An ASX listed entity’s public website, together with its annual report are two key information sources that provide investors with critical information on which to rely in making their decision to invest in that company.
So why is it that so many ASX listed entities (especially small to mid-caps) get their public website disclosure so horribly wrong? It should be a relatively simple exercise. After all, the ASX Corporate Governance Principles & Recommendations (ASX CGPRs) spell out exactly what is required at the end of each Principle.
The ASX Compliance Report ending December 2010 notes that there are currently 2216 listed entities. From our experience, if we take a random sample of entities outside the ASX 300, at least 50% will have basic errors in their website disclosure. These errors are creating unnecessary risks for the organisations involved.
Top 5 ASX Website Disclosure Errors
Here is a list of our Top 5. What do you think? It’d be great to get your comments through our blog and start a meaningful conversation on this issue.
(i) Not Posting the Relevant Information Required
The ASX CGPRs make very clear what needs to be disclosed on an ASX listed entity’s public website with the final Recommendation at the end of each Principle setting out the relevant information and/or documents that need to be made available. So why is it that many of the sites we visit simply fail to meet the basic requirements?
For a one page summary of what needs to be disclosed download our complimentary ASX Website Disclosure Checklist.
(ii) Posting Too Much Information
A quick review of the ASX CGPRs shows that, for the most part, an ASX listed entity’s website disclosure obligations can be met by providing a summary of key policies. A common error we see is that many ASX listed entities provide too much information, often simply posting PDF copies of full policy documents, or worse, some form of “Governance Handbook” full of motherhood statements and good intent.
Probably the most common error we see in this area is ASX listed entities that publish, in full, what purports to be their Risk Management Program, often claiming to follow ISO AS/NZ 31000 or the older AS/NZ 4360, when the content posted makes it obvious that they are not following either of those standards.
These documents are usually a dead giveaway that a particular entity is not actually practicing risk management effectively.
(iii) Posting Obviously Out-of-Date Documents
Closely aligned to the error of posting too much information is the practice of many organisations publishing policy documents that are date stamped, or worse, are stamped with a “last reviewed date”.
As far as investors are concerned what is disclosed “is current.” Date stamping is OK if you ensure that your site is being consistently maintained up-to-date. The problem arises where the website is not maintained properly which, in our experience, is a common problem.
We recently came across an ASX listed entity that had a published Risk Management Statement proudly letting the world know that it was last reviewed in 2005. That’s 6 years ago and the AS/NZ 4360 Risk Management Standard that was referenced was superseded by the International Risk Management Standard ISO AS/NZ 31000 in November 2009.
(iv) Rehashing the Annual Report Governance Statement
Some organisations still feel that it is OK to simply link a copy of their Annual Report Corporate Governance Disclosure Statement. It isn’t. This basic error screams poor governance practices to potential investors and other key stakeholders.
It is important for directors and C-level executives to understand that the information that is required to be disclosed on a public website is fundamentally different from the information that an ASX listed entity is required to disclose in the corporate governance section of its annual report.
(v) Not Having a Clearly Marked Corporate Governance Section
This error is becoming less common, although we can still regularly find examples of ASX listed entities that don’t have a clearly marked corporate governance section on their site.
Readers of our Monthly Governance Blog will recall that in our August 2010 post we highlighted the fact that even the ASX’s own corporate governance disclosure was almost impossible to find.
Out of interest, ASX recently restructured its site and now has not one but two sites (www.asx.com.au and www.asxgroup.com.au). We think this further confuses the situation! Check it out. What do you think?
What Are The Potential Consequences of Poor Website Disclosure Practices?
At a very basic level, getting website disclosure wrong is a little like having a “rude receptionist” as the first point of contact with your company. You know something is wrong yet you can’t quite put your finger on it.
So here are our Top 5 Consequences in no particular order. Let us know what you think.
(i) Reputational Damage
Not only is a company’s public website a key marketing tool, it is also where most investors and other key stakeholders such as journalists and industry commentators go for information. In this rapidly evolving electronic age, can an organisation really afford its peers, investors and competitors accessing incorrect, out of date or misleading information? Incorrect or inadequate disclosure can be extremely damaging to an entity’s reputation, as well as to the reputation of its directors and officers.
(ii) Limiting Capital Raising Opportunities
The majority of institutional investors, and a growing band of retail investors, are now taking governance into consideration in their investment decision making processes. (Note in particular the UN Principles for Responsible Investment, which require institutional investors to incorporate environmental, social and corporate governance issues into investment decision-making processes. Signatories to these Principles manage in excess of USD 13.1 Trillion and include Australian super funds and major managed investments). Poor website disclosure provides direct evidence of poor governance practices and has the very real potential to limit an ASX listed entity’s ability to raise capital.
(iii) Suppressed Share Price
As more and more investors take an organisation’s corporate governance practices into account, those organisations that have poor website disclosure will simply have a smaller pool of investors bidding for their securities. A smaller pool of active bidders means less volume and a share price that is less than optimium.
To put this in perspective we were recently speaking to a professional investor who attended our workshop, “Window Dressing vs Reality: Building a Business Case for Governance Systems.” Reflecting on his wins and losses he told us “basically it comes down to the board and management team. It comes down to governance. I’m getting rid of all my stocks with bad boards”.
(iv) Breach of Listing Rules
Under ASX Listing Rule 4.10.3, if the information recommended to be disclosed on an entity’s public website is not disclosed, the ASX CGPR Recommendation is not being followed, and under the “if not why not” regime, the entity must explain, in its annual report, why it is not following the Recommendation. Failure to comply with the “if not why not” disclosure regime is a breach of the Listing Rules.
Sadly, the good news is that breaching the listing rules in this way is probably not the major risk that it should be, given that, for some unknown reason, this does not seem to be a key area of focus for the ASX. For more opinion on this refer to the top 3 prize winners in the 2010 Governance Elephant Awards.
(v) Litigation – Misleading & Deceptive Conduct
A significant risk for many ASX listed entities is that they are misrepresenting to their shareholders, through if not why not reporting in their annual report, that they have effectively implemented certain policies and procedures when they have not. In this regard it is critical for companies to align their website disclosure with their annual report disclosure.
Probably the most obvious example of this is in the area of Enterprise Risk Management where many ASX listed entities are not in fact doing what they say that they are doing. It is very common in our experience for ASX listed entities to post a general risk management statement on their public website, with no underlying processes to support this statement.
For a more detailed description of what ASX listed entities should be doing in this area refer to our blog The New International Risk Management Standard AS/NZ ISO 31000 – What You Need To Know.
The simple fact of the matter is that ASX listed entities that make incorrect disclosures are leaving themselves wide open for claims from disgruntled investors, backed by litigation funders, and Australia’s growing band of class action lawyers.
How can CompliSpace help?
CompliSpace combines specialist governance, risk and compliance (GRC) consulting services with practical, technology-enabled solutions. Our clients include a wide range of ASX listed entities from small and micro caps to the ASX Top 100.
If you are looking to streamline your existing governance, risk or compliance programs and make them more relevant to your organisation, or simply want to have a professional review of your current governance practices, call James Field, David Griffiths or James Cozens. We are passionate about helping organisations implement sustainable governance solutions.
P: +61 (2) 9299 6105 (Sydney) / +61 (8) 9288 1826 (Perth)
This blog is a guide to keep readers updated with the latest information. It is not intended as legal advice or as advice that should be relied on by readers. The information contained in this blog may have been updated since its posting, or it may not apply in all circumstances. If you require specific or legal advice, please contact us on (02) 9299 6105 and we will be happy to assist.