On 2 May 2018, the Australian Securities Exchange (‘ASX’) Corporate Governance Council (‘the Council’) released the consultation draft of the fourth edition of its Corporate Governance Principles and Recommendations (‘the Principles and Recommendations’).
The Principles and Recommendations were first introduced in 2003 with a second edition being published in 2007 and a third edition in 2014. The Principles and Recommendations set out best practice corporate governance principles for ASX listed entities and cover key areas of investor interest such as board structure and risk management.
As governance practices adopted by an entity depend on several factors such as size, complexity and culture, the Principles and Recommendations are not mandatory and are implemented on an “if not, why not” basis. That is, if a listed entity decides to not adopt a recommendation, it must explain why not in its corporate governance statement included in its annual report under ASX Listing Rule 4.10.3.
In the fourth edition of the Principles and Recommendations, the primary change to the Principles is the re-drafting of Principle 3 from ‘Act ethically and responsibly: a listed entity should act ethically and responsibly’ to ‘Instil the desired culture: a listed entity should instil and continually reinforce a culture across the organisation of acting lawfully, ethically and in a socially responsible manner’. The proposed change to Principle 3 recognises that a listed entity has a social licence to operate and in order to maintain this licence needs to act lawfully, ethically and in a socially responsible manner. The re-drafting of Principle 3 seeks to address recent governance issues that have arisen from poor conduct or culture in listed entities.
The fourth edition of the Principles and Recommendations also proposes to expand the number of Recommendations from 29 to 38 with additional Recommendations being added to Principles 2, 3, 4, 5, 6 and 8.
It is estimated by the Council that the final version of the fourth edition will be released in early 2019 and will take effect for an entity’s first full financial year commencing on or after 1 July 2019.
The closing date for public submissions on the fourth edition of the Principles and Recommendations is Friday 27 July 2018.
For further details refer to the consultation paper at https://www.asx.com.au/documents/asx-compliance/consultation-paper-cgc-4th-edition.pdf
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