The ASX is moving to strengthen governance rules to ensure companies and their boards and senior executives act in a lawful, ethical and socially responsible way.

The listing body’s corporate governance council is revamping its recommendations for Australia’s biggest companies to include key issues, including excessive pay and social responsibility, now being investigated by the financial services royal commission.

These include a social licence to serve the wider community as well as shareholders, corporate values and culture, whistleblower rules, and anti-bribery and corruption policies.

The review of governance is designed to set the tone from the top of a company and to ensure that the board of directors is provided with the information needed to monitor culture.

Rules for continuous disclosure will also be strengthened and companies will be urged to ensure all resolutions at shareholder meetings are decided by a poll rather than by a show of hands.

“The council’s proposed changes anticipated and respond to some of the governance issues identified in recent inquiries, such as the Hayne Royal Commission,” says the ASX Corporate Governance Council, made up of various business, shareholder and industry groups.

The last two weeks has seen multiple failures of governance principles at some of Australia’s largest ASX-listed companies.

The Commonwealth Bank, Australia’s largest ASX-listed company, this week was criticised by APRA (Australian Prudential Regulation Authority) for a failure of culture behind a series of scandals which have eroded trust in Australia’s biggest bank.

The governance failures, including providing poor or no financial advice to customers who paid for such a service, are being investigated by the royal commission.

At AMP, the CEO and chair have both resigned after the financial services group admitted to the royal commission that it made false and misleading statements to corporate regulator ASIC.

A recurring theme during questioning at the royal commission is how bonuses kept being paid at the banks, to financial planners and their senior managers, despite failing to provide a service to customers.

Excessive pay

In the ASX governance review, one area called out is excessive pay of senior executives and directors.

The governance changes add a reference to the impact on the entity’s social licence to operate if it is seen to pay excessive remuneration.

“Listed entities should benchmark their remuneration against that of their peers to verify that it is not excessive,” the council says.

A remuneration policy should not reward conduct contrary to the entity’s values or risk appetite.

“A listed entity’s social licence to operate is one of its most valuable assets and that it can be lost or seriously damaged if the entity or its officers or employees are perceived to have acted unlawfully, unethically or in a socially irresponsible manner.”

Under the proposed rules, directors would be responsible for defining a company’s purpose, approving a statement of core values, and a drafting a code of conduct to underpin culture.

The board should also clarify that the information provided by the senior executive team should not be limited to information about financial performance but also its compliance with legal and regulatory requirements and any misconduct.

“A listed entity must have regard to the views and interests of a broader range of stakeholders than just its security holders.”

Gender diversity

The ASX also wants to tackle an apparent slowing in the rate of progress in gender diversity at board level.

A proposed new governance provision recommends that an company in the SASX300 have as a measurable objective at least 30 per cent of directors of each gender on its board within a specified period.

The AICD (Australian Institute of Company Directors) has been tracking appointments to ASX200 boards since 2009. The AICD has a target of having 30 per cent female representation across ASX200 boards by the end of 2018.

The AICD’s latest Quarterly Gender Diversity Report showed women accounted for 26.7 per cent of ASX200 directorships.

The ASX Corporate Governance Council is now seeking submissions on changes to the fourth addition of its Corporate Governance Principles and Recommendations.

The final version of the fourth edition of the Principles and Recommendations is expected to be published early 2019.


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