Expert legal commentary: Revised ASX Corporate Governance Principles and Recommendations

By Bruce Dyer, Partner and Corey Lewis, Special Counsel, Ashurst Australia

Mr Bruce Dyer

Mr Corey Lewis

The ASX Corporate Governance Council has undertaken consultation on a draft 3rd edition of its Principles and Recommendations, expected to come into effect for financial years commencing on and after 1 July 2014.  The Principles are important, and not just for ASX listed entities (which need to report whether they comply, and if not, why not).  The Principles are also adopted, formally or informally, by a wide range of other organisations. 

The changes in the 3rd edition include (for others see link (pdf, 273kb)):

Tenure and independence
Tenure of more than 9 years has been added as an indicator that a director may not be independent (which is relevant in determining whether there is a majority of independent directors, as recommended, on the board and certain committees).  This will not preclude such directors being treated as independent where appropriate, but is likely in practice to reduce the number of directors with longer tenure.  Whether this is desirable, given the consequential loss of experience and corporate memory it risks, is open to question.


Social sustainability risks
The 3rd edition has an increased focus on management/monitoring of risk, and adds a new requirement for entities to disclose whether, and if so how, they have regard to "economic, environmental and social sustainability" risks.  This is unlikely to be a significant impost – many entities already have sustainability/corporate social responsibility policies – but should give a new focus to this issue.

The release of the 3rd edition was perfectly timed for the new Monash/Ashurst Corporate Governance and Responsibility Clinic – one of the Law School's clinical program subjects – which ran for the first time in the second half of 2013.  The Clinic gives selected students practical experience (under Ashurst supervision) assisting small/mid-cap ASX listed companies or not-for-profits with corporate law and governance issues such as the requirements of the Principles.