Prepare now. The 4th Edition of the ASX Corporate Governance Principles

The 4th edition is aimed at addressing governance issues around corporate culture and values, ethics, board responsibilities and effectiveness, diversity, executive remuneration, risk management and risk appetite, and climate change.

 

Prepare now for the 4th Edition 

The 4th Edition of the ASX Corporate Governance Principles has introduced a raft of new requirements – see our article entitled Values, culture and social responsibility required to rebuild trust. So, where to begin?

First, we note that the direction of updated governance principles and recommendations is complementary to that of Integrated Reporting, <IR>, so the two can be developed concurrently – see our article entitled Building trust through transparency.  

The aim is to strengthen the links and alignment between an entity’s purpose/vision, culture, values and strategy, and its activities and behaviour, and how those activities and behaviour drive value creation. 

Nevertheless, regardless of your entity’s progress on <IR>, companies need to start preparing now for the new corporate governance regime. 

Here is a quick list of the major ‘to do’ items:
  • Entity purpose
  • Statement of values
  • Code of conduct
  • Whistle-blower policy
  • Anti-bribery and corruption policy
  • Diversity policy
  • Remuneration policy
  • Risk management framework for both financial and non-financial risks
  • Practices, policies and procedures that facilitate information flow between management and the board
  • Procedures required to comply with the revised reporting recommendation, including whistle-blower, anti-bribery and corruption, and diversity policies.

Other important reminders and considerations include:

  • Prepare to disclose required policies in full
  • Prepare processes by which your company will verify the integrity of its periodic corporate reports
  • Ensure that the board receives copies of all material market announcements promptly after they have been made
  • Consider exposure to environmental risk and social risk based on new definitions
  • Check that the remuneration policy:
    – reflects values and risk appetite
    – has the discretion to prevent performance-based executive remuneration from rewarding conduct that is contrary to the entity’s values or risk appetite
  • Review polices relating to directors’ ongoing professional development needs
  • Review the board skills matrix to ensure that it covers the skills needed to address the relevant existing and emerging business and governance issues, and review how skills are defined and the criteria that directors must meet to achieve the required skill levels.

While the to-do list may look a little lengthy, many of the tasks will be straightforward if you plan and prepare early. Early preparation will leave enough time for the more nuanced requirements to be appropriately considered and implemented for the first full reporting period on or after 1 January 2020.