ASX Corporate Governance Council (the Council) launched its 4th Edition of the Corporate Governance Principles and Recommendations on 27 February after more than a year of consultation. It includes input from the nineteen diverse member groups of the ASX Corporate Governance Council, including associations representing the interests of shareholder groups (ASA) and listed companies who are communicating with their shareholders on a regular basis (AIRA).
While all the Principles and Recommendations are relevant to those of us working in the field of investor relations, four of the eight are particularly pertinent and this note provides a summary of the changes the Council has made that IROs and those senior executives engaging with investors should be aware of.
Instil a culture of acting lawfully, ethically and responsibly
The primary reason that work on this 4th edition was viewed as necessary back in 2017, was to address the emerging issues around culture, values and trust. There has been no shortage of examples of conduct that has fallen short of community standards and expectations in recent years, provoking a lively and sometimes divisive discussion around whether companies should be required to hold a ‘social licence to operate’. The Council has not made this part of their recommendations for a company’s code of conduct, choosing instead to talk about “the need for the entity to preserve and protect its reputation and standing in the community and with key stakeholders….”
Principle 3 has been heavily rewritten and we would recommend it as essential reading. It includes 3 new recommendations focused on Values (3.1), Whistle blower policies (3.3) and Anti-bribery and corruption policy (3.4).
We will highlight here some of the commentary in relation to 3.1 [A listed entity should articulate and disclose its values] because it has been a topic that we have been focusing on regularly in this newsletter over the past year, particularly in relation companies needing to be clear about their ‘purpose’.
The Council makes it very clear that culture comes from the ‘tone at the top’ and that boards must take responsibility for approving the entity’s values and ensuring that management inculcate them throughout the organisation.
- A listed entity’s values are the guiding principles and norms that define what type of organisation it aspires to be and what it requires from its directors, senior executives and employees to achieve that aspiration
- Values create a link between an entity’s purpose (why it exists) and its strategic goals (what it hopes to do) by expressing the standards and behaviours it expects from its directors, senior executives and employees to fulfil its purpose and meet its goals (how it will do it).
Safeguard the integrity of corporate reports
“A listed entity should have appropriate processes to verify the integrity of its corporate reports” [amended wording]
New Recommendation 4.3 [Previously 4.4 but now significantly amended]
“A listed entity should disclose its process to verify the integrity of any periodic corporate report it releases to the market that is not audited or reviewed by an external auditor”
This includes the annual director’s reports, quarterly activity reports, quarterly cashflow reports and, in some cases, integrated reports and sustainability reports.
The process the entity adopts to satisfy itself that the report is balanced, materially accurate and provides investors with appropriate information to make informed investment decisions can be disclosed in the report itself or more generally in the entity’s governance disclosures in its annual report or on its website.
Make timely and balanced disclosure
“A listed entity should make timely and balanced disclosure of all matters concerning it that a reasonable person would expect to have a material effect on the price or value of its securities” [unchanged]
The Council has updated its suggestions [refer in Box 5.1] regarding the matters that should be addressed in an entities’ continuous disclosure policy, including a couple of new suggestions:
- Set out the entity’s processes to review and authorise market announcements
- State that the policy will be periodically reviewed to check that it is operating effectively and whether any changes are required to the policy.
New Recommendation 5.2 – Copies of Announcements to the Board
“A listed entity should ensure that its board receives copies of all material market announcements promptly after they have been made”
New Recommendation 5.3 – Investor and Analyst Presentations
“A listed entity that gives a new and substantive investor or analyst presentation should release a copy of the presentation materials on the ASX Market Announcements Platform ahead of the presentation”
The types of presentations regarded as ‘substantive’ include results presentations and the types of presentations given at annual general meetings, investor days and broker conferences.
Where practicable the entity should consider providing security holders the opportunity to participate in the presentation, for example, by providing them with dial-in details or a link to a live webcast. If neither is practicable, the entity should consider making available on its website a recording or transcript of the presentation as soon as it reasonably can.
This recommendation is not intended to apply to private meetings between a listed entity and an investor or analyst. However the usual warnings apply in relation to not disclosing any information that a reasonable person would expect to have a material effect on the price or value of its securities that has not already been disclosed to the market.
Finally, there are circumstances where a company, over a short period of time, may deliver different versions of a presentation to different analysts and investors groups. Where this is the case, and each version of the presentation contains materially the same information, the different versions are not deemed to be “new”. As such they do not need to be published on the ASX Market Announcements Platform.
Respect the rights of security holders
Expanded Recommendation 6.2 – Investor Relations program
The Council encourages companies to include as part of their IR program, communications that are tailored to or recognise the different priorities of the retail investor.
“While the focus of many investor relations programs will be on larger investors and financial market participants who service larger investors, listed entities should also seek opportunities to engage with retail investors and the organisations that represent them, to understand the matters of concern or interest to smaller investors.
Where significant comments or concerns are raised by investors or their representatives, they should be conveyed to the entity’s board and relevant senior executives.”
New Recommendation 6.4 – Vote by poll rather than show of hands
“A listed entity should ensure that all substantive resolutions at a meeting of security holders are decided by a poll rather than by a show of hands.”
These Principles and Recommendations are not mandatory and boards can choose not to adopt one or more them if they consider a particular recommendation is not appropriate to its particular circumstances. If it does so, however, it must explain why it has not adopted the recommendation – the “if not, why not” approach. Since the Council’s publication of the first edition in 2003, this approach has been fundamental to the operation of the Principles and Recommendations.
The 4th Edition comes into effect for the financial years commencing on or after 1 January 2020.