After three years of practical experience of the ASX Corporate Governance Council’s (the Council) Principles of Good Corporate Governance and Best Practice Recommendations (the Principles), the Council undertook a 12-month review of the Principles and has now released an Exposure Draft of a revised edition. Against this background, we are keen to seek your views on some of the more contentious issues raised in the Exposure Draft and accompanying paper.

I look forward to receiving your response. As you will appreciate, the Principles are critically important to good governance and were introduced to provide for the flexibility of an “if not, why not” reporting regime, rather than a more prescriptive model such as Sarbanes-Oxley, and remain the governance professional’s ‘bible’.

1. Should the existing Principles be restructured into two documents; one being a brief statement of high level Principles and the second an accompanying document describing issues to consider when applying the Principles?

Yes 33%
No 67%

Comment

The "if not why not" principle of the document may be eroded by separating out the explanation.
Better in one document.
Would make it even more complex and time consuming to effect.
The issue of producing and applying two separate documents to corporate governance-related issues leaves the door wide open for interpretative issues to arise. Also, from my evaluation of how business has responded to the application of the Principles, there appears to be a case for retaining a single document that covers the guidelines and examples of/descriptions of issues to consider. As an example, some companies take the approach of using a table to highlight their compliance with the guidelines, whereas other entities either report the status against each principle or provide a blanket statement as to overall compliance/non-compliance. Hence, using illustrative examples similar to those I have outlined above provides the scope for businesses to identify for each principle or group of principles an approach that suits their governance needs.
Used to format; no real difference.
I prefer the present format because you can read the principle and its respective guidelines before going to the next one — a smoother flow of thought.
Prefer to have the principles then the specific recommendations for added clarity.
I am indifferent — this is similar to the UK Combined Code which has its benefits.
There is currently confusion between principles/recommendations to which we must respond and guidance notes — splitting the two would help clarify.
I do not see any compelling argument for changing the current approach.
As the guidelines are growing longer and longer I think that this is a good idea. Rather than two separate documents, perhaps the first part of the document stating all the Principles and Recommendations and the Guidance (clearly marked as being just Guidance) at the back. Measures certainly need to be taken to identify the Guidance as simply Guidance and not part of the Recommendations that have to be reported against. Use of the imperative term "should" should be removed from the Guidance.
The current ASX Guidelines are generally well understood by board and management after three years of often intensive work to design and implement internal systems and procedures. Further change is likely to create confusion and uncertainty. The proposed changes released on 2 November in the Exposure Draft, particularly the change from “best” to “good” practice, is an appropriate move towards “High Level Principles”.
Why would we do this and wouldn't this make it more difficult to read?

2. Do you believe that sustainability/corporate responsibility is a subset of governance and that therefore it is appropriate for the Council to be in this space?

Yes 64%
No 36%

Comment

Very industry-specific, but guidance on "best practice" would still be valuable.
Yes, but this does not mean however that reporting should be mandated.
Can’t afford not to be!
Unlike the governance position there is no clear agreement or definition of what such concepts entail. They mean different things to different industries and organisations.
Materiality important here, small office/finance company vs large resource company.
The rationale for making both sustainability and corporate responsibility a subset of governance can best be illustrated by the way the major Australian banks are now taking social responsibility to the core of their corporate governance programs — with environmental issues a key issue being addressed by these programs. As the lead is being taken by the banks and is being considered by the Business Council of Australia, it will only be a matter of time before industry takes the lead and as such can demonstrate that Council only needs to become involved to resolve issues and questions relating to the interpretation of the guidelines in specific instances — e.g. as an “Urgent Issues” Panel responding to a business or industry issue that comes in to question.
It is a government issue as per PJC, CAMAC.
It is closely related, but that is not to say that the Council might reconsider it in light of experience at a later stage.
Yes, most definitely.
Principles applicable are already encompassed in risk management practices.
We probably need to accept the Council in this space to avoid legislation.
It's relevant to good governance and is encapsulated in duties of directors to act in the best interests of the company etc. However I don't really see an active role for the Council in these matters - there is plenty of activity in the space and, apart from articulating the link between good stakeholder management and good governance, there is not a larger role. It's a bit like risk management — the response of the company is something it should determine.
Sustainability/CSR is an important part of good governance and I think the Council should be encouraging companies to address and report on their approach to these issues. Having said that, I do not think it is the Council's role to prescribe minimum reporting rules or guidelines for CSR. Companies will be held accountable for their efforts and achievements in CSR by stakeholders, consequently they will have an incentive to improve their performance in this area. Instead of providing direct guidance on leading CSR practice it may be productive for the Council to provide links to some of the more reputable CSR rating/reporting services to enable companies to become more familiar with leading CSR practices.
To a limited extent.
The benefits of sustainability and corporate responsibility are hard to measure and are at odds with the short-term focus of the equities market which demands regular, strong and reliable dividend and distribution payments and rising capital growth. Significant investor education is required to understand the impact of sustainability and corporate social responsibility on future performance.
Part of ethics.

3. Do you believe reporting on sustainability and corporate responsibility should be mandated?

Yes 26%
No 74%

Comment

It's good to see who are (or at least claim to be) good corporate citizens. Investors are influenced by this so it's relevant to report on it.
Yes, but it should be phased in slowly — should be a transitioning period.
Not at this stage as it is only affecting major companies.
I don’t believe that it is very relevant to many companies other than, say, companies which directly impact the environment such as resource companies.
It should be an optional matter — there are too many mandated matters already.
Yes, provided that agreement is reached on the definitions.
Funds managers are now looking to the ethical activities of businesses around the world. It will only be a matter of time where the valuation models used by these funds managers, market analysts etc are factored into the pricing and valuation models they use to price a share or investment instrument. By making this information available through periodic reporting, the market can be better informed of how the business is meeting or exceeding its social responsibilities — just see the latest news on SANTOS’ Indonesian “mud flow” dilemma to see what an impact this negative press is having on its standing and on its share price!
There are too many variables, many of which do not apply to all companies and all types of operations.
Yes, otherwise it will take awhile for it to become good practice as a result of peer pressure and best practice.
Only if sustainability actually becomes a subset of governance.
Yes, but only on an “if not why not” basis.
The reporting should only be mandated after proper development, review and acceptance of the key reporting requirements. These need to apply to all reporting entities so that the reporting can be compared and evaluated. I would expect it would take a few years to reach the stage when the reporting can be mandated.
I think there are substantial reputational benefits from voluntary reporting and significant advantages to reporting against the GRI, CRI etc for comparison purposes — but given that sustainability etc is a matter for each company's board to determine, reporting should be a matter for them as well. Stakeholders form their views about companies on the basis of many things - including how seriously a company takes its reporting.
What is good/best practice in sustainability/CSR is much harder to define and varies much more from company to company, dependent upon factors such as type of business and area of operations. Mandated reporting would be a nightmare for companies and meaningless for shareholders. Most companies are going down the path of reporting or planning to report sustainability/CSR factors relevant to their business.
It should be encouraged but not mandated.

4. Do you believe that the revised Principles should provide additional guidance and commentary on reporting on sustainability and corporate responsibility, without introducing a reporting trigger?

Yes 67%
No 33%

Comment

Guidance should be provided but a view expressed about where and when reporting will be required or should be delivered.
Any additional guidance should always be helpful as long as it is only guidance.
The general principle of keeping the market fully informed of any issues or matters affecting the share price now needs to include issues relating to good corporate governance and best practice.
After all, all businesses now acknowledge, after Sarbanes-Oxley, CLERP 9 etc, that the application of good and sound business governance and business practices have a direct bearing on the value of the business and more importantly on the “brand value” of the business. The NAB is one such recent example where the deficiencies in good corporate governance and best practice disclosures led to the losses the NAB faced as a result of their foreign exchange losses.
Guidance will be helpful as this is a new area of reporting for most companies.
It seems pointless to provide guidance if no requirements to report exist.
I think there are enough guides to reporting that any additional guidance will cause confusion. For those companies interested in reporting it is extremely easy to find out about GRI, DJSI, Carbon Project, CRI, BITC etc etc.
The principles should encourage CSR and provide links to relevant websites of independent CSR rating/advisory services but not attempt to provide detailed guidance.
Qualified yes. While I think it would be helpful to companies, I am also concerned that the guidance becomes interpreted as a semi-official requirement or minimum expectation which I believe is what has happened with the guidance in the principles.

5. Do you believe that the ASX should explore the establishment of a web-based tool for the dissemination of sustainability information?

Yes 52%
No 30%
Not sure 18%

Comment

Keep it simple! Let’s get over the initial hurdles. This may be fine for BHP but juniors will struggle and it will become another meaningless reporting exercise.
Not only should the ASX provide a web-based tool, but it would be ideal to include the disclosure statements of reporting entities on the site. This would encourage the reporting entities, through peer and stakeholder pressure, to conform or pay the price of losing market support or being discredited in the market for non-conformance! In future years, the wealth of knowledge gained through the website/references may also provide some scope for further evaluations such as an academic-based study into the benefits that such disclosures have produced. After all, why have a disclosure program without making an effort to actually base line and then measure in subsequent periods the values of such programs?
Up to companies to do this.
Yes, as a preliminary aspect.
As long as this method of dissemination of sustainability information is not mandated as the only means of informing stakeholders.
If they are insisting it be part of governance, then they need to provide a useful source of guidance.
I don’t think it really matters; does not sound like the UK one worked that well.
My question before considering this is, what is the role of the ASX? Why should it be doing these things? That's more fundamental to answer than this. Again, there is a wealth of aggregated data sources - this is not a difficult field to navigate IF the company wants to do things seriously.
I understand that the London Stock Exchange does this through ICSA's Blueprint service. It would be worth reviewing how this works to see if it adds value.
Uncertain. Doesn't seem to have been successful in London or in the past in Melbourne.

6. Do you believe that Recommendation 9.4 should be deleted from the Principles?

Yes 36%
No 64%

Comment

Why shouldn't shareholders be required to ratify such matters? There are problems with the operation, however, as the package is already negotiated by the board & if not approved, executives get the equivalent in cash, so it’s a done deal by the time it gets to shareholders.
Should simply be clarified as being consistent with the Listing Rules as they stand.
Retain it, but make it really clear that it only applies to newly issued shares, not shares purchased on-market.
Shareholder consent should only be required where the shares to be granted to shareholders are issued by the company rather than purchased on-market.
Without this there is the temptation for small companies to operate unfairly as regards their shareholders.
If, as Recommendation 9.4 states, that the business is to “…Ensure that payment of equity-based executive remuneration is made in accordance with thresholds set in plans approved by shareholders”, then why do businesses need to withhold this information as the stakeholders need to understand the way the business is being managed and controlled? If the business does not make these disclosures, then it suggests it is hiding information from all but those with a personal interest in the non-disclosure of this information. An example being Macquarie Bank which does not disclose this information whereas the major banks do disclose this information.
No, but it should be amended to align with LR10.14.
No, ASX Listing Rules.
Shareholders have an opportunity to express their views on remuneration by means of the non-binding vote on the remuneration report.
No, but it does need amending.
Shareholders only need to approve if shares may be issued and their interests diluted. Acquiring shares on-market is just like paying cash remuneration - shareholders should not be involved.
This places a further unnecessary constraint on the company managing its remuneration practices. Shareholders already have the opportunity to voice their views when voting on the adoption of the remuneration report.
Remuneration policy should be transparent and closely linked to company performance and available for review by all stakeholders.
It could be deleted.

7. Do you believe that Recommendation 9.4 should be amended to clarify that where shareholder approval has been obtained for an equity-based executive remuneration plan, companies should confirm that payments to the executives are in accordance with the thresholds set in those plans?

Yes 66%
No 34%

Comment

But when will shareholder approval NOT be required?
It should simply be clarified as being consistent with the Listing Rules as they stand.
It should be clarified to make it really clear that it only applies to newly issued shares, not shares purchased on-market as stated above.
This can be achieved in the Remuneration Report. Including it in the Corporate Governance Statement is only duplicating the process.
To the extent that the shares are to be issued rather than purchased on-market.
There is still a need for a full and open disclosure of such payments — and the lack of transparency in current reporting of executive remuneration plans shows the current processes are not working.
Yes, but only where shareholder approval of the relevant scheme was required under LR 10.14.
Yes, in remuneration report and in Appendix 3Y for directors.
Make 9.4 clear that shareholder approval is not specifically required under Listing Rules or the Corporations Act — as it is it means companies have to generally say they do not comply when in fact they do not have to have approval.
This places a further unnecessary constraint on the company managing its remuneration practices. Shareholders already have the opportunity to voice their views when voting on the adoption of the remuneration report.
This should be examined and reported on in the audit report.
I think 9.4 should be deleted and disclosure of executive remuneration dealt with in the Remuneration Report as governed by the Corporations Act and Accounting Standards.

8. Do you believe that Recommendation 9.4 should be amended to clearly recommend that companies obtain shareholder approval for equity-based executive remuneration plans and require “if not, why not?’ disclosure as to whether approval was obtained?

Yes 38%
No 60%
Not sure 2%

Comment

Companies will fudge this disclosure and offer poor reasons which will be copied by others and become acceptable.
Yes, but make it clear that it only applies to newly issued shares, not shares purchased on-market.
This is a matter for the boardroom. That is, requiring shareholder approval for all equity-based remuneration plans is not a matter for shareholders and including an “if not, why not” approach implies that shareholders have a right to approve all such plans. Shareholders are currently only asked to approve such plans where they involve directors and also involve the issue of shares as such an issue may have a dilutionary effect on the company’s share capital. They do not have the right to approve plans involving the purchase of shares on-market nor plans involving awarding shares to management.
Only to the extent the shares are allocated to executives by way of a share issue.
My short comment is “why is business concerned with disclosing details of what effectively shareholders are paying the executives to run the business”? There should be no exceptions as to the reporting of executive remuneration plans under 9.4 — as exemptions only create uncertainties and possibly open the door to applying the rules differently — such as where one interpretation may lead to the disclosure of this detail and a second opinion may recommend not disclosing this information. This leaves the ASX in the position of possibly having to be the arbiter on such matters or referring the matter to ASIC or the courts for resolution.
This places a further unnecessary constraint on the company managing its remuneration practices. Shareholders already have the opportunity to voice their views when voting on the adoption of the remuneration report.

9. Do you believe that Listing Rule 10.14 should be amended, based on your responses to the last three questions?

Yes 33%
No 60%
Not sure 7%

Comment

Yes — make it clear that it excludes shares purchased on-market.
It is being confused by the marketplace. Shareholders seem to believe that they should have a right to approve share plans awarded to directors.
As LR 10.14 covers the very aspect of “…issues of securities to related parties under an employee incentive scheme..”, this is a key disclosure that has been understated or missed for many years and the debate on what needs to be disclosed in such circumstances can only be addressed though the open, timely and accurate disclosure of this information.
Shareholder approval should only be required if the shares issued to directors dilute existing shareholders interests.
Need consistency i.e. does plan need to be approved or only issues to directors?
Rule 10.14 now appears excessively prescriptive, black letter and out of date compared with the broad Principles.
I think some governance organisations are going too far into the realm of remuneration; and it is counterproductive, e.g. ISS has noted that STI payments are increasing which are not subject to scrutiny; increase in base salary and STI will increase if the regulators make it too hard to provide shares. Is this really what the governance organisations want?
Given remuneration disclosures and reporting requirements I don't believe 10.14 is of any benefit to shareholders if they have already approved the plan. It is just another form of remuneration.
Only if needed to make it consistent.

10. Do you believe that the Principles, as released in March 2003, have improved the standard of reporting and governance practices in Australian companies?

Yes 99%
No 1%

Comment

Yes, but the 10 principles have become very "tick a box". In my experience, fulfilling these principles doesn't equate to good governance.
Yes, but at a price.
I am sure it has made a significant difference to the standard of governance for the smaller listed companies which are in the majority.
They have improved the standard of reporting but I am not sure whether it has really improve governance practices.
Yes and no. There are small companies that say a lot and don’t practise much of what they say! For these companies there is no improvement, but for the majority it has significantly improved corporate governance and its reporting.
But there is a danger that conformance takes precedence over performance to the detriment of shareholders.
In brief, the quality of disclosures and also the social responsiveness of Australian business is clearly reflected in the increased quality and standards of the continuous disclosures and the periodic reports to stakeholders.
We now have at least six (and in some cases a lot more) additional pages of information in Annual Reports on corporate governance which in most instances have now become repetitive motherhood statements. ASX should consider a web-based tool for dissemination of corporate governance reporting.
Most importantly achieved a significant focus on corporate governance. However, the momentum has to be maintained and this review is most appropriate.
It has forced companies that were not practising good governance to lift their game and implement new practices.
But there is some unnecessary information required, which is potentially invasive of privacy.
Yes I think there is ample evidence of that although it is still a newish thing in Aust. It would be interesting for CSA to publish any UK research about practices there because they have been going much longer than here and they are similar principles-based approaches.
It will have helped to stop some questionable practices when it was first imposed. However, the ongoing reporting tends to be the same year-on-year with little change — minimising ongoing reporting when principles are satisfied should be considered.
Clearly the Principles have required companies to focus and report on these governance principles and practices. Reporting against the guidelines has enabled the market to better assess and benchmark corporate governance practices.
The significant boardroom and public debate following the release of the Principles, and subsequent modifications, has significantly improved the level of awareness of the benefits of good corporate governance. However, it is now clear that reporting against the Principles sometimes has no connection with embedded business culture, e.g AWB.
Companies are very conscious of the need to comply or explain.

11. Would you say that the board and senior management in your company fully understand and support the intention and implications of the Council’s Principles?

Yes 81%
No 18%
No comment 1%

Comment

It's often — say one thing and do another and everyone but the company secretary forgets what has been said in the corporate governance statement. I think that auditors should audit compliance with the principles so you can't say that you've complied with the principles when you haven't. In my experience there is a wide range of different attitudes taken by auditors to them being satisfied that the corporate governance statement and statement re 10 principles has been achieved.
They strongly support the “if not, why not” approach as displaying a practical approach and a true understanding that governance practices can properly differ and yet still be good practice.
Speaking for the majority — Yes! The very small ones — No.
It’s all detailed in the Annual Report and in periodic updates via the company’s Internet site.
Council's Principles are fully understood but not fully supported in all respects.
Not entirely, however, with increased exposure and education, the board realises that the Council's Principles are becoming the norm for listed entities.
Fully understoodd, yes; in some instances considered to be unduly invasive.
Board and relevant senior management understand governance issues, but not so sure there is support for principles that result in a tick-a-box compliance mentality it can encourage in companies, but also by governance organisations, who then mark you against the supposed guidance and “if not, why not” without always taking into account the why not; why not is probably viewed as a an option in only a minority of cases.
Depends what you mean by fully? Yes, because they are captured in the company's guide to business conduct and relevant governance documents. Understanding the intention is the most important and I think that's very clear here.
While there may have been some reservations by small listed companies about the need to, and cost of, complying, I think most company boards and management now recognise the benefits of greater transparency in governance practices in dealing with company stakeholders.
Although we should be careful not to stifle business activity and remember that companies were originally formed as a means of protecting investors against personal liability whilst offering higher risk/reward than banks.