New ASX corporate governance guidelines for listed entities effective from 1 July 2019

A widely referenced governance-related publication in Australia is Corporate Governance Principles and Recommendations of the Australian Stock Exchange (ASX) first published in 2003.

The third iteration of this document released by the ASX Corporate Governance Council in March 20141 espouses eight ‘central principles’:

  1. Lay solid foundations for management and oversight
  2. Structure the board to add value
  3. Act ethically and responsibly
  4. Safeguard integrity in corporate reporting
  5. Make timely and balanced disclosure
  6. Respect the rights of security holders
  7. Recognise and manage risk
  8. Remunerate fairly and responsibly

Along with these central principles, the guidelines currently have 29 specific recommendations. Public companies are required to include a ‘Corporate Governance Statement’ in their annual reports declaring the extent to which the 29 recommendations have been followed.

While the ASX Guidelines apply only to publicly listed companies, they are considered persuasive for larger private corporations and SMEs. The central principles are hard to argue against as they address the often competing interests of the shareholders, workforce, other stakeholders, the community, the environment and regulators.

There has been debate recently about the need for public company boards to comply with the ASX Guidelines. David Murray (former CEO of CBA, Chair of The Financial System Enquiry and recently appointed Chair of AMP) ignited public debate on this subject in July when he said:

“We (AMP) will not be guided by the ASX corporate governance principles where they either weaken accountability or distract the company to less important issues. The ASX corporate governance principles contributed to what happened to AMP and others in the financial sector. I’m not excusing anything and I’m not looking for a scapegoat at AMP. It has to fix itself. But these principles don’t help at all.”2     

Michele O’Neil, President of the Australian Council of Trade Unions (ACTU) responded with:

“The rules are broken from the top down, and we need to reform how boards operate in order to ensure better rights and conditions for Australian workers. Workers generate every dollar of profit for every ASX company and boards must be held to account when they invest in a way which is contrary to the interests of working people. AMP’s refusal to accept these new standards shows the kind of disregard for ordinary people which has led to the banking royal commission, and the endless tales of exploitation and criminal activity which have been uncovered through that process. It’s a disgrace.”3 

Clearly, there is a divergence of views on the scope and benefit of the guidelines and of adhering to them. No doubt public debate will continue with well-reasoned arguments on both sides during the consideration of submissions between now and release of the next iteration.

The committee responsible for revising the ASX Guidelines, the ASX Corporate Governance Council, received 100 submissions prior to the close of the consultation period on 27 July 20184. The council indicated in a summary document dated June 2018 that the drivers for the need for review of the 2014 iteration of the ASX Guidelines were:

  • Emerging issues around values, culture and social licence to operate
  • Government enquiries on carbon risk, whistleblowing and foreign bribery and corruption
  • A perceived slowing in the rate of progress in achieving gender diversity at board level
  • Cyber risks (not referenced in the 3rd edition)
  • Governance issues associated with the internationalisation of ASX listed entities
  • Areas for improvement identified in KPMG’s review of the 3rd edition
  • Governance concerns raised by ASX about consultancy agreements

Changes proposed by the ASX Corporate Governance Council are:

  • Principle 3 (‘Act ethically and responsibly’) to be changed to ‘Instill the desired culture’;
  • Nine new recommendations including that a listed entity should:
    • have and disclose a whistleblower policy that encourages employees to come forward (Recommendation 3.3)
    • have and disclose an anti-bribery and corruption policy (Recommendation 3.4)
    • ensure that the board is informed of any material breaches of the code by a director or senior executive or any other material breaches of that code that call into question the culture of the organisation (Recommendation 3.2)

The ASX Corporate Governance Council anticipates the guidelines will be released before the end of December 2018 and will be effective for listed entities from 1 July 2019.