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HG Alert: Top 10 proposed changes to ASX Corporate Governance Principles and Recommendations and Listing Rules 22 August 2013

On 16 August 2013, the ASX released two consultation papers regarding the proposed third edition of the ASX Corporate Governance Principles and Recommendations (Recommendations) together with governance related changes to the Listing Rules and ASX Guidance Note 9.

The proposals seek to review and update the ASX Corporate Governance Principles and Recommendations released in 2007 (and amended in 2010) to incorporate lessons from the GFC and other local and global corporate governance developments.  While there is an emphasis on providing entities with greater flexibility for their corporate governance reporting, the proposals (if adopted) will also require more detailed reporting and will raise the bar on corporate governance practices in Australia.

It is intended that the proposals will take effect from 1 July 2014.

In this Alert, Michelle Eastwell and Jasmin Semlitsch highlight 10 key proposed corporate governance changes and ways to prepare for effective compliance if the proposals are adopted.

Tips for complying if the proposals are adopted

If the proposals are adopted, listed entities will need to:

  1. review their current corporate governance policies and practices carefully and ensure that they are updated and modified as appropriate in light of any new requirements;
  2. ensure that they undertake a detailed verification exercise in order to report accurately on the entity’s compliance with the Recommendations and to assist in completing the new Appendix 4G; and
  3. make arrangements for appropriate disclosure of corporate governance information on the entity’s website.


Top 10 proposed corporate governance changes that may impact listed entities

  1. Website Disclosure: Greater flexibility is proposed by permitting entities to make 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 this must also be lodged with the ASX at the time of lodging the annual report.
  2. New Appendix 4G: A new requirement is proposed for entities to lodge an Appendix 4G which will act as a ‘checklist’ to be completed by entities regarding their compliance with the Recommendations and outlining where details of that information can be found.  This represents a shift in focus towards more detailed disclosure regarding those areas where an entity complies with the Recommendations, rather than the current approach whereby disclosure is only required in relation to areas of non-compliance with Recommendations. 
  3. Flexibility for Smaller Entities: A number of changes have been proposed to recognise that smaller listed entities will have different governance practices to larger listed entities.  These include alternative reporting options where entities decide not to have nomination, audit, risk or remuneration committees or internal audit functions.
  4. Focus on Risk: The issue of risk management has received a lot of attention in the proposals.  There are proposed Recommendations for the establishment of a risk committee (or otherwise disclosing the processes for overseeing risk), reviewing the risk management framework annually (at minimum) and disclosing whether such review has taken place as well as disclosing details of internal audit functions.
  5. Independence of Directors: The relationships which may affect the independence of directors are proposed to be expanded and will include service on the board for more than nine years.
  6. Remuneration Clawback Policy: A new proposed Recommendation that entities put in place a policy for the clawback of performance-based remuneration from senior executives in certain circumstances, such as where payment of such remuneration was not warranted or there has been a material misstatement of the entity’s financial results. The proposed Recommendation also includes disclosure of the policy and any clawbacks made (or which should have been made) during the reporting period. The proposed ASX commentary for this recommendation also states that generally a listed entity should ensure its executive agreements conform with the clawback policy and facilitate recoupment of remuneration in accordance with the policy.
  7. Improved Communication Strategies: The previous recommendation for a ‘communications policy’ is proposed to be replaced with Recommendations for the implementation of an investor relations program to facilitate effective two-way communication and policies and processes to encourage participation at meetings, as well as more detailed corporate governance disclosure on an entity’s website.
  8. Disclosing Sustainability Risks: A new proposed Recommendation will require an entity to disclose whether it has regard to economic, environmental and social sustainability risks in conducting its particular business and if so, how.
  9. Reporting on Diversity: Increased flexibility is proposed regarding the diversity related Recommendations to allow an entity to report their “Gender Equality Indicators” under the Workplace Gender Equality Act 2012.
  10. Foreign Incorporated Entities and Financial Reporting: A number of amendments have been proposed which, if adopted, will result in certain Recommendations (including those regarding a declaration from the CEO and CFO with respect to the integrity of an entity’s financial records and financial position and the attendance of an entity’s auditor at its AGM) applying equally to foreign incorporated and Australian incorporated entities.

The ASX is seeking submissions regarding the proposed changes up until 15 November 2013. Interested stakeholders may also wish to attend ASX’s national road show on the proposals which commences in Brisbane on 16 September 2013.

There have also been a number of other amendments proposed to the Listing Rules. Of particular interest is the proposed introduction of new Listing Rule 3.19B requiring disclosure of the on market purchase of securities by an entity under an employee incentive scheme. More information on this proposed change and the potential impact on listed entities can be found here.

If you would like to know more about the proposed corporate governance changes or how they might impact your company, please contact a member of HopgoodGanim’s Corporate Advisory and Governance team.

With offices in Brisbane and Perth, HopgoodGanim offers commercially-focused legal advice, coupled with reliable and responsive service to clients throughout Australia and across international borders.