Role of ASX
Corporate governance can be best defined as such a system of rules, processes and practices, by indulging in which, the companies are controlled and directed. Under this concept, the interests of the different stakeholders including government, shareholders, suppliers, customers and the like, are balanced (Calder, 2008). In Australia, the Australian Stock Exchange, or the ASX has presented certain corporate governance principles and recommendations, which act as guidance in this regard. These corporate governance principles are updated on regular interval, to keep up with the changing times (ASX Corporate Governance Council, 2007). In the following parts, the role, along with the effectiveness of the activities undertaken by ASX, for providing the corporate governance principles, for the listed companies and the guidance for the unlisted corporate users have been elucidated. This discussion would not only encompass the present guidance, but would cover a brief history as well. The paper would also present certain recommendations, based on which, the public companies’ listing and compliance would be highlighted.
The ASX is the stock exchange of Australia and takes different initiatives in order to follow the theme of corporate governance. For this purpose, it regularly presents its corporate governance statements. Further, it also highlights the key compliances which have to be adhered with regards to the principles and recommendations set out by the corporate governance council (ASX, 2017a). In August 2002, the ASX Corporate Governance Council was formed. A wide range of industry groups, shareholders and businesses are brought together by the council and each of these offers their perspectives and individual insights on the issues relating to governance. The council operates under the Charter, which was adopted back in November 2012 (ASX, 2017b).
The key role of the ASX council is the development and issuance of the principles based recommendations with regards to the corporate governance practices, which are to be adopted by the entities listed under the ASX. Through these recommendations, an attempt is made to promote the confidence amongst the investors and also, to help the listed entities in meeting the expectations of the stakeholders with regards to governance (ASX, 2017b).
ASX has laid down different governance documents through which the entities, boards and the board committees are regulated, for instance, the constitution and the board charter. Further, a number of procedures and policies are implemented by the ASX for supporting its commitment towards the business of the companies being conducted in an ethical manner and in a manner where the same is accountable and open for the marketplace and shareholders (ASX, 2017a).
In the recent past, the corporate governance principles of ASX have undergone three major evolutionary steps, in 2003, 2010, and in 2014. These changes were brought through the various recommendations and in order to improve upon the shortfalls as and when identified. 2003 saw the initial issuance of the corporate governance principles, where the corporate governance was transformed into a principle based approach. More than 20 groups from the different business backgrounds were culminated for this purpose. The key objective off the ASX was to provide such a framework of corporate governance, which was practical and which could be used for diversified listed companies. Most of these regulations were not properly structured and hence, was treated more like a rough draft on the corporate governance guide. The basic corporate governance needs were offered which had to be satisfied. With the changes in the business environment, this guidance saw changes and evolved periodically through the amendments by the council (Plessis, Hargovan and Bagaric, 2010).
History and evolution of ASX Corporate Governance Principles
Come 2010, the principles and recommendations of the corporate governance were reformed into its second version. The global financial crisis had an impact over these changes and the theme was to make certain that the recommendations and principles were relevant for the present day, of 2010, business situation, and this led to a range of modifications being adopted. The corporate governance codes were also upgraded at this time (Groot, 2009). The disclosure of corporate governance was required to be made on the website of the companies, instead of the annual reports, so that the stakeholders can easily gain access to the information of the companies. The recommendations on diversity, briefings, trading policies and the remuneration committee composition were added in 2010 (Chong, 2010).
In 2014, the corporate governance on a global scale was enhanced and the ASX incorporate governance P&R emerged. Through this third publication, the flexibility for the listed companies was increased while disclosing their internal governance (Mallin, 2016). This version also saw the introduction of the evaluation of the directors’ independence, gender diversification, plus the risk committee being established for the listed entities which was not present in the previous edition. Some of the recommendations in 2014 version were related to risk (Shine Wing, 2015). These included the listed entity to disclose internal audit function, increased focus on social, economic and environmental sustainability risks, and allowing the listed entities to both adopt and report the alternative practices in corporate governance. Through these recommendations, the stakeholders expected the companies to provide the evidence to the effective management with regards to the financial risks and to the other non-financial material business risks (Deloitte, 2015).
The ASX corporate governance committee adopted a principles based approach of “if not, why not”, which is similar to the one taken for the entities listed on London Stock Exchange, through the UK Combined Code. The entities listed on the ASX have the option of not complying with the recommendations drawn by the corporate governance council of ASX. However, when these recommendations are not followed, the reasons for not complying with these have to be stated. The rationale behind these guidelines being drawn stems from the belief that a single size cannot fit all the companies present in the market of Australia. Through this model, the perspective approach which has been adopted by the Sarbanes-Oxley Act 2002 in US is rejected. In order for this approach to be effective, along with the anticipated benefits to be delivered, it is crucial that the entire commercial community of Australia engages in it (Farrell, Harding and Spilsbury, 2017).
The listed companies, along with their officers, have to be proactive when they review their corporate governance practices and they have to be transparent when they explain the approach adopted by them, which are divergent from the recommendations drawn by the corporate governance council of ASX (KPMG, 2014). Through this concept, an attempt is made towards encouraging the officers and the companies in thinking twice about the corporate governance practices and debating the approach adopted by them based in the individual circumstances. The effectiveness of this concept also depends upon the need for the investors of the nation to invest their efforts in reviewing the Australian listed entities corporate governance statements. A mere tick the box approach could cause major damage to the entities, to their investment funds value, as well as, to the flexibility of the Australian system served till date (Farrell, Harding and Spilsbury, 2017).
ASX Concepts
The two-strike rule came into effect from July 01st, 2011 as an amendment to the Corporations Act, 2001 (Cth). This rule has been designed for holding the directors liable for their bonuses and the executive salaries. So, in case the shareholders are not in agreement with the amount being paid to the executives, the entire board of the company can face possible re-election. Under the first strike, the remuneration report of the company, which contains the individual salaries and bonuses of each of the directors, gets a “no” vote from 25% or a higher number of shareholders at the annual general meeting of the company (Forssbaeck and Oxelheim, 2014).
The second strike takes place when the subsequent remuneration report of the company also gets a not vote from 25% or a higher number of shareholders. Once the second strike takes place, the shareholders vote at the same annual general meeting for the determination of whether or not, all of the directors need to stand for a re-election. In case this spill resolution is passed by 50% or a higher number of eligible casted votes, then within a time period of 90 days, a spill meeting takes place. When this spill meeting is convened, the directors named in the directors’ report of the recent annual general meeting are required to stand for a re-election; however, the managing director is not up for re-election and is allowed to run the company (Wilkins, 2012).
Through the two-strike rule, an additional level of accountability was sought to be provided for the directors, and for the shareholders, the concentration was on increased transparency. When a company gets “no” votes with regards to the remuneration report for a period of two consecutive years, and also fails in addressing the issues being raised by the shareholders, it is considered as suitable for the board to be liable to undergo the process of re-election (Wilkins, 2012).
It has been shown that the shareholders are not afraid or shying away from the use of this power and it had been noted that for 2012 alone, 36 out of the 500 companies listed on the ASX saw the use of this power. This included 14 key public companies, were “no” votes were given by over 25% of the shareholders. Some of the leading companies include Signature Capital with 41% votes, Perpetual with 26%, ICS Global with 27%, Pacific Brands with 53%, Crown with 44%, GUD Holdings with 44%, Watpac with 34%, UGL with 30%, Cryosite with 81%, Dexus with 28%, Sirtex Medical with 33%, Tassal with 37%, Cabcharge with 37% and BlueScope Steel with 39% (Evans-Cullen and Sprange, 2012).
The ASX corporate governance principles can be taken help of for improving the listing and the compliances by the public companies. The principles and recommendations drawn by the corporate governance council help in achieving good governance outcomes and also in meeting the reasonable expectations of the majority of investors in most of the situations. The “if not, why not” further ensures that the companies have the option of either adhering to the given guidelines or adopting their own approach which is best suitable for their business and give the reasons for divergence for not following the standard recommendations (Wilkins, 2012). This is a flexible approach which ensures that the companies comply with the corporate governance norms and the theme behind drawing of the corporate governance principles is attained.
The compliance is also ensured through the structural framework given for the principles and recommendations of ASX. This structure lays down a solid foundation for not only the management but also for the oversight. The structure adds value to the board and acts in an ethical and responsible manner by safeguarding the integrity of corporate reporting. Through this structure, balanced and timely disclosers are made, risks are recognized and managed, rights of the security holders are respected and the remuneration is given in a fair and responsible manner (ASX, 2014).
The corporate governance principles of the ASX are not applicable over the non-listed public companies and on the proprietary limited companies. If these principles apply to these entities also, the compliance for these entities could also be ensured. This would show that these non listed and private entities also value the corporate governance principles. Furthermore, the “if not, why not” approach can help the entities in not following the recommendations and principles of the corporate governance council, and follow the best suitable action plan for themselves, by giving an explanation for the divergence. Even though an investment by the general public is not made in such entities, and so investor confidence is not needed, but an adherence to such norms can still show accountability of the directors and the top management, which creates a reputation of a complaint entity.
Corporate social responsibility and ethics always follow the law and never precede or supersede it. In case the ASX corporate governance principles require an enhanced role, the law would have to be modified or amended to accommodate the same. At present, the ASX corporate governance principles can be skipped by giving proper justification for the same. However, with the enhanced role, the law would have to be amended to increase the scope. The scope under the law would have to be enhanced which would be parallel to the enhanced role. For instance, if the non-listed public companies and the proprietary limited companies are to be included under the ambit of these principles and recommendations, the Corporations Act, 2001 would have to be amended to allow these entities to raise funds from the public.
Conclusion
In the preceding parts, a discussion was carried on the various different aspects of the corporate governance principles and recommendations given by the ASX corporate governance council. The history and the manner in which the ASX evolved from 2003 to 2014, based on the global financial crisis and recommendations show the zeal of the ASX to keep update with the changing times. The role of the ASX shows the meticulous efforts taken in this regard and the approach taken by ASX like the “if not, why not” makes it successful. Furthermore, the steps taken under the Corporations Act, 2001, with regards to the two strike rules is another commendable effort taken to keep the stakeholders invested in the matters of the company, along with ensuring their active indulgence in the affairs of the company. All these highlight the efforts put in by the ASX to ensure the adherence to the corporate governance and upholding the very theme of corporate governance for the nation.
References
ASX Corporate Governance Council. (2007) Corporate Governance Principles and Recommendations. 2nd ed. Sydney: Australian Securities Exchange.
ASX. (2014) Corporate Governance Principles and Recommendations. [Online] ASX. Available from: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf [Accessed on: 12/07/17]
ASX. (2017a) ASX corporate governance. [Online] ASX. Available from: https://www.asx.com.au/about/corporate-governance.htm [Accessed on: 12/07/17]
ASX. (2017b) Corporate Governance Council. [Online] ASX. Available from: https://www.asx.com.au/regulation/corporate-governance-council.htm [Accessed on: 12/07/17]
Calder, A. (2008) Corporate Governance: A Practical Guide to the Legal Frameworks and International Codes of Practice. London: Kogan Page Publishers.
Chong, T. (2010) Changes to the ASX Corporate Governance Council’s Principles – how this will impact on your corporate governance and policies. [Online] Lavan. Available from: https://www.lavan.com.au/advice/corporate_services/changes_to_the_asx_corporate_governance_councils_principles_how_this_will_i [Accessed on: 12/07/17]
Deloitte. (2015) ASX Corporate Governance Council Principle 7 Recognise and manage risk. [Online] Deloitte. Available from: https://www2.deloitte.com/content/dam/Deloitte/au/Documents/risk/deloitte-au-risk-g100-asx-principle-7-guide-260215.pdf [Accessed on: 12/07/17]
Evans-Cullen, K., and Sprange, J. (2012) Australia: The two strikes rule: how has it played out?. [Online] Mondaq. Available from: https://www.mondaq.com/australia/x/158780/Directors+Officers+Executives+Shareholders/The+two+strikes+rule+how+has+it+played+out [Accessed on: 12/07/17]
Farrell, K., Harding, D., and Spilsbury, S. (2017) ASX Corporate Governance Council releases its Principles of Good Corporate Governance and Best Practice Recommendations. [Online] Find Law. Available from: https://www.findlaw.com.au/articles/1531/asx-corporate-governance-council-releases-its-prin.aspx [Accessed on: 12/07/17]
Forssbaeck, J., and Oxelheim, L. (2014) The Oxford Handbook of Economic and Institutional Transparency. New York: Oxford University Press.
Groot, C. (2009) Corporate Governance as a Limited Legal Concept. The Netherlands: Kluwer Law International.
KPMG. (2014) ASX Corporate Governance Principles and Recommendations (Third Edition). [Online] KPMG. Available from: https://assets.kpmg.com/content/dam/kpmg/pdf/2014/06/asx-corporate-governance-principles-recommendations-third-edition.pdf [Accessed on: 12/07/17]
Mallin, C. (2016) Corporate Governance. 5th ed. Oxford: Oxford University Press.
Plessis, J.J., Hargovan, A., and Bagaric, H. (2010) Principles of Contemporary Corporate Governance. 2nd ed. Victoria: Cambridge University Press.
Shine Wing. (2015) ASX Corporate Governance Principles and Recommendations. [Online] Shine Wing. Available from: https://www.shinewing.com.au/thinkbig/read/asx-corporate-governance-principles-and-recommendations/ [Accessed on: 12/07/17]
Wilkins, G. (2012) What is the ‘two-strikes’ rule?. [Online] The Sydney Morning Herald. Available from: https://www.smh.com.au/business/agm-season/what-is-the-twostrikes-rule-20121008-278us.html [Accessed on: 12/07/17]
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
