ASX Corporate Governance Disclosures Get more Serious… and Easier

New Recommendations commence from 1 July 2014

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The ASX last week released its third edition of its Corporate Governance Principles and Recommendations (CGPRs), which include a raft of new recommendations including the requirement for listed entities to place a greater focus on risk management.

New Recommendations commence from 1 July 2014

The CGPRs, which will take effect for a entity’s first full financial year on or after July 1, include nine new recommendations which are significant and include:

  • New criteria for determining and disclosing the independence of directors.
  • Listed entities to have written agreements with each director and senior executive setting out the terms of their employment.
  • Listed entities to ensure their external auditors attend AGMs and be available to answer questions from shareholders in relation to the audit.
  • The option to provide governance disclosure on an entity’s website rather than its annual report, which will make disclosure easier for listed entities (and more timely for investors).
  • Listed entities to undertake appropriate checks before appointing or putting forward someone for election as a director.

Risk Management gets more serious

In a move away from just dealing with material business risks at a management level, as currently required, the new ASX CGPRs, for the first time, will require listed entities to have comprehensive, board-controlled risk management frameworks and practices in place, including:

  • The boards of listed entities to have a committee of at least three directors (the majority of whom are independent) to oversee the entity’s risk management framework.
  • The boards or risk committees to review their entity’s risk management framework at least once a year to ensure it is sound.
  • Listed entities to disclose whether they have an internal audit function and the role it performs. Or if they have no internal audit, disclose the processes employed for evaluating and continually improving the effectiveness of the risk management and internal control processes they have in place.
  • Listed entities to disclose whether they have material exposure to economic, environmental and social sustainability risks, and if they do, how they manage those risks.

The ASX’s increased emphasis on risk management is consistent with moves taken by many regulators, including ASIC and AUSTRAC, to structure compliance obligations around effective risk management systems.

“One of the most important lessons from the GFC was the critical need for listed entities to have robust processes to identify, measure, monitor and manage risk,’’ said the original consultation paper released last year in relation to the new CGPRs.

Rather than just being a box ticking exercise, the new rules will require listed entities to have fully operational risk management systems in place.

ASX listed entities that continue to play lip service to risk management are likely to become instant prey for class action lawyers and litigation funders. There will be increased grounds for litigation when results fall well short of expectations and a causal link can be established to deficient risk management practices or a significant gap between what is publically disclosed and what is actually done.

How can CompliSpace help?

CompliSpace combines specialist governance, risk and compliance consulting services for ASX-listed and other Australia-wide entities with our practical, technology-enabled solutions.
If you are looking to update your existing governance, risk or compliance programs to take into account these new ASX corporate governance requirements and make your programs more relevant to your organisation, contact us via the details below:
P: 1300 132 090

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.

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