual report, however companies are encouraged to comply as part of a good governance program.
• Recommendation 2.6 requires ASX listed companies to include a statement in their annual report "as to the mix of skills and diversity which the board of directors is looking to achieve in its membership".

Principle 3: Promote ethical and responsible decision making

•  new Recommendation 3.2 requires listed entities to "establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measureable objectives for achieving gender diversity and for the board to assess annually both the measureable objectives and progress in achieving them."
• new Recommendation 3.3 requires listed entities to "disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them."
• new Recommendation 3.4 requires listed entities to "disclose in each annual report the proportion of women employees [at three levels]: in the whole organisation, women in senior executive positions, and women on the board."
• new Recommendation 3.5 requires listed entities to post a copy of the diversity policy (or a summary) of it on the company's website.

Principle 6: Respect the rights of shareholders

This Principle includes additional commentary that the communications policy of listed companies should include a webcasting or mass communication facility for providing advance notice to its shareholders of significant group briefings.

Principle: Remunerate fairly and responsibly

• Recommendation 8.1 The Board should establish a remuneration committee now includes that the remuneration committee should specifically consider remuneration by gender.
• new Recommendation 8.2 requires that the remuneration committee established by a listed entity under Recommendation 8.1 be structured so that it consists of a majority of independent directors, is chaired by an independent director, and has at least three members

 3. Conclusion

All listed companies should review their trading policies and corporate governance policies to ensure they are up to date in accordance with these changes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.