Corporate Governance Guidance from Australia

By Norman Marks (@normanmarks) Jan 16, 2012

The ASX Corporate Governance Council, chaired by the Australian Securities Exchange (ASX), has released a second edition of Corporate Governance Principles and Recommendations (see here for the ASX announcement and related resources, or here if you want to go directly to the document).

Whether you are in Australia or not, this document includes materials useful to anybody seeking to understand or improve corporate governance principles and best practices.

The authors believe their guidance is flexible and principles-based, rather than a strict set of rules, and Australia has an “if not, why not” reporting requirement that is similar to the “comply or explain” approach popular around the world (although not in the US).

Under ASX Listing Rule 4.10.3, companies are required to provide a statement in their annual report disclosing the extent to which they have followed the Recommendations in the reporting period. Where companies have not followed all the Recommendations, they must identify the Recommendations that have not been followed and give reasons for not following them.”

The guidance has 8 principles and a number of recommendations for each. Many of the recommendations are common to other guidance and practices, so I will only show here the 8 principles and the recommendations I found most interesting (in some cases because they make requirements of actions that many companies — especially in the US — have not taken).

Principle 1: Lay Solid Foundations for Management & Oversight

Companies should establish and disclose the respective roles and responsibilities of board and management.

Recommendation 1.2: Companies should disclose the process for evaluating the performance of senior executives.

Principle 2: Structure the Board to Add Value

Companies should have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.

Recommendation 2.1: A majority of the board should be independent directors.

Recommendation 2.2: The chair should be an independent director.

Recommendation 2.3: The roles of chair and chief executive officer should not be exercised by the same individual.

Recommendation 2.4: The board should establish a nomination committee.

Recommendation 2.5: Companies should disclose the process for evaluating the performance of the board, its committees and individual directors.

Principle 3: Promote Ethical & Responsible Decision-Making

Companies should actively promote ethical and responsible decision-making.

Recommendation 3.1: Companies should establish a code of conduct and disclose the code or a summary of the code as to:

the practices necessary to maintain confidence in the company’s integrity
the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders
the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

Principle 4: Safeguard Integrity in Financial Reporting

Companies should have a structure to independently verify and safeguard the integrity of their financial reporting.

Principle 5: Make Timely & Balanced Disclosure

Companies should promote timely and balanced disclosure of all material matters concerning the company.

Recommendation 5.1: Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies.