- Chartered Accountants ANZ is a member of the ASX Corporate Governance Council
- Changes in the 4th edition are evolutionary not revolutionary with the same flexible, non-mandatory ‘if not, why not’ approach
- The 4th edition will take effect for an entity’s first full financial year commencing on or after 1 January 2020
The ASX Corporate Governance Council (Council) is an independent body comprising 19 business, shareholder and industry groups including Chartered Accountants ANZ.
On 27 February 2019, the Council released the fourth edition (the 4th edition) of the Corporate Governance Principles and Recommendations. The 4th edition follows an extensive public consultation process that began in May 2018 and saw the Council receiving 92 non-confidential and 10 confidential submissions in response to the Consultation Paper.
The 4th edition includes all but one of the nine new recommendations proposed in the Consultation Paper. Importantly, it includes all the key changes around culture and values as the Council considered it imperative that listed entities align their culture and values with community expectations to help address the lost trust in business. In view of the feedback received, the Council also replaced the term 'Social licence to operate' used in the Consultation Paper with "reputation" and "standing in the community" to ensure that the concepts were better understood and are consistently applied by listed entities, their boards and other stakeholders.
Evolutionary not revolutionary
Recommendations around diversity have been expanded to state that the board of a listed entity should set measurable objectives for achieving gender diversity not only in the composition of its board but also in its senior executive ranks and its workforce generally. It now also includes a recommendation that if a listed entity was in the S&P/ASX 300 Index at the commencement of the reporting period, the measurable objective for achieving gender diversity in the composition of its board should be to have not less than 30% of its directors of each gender within a specified period.
The 4th edition also contains greater guidance on climate risk as requested by the Senate Economics References Committee. In the commentary to recommendation 7.4, the Council encourages entities to consider whether they have a material exposure to climate change risk by reference to the recommendations of the Financial Stability Board's Task Force on Climate-related financial Disclosures (TCFD) and if they do, to consider making the disclosures recommended by the TCFD.
The 4th edition maintains the same flexible, non-mandatory 'if not, why not' approach and the same structure with its eight core principles, supporting recommendations and commentary with guidance on implementing the recommendations. The Council has also responded to the consultation feedback by shortening the commentary and making changes to highlight that the 4th edition is guidance and not intended to be prescriptive.
"The Council considered it imperative that listed entities align their culture and values with community expectations to help address the lost trust in business."
Effective date for the 4th edition
All ASX listed entities are required to report against the recommendations in the Principles and Recommendations on an annual basis under the ASX listing rules.
To allow sufficient time for listed entities to make the necessary changes to their corporate governance frameworks, the Council deferred the effective date for the new edition. The 4th edition will take effect for an entity's first full financial year commencing on or after 1 January 2020. Accordingly, entities with a 31 December balance date will be required to report against the 4th edition starting with the financial year beginning 1 January 2020 and ending 31 December 2020. Entities with a 30 June balance date will be required to report against the 4th edition starting with the financial year beginning 1 July 2020 and ending 30 June 2021.
As with previous editions, Council encourages listed entities to adopt the edition earlier.
ASX national roadshow
ASX will be conducting a national roadshow to promote and explain the changes in the fourth edition. Dates and venues are available at Corporate Governance Roadshow.Find out more
Download the Corporate Governance Principles and Recommendations (the Fourth Edition)Download PDF
Climate change risk
View a copy of this article in our insight about climate risk.View here