The ASX Corporate Governance Council is concerned with corporate governance practices. Specifically, this independent body develops and issues principles and recommendations. As such, this article will explore who these principles apply to and explain what they are.
Who do they apply to?
The principles apply to ASX listed entities. The principles were formulated to:
- Promote investor confidence; and
- Assist ASX listed entities to meet stakeholder expectations
ASX listed entities must measure their practices against the principles and recommendations. This is because they must conform with Listing Rule 4.10.3. Consequently, the entity must disclose and provide justification when this rule is not complied with. This provides a certain level of flexibility. Alternative practices can be adopted should they better suit the entity’s individual circumstances.
Moreover, other bodies also frequently use the principles. They are used because they can assist in the formulation of their own governance rules. However, there is no obligation to follow these principles.
Editions
The ASX Corporate Governance Council first convened back in 2002. Since that time, there have been four editions issued. The Council’s fourth edition was issued in February 2019 and is the current edition.
What are the principles?
There are eight principles in total. Under each principle lies a list of detailed recommendations.
1. Lay solid foundations for management and oversight
This principle obliges entities to clearly outline roles and responsibilities. This applies to both the board and management. Additionally, it requires the entity to undertake regular reviews of the company’s performance.
2. Structure the board to be effective and add value
The second principle concerns effectiveness and value of the entity’s board. The board must be of a suitable size. In addition, the board must collectively have the skills and knowledge relevant to the entity and its industry.
3. Instil a culture of acting lawfully, ethically and responsibly
This principle imposes an obligation on the entity with regard to its culture. An entity must promote lawfulness, ethics, and responsibility.
4. Safeguard the integrity of corporate reports
This principle obliges entities to have appropriate processes and safeguards in place to verify the integrity of its corporate reports.
5. Make timely and balanced disclosure
An entity must make disclosures in a timely and balanced manner. This concerns all matters that a reasonable person would consider to have a material effect on the price and/or value of its securities.
6. Respect the rights of security holders
This principle requires entities to provide it’s security holders with relevant and appropriate information to allow them to fulfill their own obligations effectively.
7. Recognise and manage risk
In addition, an entity must maintain a sound risk management framework that is periodically reviewed and updated to ensure effectiveness.
8. Remunerate fairly and responsibly
Additionally, entities need to attract and hold on to effective directors and senior executives. Therefore, pay should be both sufficient and in alignment with the obligation to create value for security holders. The remuneration must also align with the entity’s values and risk appetite.
In conclusion, it is essential that ASX listed companies have a sound understanding of these corporate governance principles. However, non-ASX listed businesses may still find them useful. These principles provide a solid example of what contemporary corporate governance standards and practices should look like. Additionally, good corporate governance is becoming increasingly important. Not only does it foster a culture of integrity and accountability, but good corporate governance is an essential step in ensuring profitable and sustainable business practices. Further, good corporate governance signals to the market that the business is well managed.
