A new era of corporate governance reporting is on its way. One that will drive significant change to address assessed inadequacies in corporate and governance reporting in recent years.
In his annual letter to company CEOs last year, BlackRock CEO Larry Fink wrote: “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
How pertinent were Larry Fink’s observations at the start of 2018 in the context of the outcomes of the Financial Services Royal Commission and other recent enquiries in Australia.
Complementing those sentiments, the recently released 4th Edition of the ASX Corporate Governance Principles and Recommendations (CGPRs) is clearly aimed at addressing governance issues around corporate culture and values, ethics, board responsibilities and effectiveness, diversity, executive remuneration, risk management and risk appetite, and climate change.
This latest edition was released in February 2019 and is applicable for an entity’s first full financial year commencing on or after 1 January 2020, although earlier adoption is encouraged.
While the CGPRs are not mandatory, the “if not, why not” approach still remains. If an entity doesn’t adopt a recommendation, it must explain why it has not adopted the recommendation.
The Corporate Governance Council continues to encourage listed entities to give robust and informative explanations of their frameworks and to explain their policies and practices in relation to each recommendation rather than merely taking a legalistic approach to their CG disclosures.
There are seven new recommendations in the 4th Edition that apply to listed entities taking the total to 35 recommendations across eight core Principles along with three more recommendations that apply to a small subset of companies.
In addition, several principles and recommendations have been revised to reflect the ASX Corporate Governance Council’s desire to address emerging governance issues around culture, values and trust.
In terms of corporate reporting there are two particular revisions worth noting:
Not sure where to start with all these changes to Corporate Governance reporting? Then read the Designate ‘to do’ list in our article Prepare now for the 4th Edition or please get in touch at email@example.com
1 Author emphasis added.
2 Note also that the commentary attached to recommendation 8.2 states that discretion should be retained to prevent performance-based remuneration from rewarding conduct that is contrary to the entity’s values or risk appetite, while commentary for recommendation 8.1 now states that remuneration is a key ‘driver of culture’, and directly links remuneration to an entity’s reputation and standing in the community.
3 Periodic corporate report is defined as annual directors’ report, annual and half-yearly financial statements, quarterly activity report, quarterly cash flow report, integrated report, sustainability report, or similar periodic report prepared for the benefit of investors.