New ASX principles stress values as well as value

An awful lot can happen in five years, which is how long it had been between drinks when the ASX recently released a fourth edition of its Corporate Governance Principles and Recommendations.

It’s very likely the document was due for updating anyway but the findings of the Royal Commission into the Banking, Superannuation and Financial Services Industry have only reinforced that need.

The new ASX principles make it abundantly clear – just as Commissioner Kenneth Hayne has done in his Commission findings – that the pursuit of profit cannot be the sole motivation for listed companies’ business practices.

Instead, in what is perhaps the standout new inclusion, the ASX publication indicates that every company should have a set of values that it publicly declares and actually lives by and to which its directors are accountable. Remuneration policies should also align with these values.

“A listed entity should instil and continually reinforce a culture across the organisation of acting lawfully, ethically and responsibly” – principle 3, ASX Corporate Governance Principles and Recommendations

Tone should be “set at the top”, the ASX declares, pointing readers to the cultural guidelines co-authored by The Ethics Centre.

Building “sustainable value for security holders” remains a key objective for any listed entity but there is also a responsibility to “preserve and protect its reputation and standing in the community and with key stakeholders, such as customers, employees, suppliers, creditors, law makers and regulators”.

Boards will now be expected to approve a company’s statement of values and also a code of conduct that will underpin creation of an identified and agreed culture. All staff should be trained in this code and senior staff will be expected to act in accordance with it.

Interestingly, the new principles and recommendations zero in on important social issues and expectations that listed companies will take the lead in this space.

One is the need to address climate change and the risks around it – even if a company isn’t directly linked to mining or the consumption of fossil fuels. This builds on the questions increasingly asked by activist shareholders in recent years.

Companies are also encouraged to show leadership on gender diversity and better outline how they are approaching the issue and making progress with it.

For S&P/ASX 300 companies the expectation is that boards will have at least “30 per cent of each gender” but there is also a recommendation that measurable objectives be set around gender diversity through senior executive ranks and the workforce more generally.

Boards composed of directors with varied ethnicities, ages and backgrounds are also being encouraged.

One of the key outcomes of consultation with stakeholders during the drafting of the new document was that principles and recommendations were not compulsory.

In essence, it’s still up to each listed company to determine how many (if any) of the principles are adopted and put into practice.  

While companies retain their traditional freedoms, in the wake of the Hayne Inquiry, and heightened interest and expectations from shareholders and the community, those choosing to stray from the principles should considered themselves warned.

In conjunction with the ASX, Cannings Purple will be hosting its first Brisbane event on March 21 with a theme of “How to make social media work with your business.”

Peta Baldwin is Cannings Purple’s State Director in Queensland and an expert in investor relations and the resources industry, who has worked in in-house roles at Mount Isa Mines, Alcoa and most recently AngloGold Ashanti. Contact Peta

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