ASX / ASX Corporate Governance Council consultations. Kevin Lewis ASX Group Executive and Chief Compliance Officer

Transcription

1 ASX / ASX Corporate Governance Council consultations Kevin Lewis ASX Group Executive and Chief Compliance Officer September 2013

2 Outline 1. ASX Corporate Governance Council consultation on 3 rd edition of the Corporate Governance Principles and Recommendations: Background What hasn t changed Key changes: Structural changes Enhanced risk recommendations Other new recommendations Other newish recommendations - commentary elevated to recommendations Page 2

3 Outline (cont.) Amended Box director independence Amended diversity recommendations CEO/CFO certifications 2. ASX Listing Rule and Guidance Note 9 consultation 3. What next? 4. Other ASX developments Page 3

4 Background ASX Corporate Governance Council formed in 2002, primarily tasked with producing the Corporate Governance Principles and Recommendations Underpinned by Listing Rule if not, why not 21 member organisations: ACSI ASFA G100 Actuaries Inst. ASX ICAA AFMA BCA IIA AICD CPA IPA AIRA CSA LCA AIST FINSIA PCA ASA FSC SAA Page 4

5 Background 1 st edition of Principles and Recommendations released in nd edition released in 2007 and updated in 2010 for diversity and remuneration committee recommendations The Council commenced a review of the Principles and Recommendations in mid-2012 initially focusing on principles 6 (respect the rights of shareholders), 7 (recognise and manage risk) and 8 (remuneration) In December 2012, the Council announced that it would be conducting a full review that would lead to the issue of a 3 rd edition of the Principles and Recommendations Draft 3 rd edition released for consultation on 16 August 2013 Page 5

6 Background why a 3 rd edition? To reflect developments in corporate governance, both in Australia and internationally, since 2007, including: the lessons from the GFC, especially regarding risk the increasing attention given by the investment community to environmental and social issues and the investment risks they pose To afford greater flexibility to listed entities to make their corporate governance disclosures on their website rather than in their annual report To clarify diversity recommendations To deal with governance issues raised by Government: clawback of remuneration employment of people with disability To address the position of foreign entities not subject to the Corporations Act Page 6

7 What hasn t changed Non-prescriptive, flexible if not, why not disclosure approach Hierarchy: principles, recommendations, commentary 8 core principles remain substantially the same Existing substantive recommendations largely retained but with some drafting changes and enhancements Number of overall recommendations remains at 30 but substantial changes in the structure of the Principles and Recommendations allow for the introduction of: 2½ new recommendations 7¾ newish recommendations - commentary in the 2nd edition that has been elevated to recommendations in the 3rd edition Page 7

8 Structural changes 1. 8 separate reporting recommendations removed - reporting requirements for each recommendation now built into the recommendation itself: Easier for listed entities to understand reporting obligations and to make disclosures under LR Fewer errors in reporting 2. Greater flexibility given within each recommendation for listed entities to make relevant disclosures either on their website or in their annual reports: Streamlines annual reports With Appendix 4G rule changes proposed by ASX better access by stakeholders to corporate governance information Page 8

9 Structural changes 3. Amalgamated 3 separate recommendations re audit committee, 2 re remuneration committee, 3 re diversity, and 2 re chair being independent and not the CEO, into one recommendation on each topic: Better, more holistic governance disclosures 4. A number of recommendations (audit, risk, rem and nom committees and internal audit) now allow for listed entities to adopt and report alternative practices: Recognises that different listed entities (particularly smaller ones) may legitimately have different governance practices Enables a larger number of entities to report positively that they have complied with recommendations rather than report negatively that they do not comply and why Page 9

10 Structural changes 5. Recommendations that apply to externally managed entities (eg listed trusts) now in a stand-alone section at end of Principles and Recommendations rather than in 8 separate sub-sections under each Principle: Easier for externally managed listed entities to understand their reporting obligations and to make disclosures under LR Avoids disrupting the flow of the document for others 6. Streamlined commentary: Overall length of Principles and Recommendations reduced by around 20% Page 10

11 Enhanced risk recommendations Recommendation 7.1: The board of a listed entity should: (a) have a risk committee which: (1) has at least three members, a majority of whom are independent directors; and (2) is chaired by an independent director, and disclose: (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) include within the responsibilities of the audit committee the responsibilities normally undertaken by a risk committee; or Page 11

12 Enhanced risk recommendations (cont.) (c) if it does not have a risk committee (whether as a stand-alone committee or as part of the responsibilities of the audit committee), disclose that fact and the processes it employs for identifying, measuring, monitoring and managing the material business risks it faces. Recommendation 7.2: The board or a committee of the board should: (a) review the entity s risk management framework with management at least annually to satisfy itself that it continues to be sound, to determine whether there have been any changes in the material business risks the entity faces and to ensure that they remain within the risk appetite set by the board; and (b) disclose in relation to each reporting period, whether such a review has taken place. Page 12

13 Enhanced risk recommendations (cont.) Recommendation 7.3: A listed entity should disclose: (a) if it has an internal audit function, how the function is structured and what role it performs; or (b) if it does not have an internal audit function, the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes. Recommendation 7.4: A listed entity should disclose whether, and if so how, it has regard to economic, environmental and social sustainability risks. Page 13

14 Why the focus on sustainability risks? Principles of Responsible Investment asset owners, investment managers and professional services partners with $34+ trillion assets under management (approximately 15% of total global investable assets) See also: ACSI and FSC, ESG Reporting Guide for Australian Companies: Building the foundation for meaningful reporting (June 2011)* UN Global Compact's ten principles on human rights, labour, the environment and anti-corruption OECD s Guidelines for Multinational Enterprises Global Reporting Initiative International Integrated Reporting Council * Available at Page 14

15 2 ½ new recommendations Recommendation 1.2(a): A listed entity should undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director Recommendation 7.4: A listed entity should disclose whether, and if so how, it has regard to economic, environmental and social sustainability risks (see above) Recommendation 8.3: A listed entity should: (a) have a clawback policy which sets out the circumstances in which the entity may claw back performance-based remuneration from its senior executives; (b) disclose that policy or a summary of it; and Page 15

16 2 ½ new recommendations (cont.) (c) disclose as at the end of each reporting period: (1) whether any performance-based remuneration has been clawed back in accordance with the policy during the reporting period; and (2) where performance-based remuneration should have been clawed back in accordance with the policy during the reporting period but was not, the reasons for this. Page 16

17 7 ¾ newish recommendations Recommendation 1.2(b): A listed entity should provide security holders with all material information relevant to a decision on whether or not to elect or re-elect a director. Recommendation 1.3: A listed entity should have a written agreement with each director and senior executive setting out the terms of their appointment. Recommendation 1.4: The company secretary of a listed entity should have a direct reporting line to the chair of the board. Recommendation 2.4: The board of a listed entity should: (a) have a nomination committee which: (1) has at least three members, a majority of whom are independent directors; and (2) is chaired by an independent director ; or (b) if it does not have a nomination committee, disclose that fact and the processes it employs to address board succession issues... Page 17

18 7 ¾ newish recommendations (cont.) Recommendation 2.6: A listed entity should: (a) have a program for inducting new directors and providing appropriate professional development opportunities for continuing directors to develop and maintain the skills and knowledge needed to perform their role as a director effectively; and (b) disclose a summary of the main features of that program. Recommendation 4.3: A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit. Recommendation 6.1: A listed entity should provide information about itself and its governance to investors via its website. Page 18

19 7 ¾ newish recommendations (cont.) Recommendation 6.4: A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically. Recommendation 7.3: A listed entity should disclose: (a) if it has an internal audit function, how the function is structured and what role it performs; or (b) if it does not have an internal audit function, the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes (see above). Page 19

20 Box 2.1 director independence The criteria for a director to be considered independent set out in Box 2.1 of the Principles and Recommendations are proposed to be amended: to expand the references to a material supplier or customer of the entity or any of its related entities, or an officer of, or otherwise associated directly or indirectly with, such a supplier or customer to cover such relationships going back 3 years to include close family ties in the Box rather than in the commentary to include service on the board for more than 9 years as an indicator that a director may not be independent Page 20

21 Amended diversity recommendations Relocated from principle 3 (ethical and responsible decision-making) to principle 1 (lay solid foundations for management and oversight) Entities can choose to report their Gender Equality Indicators under the Workplace Gender Equality Act 2012 instead of reporting the respective proportions of men and women on the board, in senior executive positions and across the whole organisation Where an entity chooses to report the latter, it should disclose how it has defined senior executive for these purposes Enhanced commentary on the meaning of measurable objectives and on the steps a listed entity can take to measure its achievements against the diversity objectives its board has set Page 21

22 CEO/CFO certifications Recommendation 4.2: The board of a listed entity should, before it approves the entity s financial statements for a financial period, receive from its CEO and CFO a declaration that the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity. Replaces current recommendation 7.3 (board to disclose whether it has received CEO/CFO assurance that Corps Act s295a declaration re annual financial statements founded on a sound system of risk management and internal control and that system is operating effectively) Applies to financial statements for any financial period Applies to entities incorporated overseas not otherwise covered by s295a Page 22

23 Consequential ASX Listing Rule changes Listing Rule (corporate governance disclosures) to be amended: to afford greater flexibility to listed entities to make their corporate governance disclosures either in their annual report or on their website; to make it clearer what an entity should disclose if it has not followed a recommendation of the ASX Corporate Governance Council for any part of the reporting period; and to add a requirement that an entity s corporate governance statement must specify the date at which it is current, which must be the balance date or a later date specified by the entity, and state that it has been approved by the board of the entity (in the case of a trust, the board of the responsible entity of the trust). Page 23

24 Consequential ASX Listing Rule changes (cont.) New Appendix 4G: key to corporate governance disclosures Listing Rule 4.7 (entity to give ASX annual report): to be amended to require a listed entity to lodge with ASX: a completed Appendix 4G; and if the entity chooses to include its corporate governance statement under Listing Rule on its website rather than in its annual report, a copy of the corporate governance statement, at the same time as it lodges its annual report with ASX Listing Rule (definitions): new definition of corporate governance statement to facilitate the revisions proposed to LR 4.7 and Page 24

25 Consequential ASX Listing Rule changes (cont.) Condition 13 of Listing Rule 1.1 (requirements for ASX Listing): to be amended to make it clearer what an applicant for listing must disclose if it does not intend to follow a recommendation of the ASX Corporate Governance Council after it is listed Listing Rule 12.7 (audit committees): to be amended to make some minor drafting corrections Amended version of Guidance Note 9 Disclosure of Corporate Governance Practices to reflect changes to Principles and Recommendations and to the ASX Listing Rules. Page 25

26 Other ASX Listing Rule changes New Listing Rule 3.19B: on-market purchases under the terms of a scheme that provides for the purchase of securities by or on behalf of employees or directors or their related parties to be disclosed to the market within 5 business days Listing Rule 4.10 (information to be included in annual reports): to be amended to require the information to be current as at a date that is on or after the entity s balance date and not more than 6 weeks before the report is given to ASX rather than as at a date specified by the entity, which is not more than 6 weeks before the report is sent to security holders Page 26

27 Other ASX Listing Rule changes (cont.) LR (disclosure of material terms of CEO/director service contracts): new carve-out for indemnities and exclusions from liability that conform with s199a of the Corps Act carve-out for insurance arrangements amended to require arrangements to conform with s199b of the Corps Act (ie nonconforming arrangements have to be disclosed) New definition of associate in LR and rationalisation of references to associates and related parties in LR 10.1, 10.14, 10.16, and Page 27

28 What next? Consultation closes 15 November rd edition and related LR changes likely to issue Q1 2014, effective from 1 July 2014 (ie entities will report against the 3 rd edition for their first full financial year ending on or after 30 June 2015) Other ASX LR changes to issue late Nov 2013, effective from 1 January Page 28

29 Other ASX developments - rights issues In 2014, ASX will shorten timetable for standard rights issues from 26 to 19 business days Timetable for ex trading period on most corporate actions (inc. dividends) will also be shortened from 5 to 3 business days New prescribed timetables for: standard rights issues (renounceable and non-renounceable) various types of accelerated pro rata issues will not need to apply for a timetable waiver for these issues Possible change to election dates for DRPs (no earlier than 2 days after record date) entities may need to review DRP terms and conditions. Consultation paper to be released shortly. Page 29

30 Long term suspended entities Consultation paper issued 12/9/13 on new Guidance Note 33 Removal of Entities from the ASX Official List setting out ASX s policy and processes on: When ASX will agree to a request from an entity under LR for removal from the official list When ASX will require security holder approval and other conditions ASX typically imposes When ASX can remove an entity from the official list under LR New policy that entities continuously suspended for three years will be automatically removed from the official list, with ASX discretion to grant short extensions for entities on the cusp of re-instatement to trading Page 30

31 Online forms for announcing corporate actions New online forms for announcing corporate actions: Uses existing ASX Online Companies portal Pre-population of data (eg company name and security details) easier, faster and more accurate data Form validation such as timetable dates fewer data entry errors Automatic creation of PDF market announcement faster dissemination After release of PDF, structured data sent directly to ASX systems and then to market information users (eg registries, professional investors, data vendors and custodians) fewer translation errors by information users Meets international standards on corporate action processing Page 31

32 Online forms (cont d) Timing: New system expected to be available in test format November 2013 Go live expected December 2013 including new Listing Rule Appendices Phase 1 will include dividends, interest payments, return of capital and reorganisation (consolidation/split) Optional to use online forms for 6 months, mandatory thereafter New Guidance Note 20 ASX Online and ASX Online user manual & online tutorial ASX training sessions expected October 2013 Page 32

33 Guidance Note refresh Completed: GN 1 Applying for Admission ASX Listings GN 4 Foreign Entities Listing on ASX GN 8 Continuous Disclosure: Listing Rules B GN 9 Corporate Governance (but new version shortly) GN 12 Significant Changes to Activities GN 14 Market Announcements Platform GN 15 ASX Listing Fees GN 16 Trading Halts and Voluntary Suspensions GN 17 Waivers and In-Principle Advice GN 20 ASX Online (but new version shortly) GN 21 Appeals GN 27 Trading Policies GN 30 Applying for Quotation of Additional Securities Page 33

34 Guidance Note refresh (cont.) Planning new GN 29 on ASX Debt Listings in 2014 New Chapter 5 reporting rules for mining and oil & gas entities, plus new GN 31 Reporting on Mining Activities and 32 Reporting on Oil and Gas Activities effective 1 December 2013 (available on ASX website: under Reserves and Resources Reporting Requirements ) Balance of existing GNs to be refreshed and re-issued over Page 34