The fourth edition of the ASX Corporate Governance Principles and Recommendations

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This article was written by Miriam Kleiner, Tim Bednall and Joseph Muraca.

On 27 February 2019, the ASX released the fourth edition of the ASX Corporate Governance Council's (the "Council") Corporate Governance Principles and Recommendations ("CGPs"). The fourth edition of the CGPs 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 fourth 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 fourth edition starting with the financial year beginning 1 July 2020 and ending 30 June 2021.

Most of the principles and recommendations contained in the 2018 consultation draft of the revised CGPs have been adopted with the following notable amendments:

  • Recommendation 1.5 (relating to diversity) has been wound back from the proposal in the draft CGPs so that the implementation of the recommendation is less prescriptive. However, we note that the requirement that organisations express a commitment to inclusion at all levels of the organisation regardless of "gender, marital or family status, sexual orientation, gender identity, age, disabilities, ethnicity, religious beliefs, cultural background, socio-economic background, perspective and experience" has been retained without clarification;
  • Recommendation 2.2 (relating to board skills matrix) is far less prescriptive than was originally proposed, and the commentary avoids references to particular skills; and
  • Principle 3 ("Instill a culture of acting lawfully, ethically and responsibly") and the accompanying recommendations have been substantially rewritten to reflect a community expectation that boards will inculcate a corporate culture of acting "lawfully, ethically and responsibly". The expression of this principle does not include any reference to "social responsibility" or "social licence to operate" and does not include any references to consideration of the interests of other stakeholders. Whilst the removal of references to "social licence to operate" are welcome, the references in the commentary to 'reputation' and 'standing in the community' will mean that these issues remain top-of-mind for boards (although that is likely to be the case in any event).

However, it is disappointing that the Council did not address the concerns raised in submissions regarding:

  • the inclusion of the concept of "culture", and the concern that it is a broad and amorphous concept that is difficult to define, making compliance with any requirement involving "culture" difficult to achieve with certainty. However, given the content of the Final Report of the Banking Royal Commission this was expected; and
  • some recommendations unnecessarily duplicating existing legal requirements which may lead to inconsistent outcomes, such as whistle-blowers and anti-bribery and corruption, but the Council did not seem to be concerned about creating conflicting obligations.

Further information: Overview of the CGPs

The following table summarises the key amendments to the CGPs. These key amendments are by comparison to the draft of the 4th edition that was published in consultation on 2 May 2018 ("Consultation Draft"). The table also makes reference to the Council's consultation response paper published alongside the 4th edition ("Consultation Response").

Principle / Section / Topic


Key Points


Foreword (and generally)

  • All references to a listed entity's "social licence to operate" have been removed from the 4th edition. This was considered problematic in consultation by a number of respondents, mainly due to its imprecision and susceptibility to subjective interpretations. The foreword instead refers to notions of "values and trust" in light of recent conduct considered to fall "short of community standards and expectations".
  • Originally, corporate governance disclosure recommendations were set out separately depending on the applicable policy and the Principle to which it applied. The Consultation Draft inserted a new heading, "How to approach corporate governance disclosures". The Council adopted these changes to the 4th edition and also included a new paragraph to better streamline these corporate governance disclosure requirements. These include:
  • outlining the governance principles a listed entity has in place and how they are being implemented in practice;
  • disclosing action taken to promote compliance with certain policies and whether there have been material breaches of the policy during the reporting period and how they have been dealt with; and
  • where a recommendation calls for a matter to be reviewed or evaluated, investors will find it helpful for the entity to disclose, where appropriate, any material insights it has gained from the review or evaluation, and any changes it has made to its governance arrangements as a result.

Full disclosure of policies


  • The Council adopted amendments to the Consultation Draft to recommend full disclosure of the following policies:
  • diversity policies (Recommendation 1.5);
  • code of conduct (Recommendation 3.2);
  • whistleblower policy (Recommendation 3.3);
  • anti-bribery and corruption policy (Recommendation 3.4); and
  • continuous disclosure policies (Recommendation 5.1); and

1 – Lay solid foundations for management and oversight

1.1 – Board charter

The Council:

  • Adopted the concept of a "board charter" to clearly delineate the roles and responsibilities of the board of a listed entity;
  • Qualified commentary that the board should satisfy itself that it has an appropriate risk management framework that covers both "financial and non-financial risks"; and
  • Provided commentary on two additional board responsibilities that should be set out in the board charter:
  • the board should be satisfied that an appropriate framework exists for relevant information to be reported by management to the board; and
  • whenever required, the board should be challenging management and holding it to account. This matter was referred to in the Final Report of the Royal Commission.


1.2 – Appointment and election of directors

The Council inserted additional guidance in relation to background checks on directors and senior executives. The commentary includes a statement that some checks on directors may take time and there may be instances where an entity will wish to make a provisional appointment of a director or senior executive, or put a resolution to members electing a director, subject to the receipt of outstanding checks.

Where this is the case, the listed entity should take particular care to ensure that the director or senior executive gives an unequivocal undertaking to resign, should the entity receive an outstanding check that is not satisfactory.


1.3 – Written contracts of appointment

The Council:

  • Adopted the amendments to the Consultation Draft that contracts of appointment should be made personally between the director/senior executive and the listed entity; and
  • Inserted commentary that an exception applies where an entity is engaging a bona fide professional services firm (which may include a sole practitioner) to provide the services of a CFO, company secretary or other senior executive on an outsourced basis. In those cases, it is acceptable for the agreement to be between the entity and the professional services firm.


1.5 - Diversity

  • The Council removed from the recommendation the suggestion that the board or a board committee should charge management with designing, implementing and maintaining programs and initiatives to help achieve measurable objectives of diversity and the adequacy of the entity's programs and initiatives in that regard.
  • The recommendation now:
  • splits the requirement to have a diversity policy from the requirement to set measurable gender diversity objectives;
  • recommends S&P/ASX300 companies to have no less than 30% of its board composition comprised of less than each gender within the specific period;
  • suggests that entities set meaningful benchmarks that are capable of monitoring and measurement;
  • suggests boards set KPIs for senior executives on gender participation;
  • encourages boards to benchmark positions of gender diversity against their peers and to undertake gender pay audits;
  • suggests boards consider other facets of diversity apart from gender, to avoid "groupthink" and other cognitive biases in decision making; and
  • suggests including in the diversity policy an expression of commitment to inclusion at all levels of the organisation.


1.6 – Board reviews

The Council relaxed the earlier statement that a listed entity should have and disclose a "formal and rigorous" process for evaluating the performance of the board, its committees and individual directors "each reporting period" (i.e. annually). This was changed to a statement that listed entities should have and disclose a "proper process" for regularly reviewing, "preferably annually", the performance of the board, its committees and management.

2 – Structure of the board to be effective and add value


  • The Council amended this recommendation to read: "The board of a listed entity should be of an appropriate size and collectively have the skills, commitment and knowledge of the entity and the industry in which it operates, to enable it to discharge its duties effectively and to add value" (emphasis added).
  • In consultation, there were concerns the proposed amendments implied that each director of the board was required to have "knowledge of the entity and the industry in which it relates". This would have the effect of restricting the appointment of persons with skill sets and expertise incompatible with this knowledge, but who could nevertheless contribute to direction of the company. The Council noted in its Consultation Response that this was not their intention.


2.2 – Board skills matrix

The Council:

  • Removed commentary that the board skills matrix should address the full range of skills that the board considers desirable in its membership. In this regard, boards are being called upon to address new or emerging issues including around culture, conduct risk, digital disruption, cyber security, sustainability and climate change. In its Consultation Response, Council recognised that this suggestion implied that boards should prioritise appointing directors with particular skills, as opposed to those key to the strategic development of the entity; and
  • Removed commentary from the Consultation Draft as to the potential formats of a board skills matrix.


2.3 – Director independence

The Council:

  • Adopted commentary that listed entities should presume a director is not independent if one of the examples in Box 2.3 applies but the amendment to the example in Box 2.3 referring to directors having "close personal ties" was maintained;
  • Recognised that the use of the word "affiliation" was vague criteria for presuming a director is not independent. It was removed from the recommendation. For this reason, the example in Box 2.3 of a director who "is, represents or is otherwise affiliated with, a substantial holder", was amended to a director who "is, represents or is or has been with within the last three years an officer or employee of, or professional adviser to, a substantial holder";
  • Made a further amendment to Box 2.3 which was to include directors who are or had been professional advisers to a substantial holder.
  • Incorporated an extended definition of a "substantial holder" to take into account:
  • listed companies that are not Australian companies; and
  • listed trusts, which are not registered managed investment schemes or foreign trusts; and
  • Adopted from the Consultation Draft a new factor in Box 2.3 to include directors who receive performance based remuneration (including options or performance rights) or participates in an employee incentive scheme. In this respect, a further amendment was made in the 4th edition to include a definition of "employee incentive scheme" in the glossary. The definition reads: "employee incentive scheme has the same meaning as in the listing rules but does not include a contribution or salary sacrifice plan where a director acquires securities in the entity at their market value".


2.4 – Majority of board to comprise independent directors

The Council removed the statement that where a listed entity decides not to have its board comprise a majority of independent directors, it should always ensure it has at least two independent directors on its board.

3 – Instil a culture of acting lawfully, ethically and responsibly


The Council:

  • Retained the insertion of "lawfully" in the Principle;
  • Removed the reference to acting in a "socially responsible manner"., in accordance with its removal of references to "social licence to operate" from the Consultation Draft. The Council accepted criticisms that "socially responsible manner" was vague and subjective. In particular, there were concerns that it would operate as a quasi-regulatory requirement that would operate in addition to directors' duties prescribed by the general law and the Corporations Act 2001 (Cth). In the Consultation Response, the Council noted that what is "socially responsible" may be difficult to interpret in respect of entities in particular industries that raise social issues;
    • Removed from the commentary the requirement that the board and management of a listed entity should have regard to the views and interests of a broader range of stakeholders; and
    • Preserved references to "culture", despite criticism of the difficulties associated with prescribing culture. An additional footnote referring to the publication, Managing Culture: A good practice guide, was included for guidance.


3.1 - Values

The Council incorporated this new recommendation, subject to a number of drafting changes. In particular, the Council::

  • Replaced references to "core values" in the Consultation Draft with "values";
  • Redrafted the commentary to be less prescriptive about the kinds of values that a listed entity might choose to adopt. Instead, the commentary includes a statement that a listed entity should consider what behaviours are needed from its officers and employees to build long term sustainable value for its security holders. This includes the need for the entity to preserve and protect its reputation and standing in the community and with key stakeholders, such as customers, employees, suppliers, creditors, law makers and regulators. These comments were derived from the Interim Report on the Royal Commission; and
  • Retained the requirement to maintain a "tone at the top", by which the values set out in a values statement can be inculcated across the organisation.


3.2 – Code of conduct

The Council:

  • Re-drafted the commentary to incorporate a "tone at the top" in respect of carrying out a code of conduct throughout the organisation of the listed entity; and
  • •Made amendents to the suggested content of a code of conduct (set out in Box 3.2) to include:
  • an expectation that all directors, senior executives and employees will "report breaches of the code to the appropriate person or body within the organisation"; and
  • a statement that "that the code will be periodically reviewed to check if it is operating effectively and whether any changes are required to the code". This was amended from the previous 3-year review period inserted in the Consultation Draft.


3.3 – Whistleblower policy

The Council adopted the new recommendation that a listed entity should have and disclose a whistleblower policy. The suggestions of the content of a whistleblower policy (Box 3.3) were largely followed, with the inclusion of a suggestion that the policy should be linked to the statement of values.

However, the recommendation was altered to require that a listed entity should ensure the board or a committee of the board is informed of any material incidents reported under that policy, as these may be indicative of issues within the culture of the organisation.


3.4 – Anti-bribery and corruption policy

The Council adopted the new recommendation that a listed entity should have and disclose an anti-bribery and corruption policy but altered the recommendation to require that a listed entity should ensure the board or committee of the board is informed of any material incidents reported under that policy, as these may be indicative of issues within the culture of the organisation.

4 – Safeguard the integrity of corporate reports




4.3 – Process to verify integrity of periodic corporate reports

This was originally a new Recommendation 4.4 in the Consultation Draft. Following consultation, the Council decided to retain the recommendation with significant drafting changes:

  • "Periodic corporate report" is now defined in the glossary as "an entity's annual directors' report, annual and half yearly annual statements, quarterly activity report, quarterly cash flow report, integrated report, sustainability report, or similar periodic report prepared for the benefit of investors";
  • The word "validate" was removed from the recommendation and replaced with "verify". This addressed concerns that the recommendation requires onerous, prospectus-style disclosures of periodic corporate reports; and
  • The reference to "informed investment decisions" was removed from the recommendation. This was seen as causing confusion and possibly extending a listed entity's additional disclosure requirements for directors' reports under s 299A of the Corporations Act 2001 (Cth).

5 – Make timely and balanced disclosure

5.1 – Written policy for complying with continuous disclosure obligations

The Council included commentary as to what should be included in the content of a continuous disclosure policy by inserting a new Box 5.1. Key content additions include:

  • highlighting the importance of the entity's market announcements being accurate, balanced and expressed in a clear and objective manner that allows investors to assess the impact of the information when making investment decisions;
  • setting out the entity's processes to review and authorise market announcements; and
  • stating that the policy will be periodically reviewed to check that it is operating effectively and whether any changes are required to the policy.


5.2 – Copies of announcements to boards

  • This was a new amendment introduced in consultation; and
  • The Council amended this recommendation to remove the reference to "copies of all announcements under Listing Rule 3.1" to "copies of all material market announcements".


5.3 – Investor and analyst presentations

  • This was a new amendment introduced in consultation;
  • This recommendation was amended from "new" investor or analyst presentations to "new and substantive" investor or analyst presentations; and
  • The Council:
  • included further commentary that the recommendation intends to apply regardless of whether the presentation contains material new information required to be disclosed under rule 3.1;
  • included examples of "substantive" presentations, including results presentations, presentations given at AGMs, investor days and broker conferences; and
  • included in the commentary a statement that second and subsequent presentations are not regarded as "new" presentations for the purposes of this recommendation. Provided they do not contain market sensitive information, the Council does not expect them to be published on the ASX Market Announcements Platform.

6 – Respect the rights of security holders

6.1 – Information on website

  • This new recommendation was drafted in more detail: "A listed entity should provide its security holders with appropriate information and facilities to allow them to exercise their rights as security holders effectively".


6.4 – Vote by poll rather than show of hands

  • recommendation has been amended so that only "substantive" resolutions at a meeting of security holders should be decided by poll rather than a show of hands. This was to allow for greater flexibility among smaller listed entities.

7 – Recognise and manage risk

7.2 – Annual risk review

  • The Council provided further guidance as to what it means for a board to be responsible for monitoring the adequacy of the entity's risk management framework. This includes satisfying itself that "the risk management framework deals adequately with contemporary and emerging risks such as conduct risk, digital disruption, cyber-security, privacy and data breaches, sustainability and climate change".


7.4 – Environmental and social risks

The Council:

  • Removed references to an entity's "social licence to operate" and replaced this with "ability to create long-term value for security holders";
  • Suggested that entities with material exposure to climate change risk "consider whether they have a material exposure to climate change risk by reference to the recommendations of the [TCFD] and, if they do, to consider making disclosures recommended by the TCFD";
  • Broadened the definition of "environment risk" to mean "the potential negative consequences (including systemic risks and the risk of consequential regulatory responses) to a listed entity if its activities adversely affect the natural environment or if its activities are adversely affected by changes in the natural environment. This includes the risks associated with the entity polluting or degrading the environment, adding to the carbon levels in the atmosphere, or threatening a region's biodiversity or cultural heritage. It also includes the risks for the entity associated with climate change, reduced air quality and water scarcity" (emphasis added); and
  • Broadened the definition of "social risk" to mean "the potential negative consequences (including systemic risks and the risk of consequential regulatory responses) to a listed entity if its activities adversely affect human society or if its activities are adversely affected by changes in human society. This includes the risks associated with the entity or its suppliers engaging in modern slavery, aiding human conflict, facilitating crime or corruption, mistreating employees, customers or suppliers, or harming the local community. It also includes the risks for the entity associated with large scale mass migration, pandemics or shortages of food, water or shelter" (emphasis added).

8 – Remunerate fairly and responsibly


This Principle was amended to remove references to aligning director remuneration with the creation of value for security holders over the "short, medium and longer term". It now reads as aligning director remuneration with the creation of value for security holders "and with the entity's values and risk appetite". This accords with Principles 3 and 7, as amended.


8.2 – Disclosure of remuneration policies and practices for non-executive directors, executive directors and other senior executives

  • In relation to performance-based remuneration, the Council included a statement in Box 8.2 that "[d]iscretion should be retained, where appropriate, to prevent performance-based remuneration rewarding conduct that is contrary to the entity's values or risk appetite"; and
  • The Council inserted additional commentary that disclosures regarding the remuneration of NEDs should include a summary of the entity's policies and practices regarding any minimum shareholding requirements for those directors.


8.4 – Consultancy reports

  • The Council removed this proposed new recommendation from the fourth edition.

Additional recommendations


  • The following additional recommendations were included in a new section:
  • Recommendation 2.7 (Directors speaking a foreign language) of the Consultation Draft was moved to this section and renamed Recommendation 9.1;
  • Recommendation 9.2 (Listed entities established outside Australia should ensure meetings are held at a reasonable place and time); and
  • Recommendation 4.3 (External auditor to attend AGM if a listed entity is established outside of Australia) of the 3rd edition was moved to this section and renamed Recommendation 9.3.
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