A year to the day after the Council released its historic report containing 10 core Principles and accompanying practice recommendations, the Implementation Review Group (Review Group) has strongly supported the disclosure-based philosophy underlying the Council's approach.
The Review Group is an independent panel of senior industry practitioners, representing a cross section of the corporate and investment community. Its report, based on a broad range of industry feedback, has been released as a public document, and is available here.
Releasing the Review Group's report, committee member Graham Bradley emphasised the positive reaction the Council's recommendations had received, in particular the "if not, why not?" approach to disclosure.
"Our review revealed strong support for the 10 core Principles, with most critical feedback being directed at selected practice recommendations," he said. "While the Review Group has suggested changes and recommended further guidance on some of the practice recommendations our report does not call for radical change."
The key conclusions of the Review Group's report are:
- A clear endorsement for the non-prescriptive nature of the Council's guidelines. The Review Group emphasised that the guidelines provide a framework for disclosure by listed companies and that a range of different approaches to achieving effective governance are to be expected, encouraged and considered on their merits;
- A rejection of any proposal for carve-outs for selected classes of listed entity. Good governance practices should apply to all listed companies regardless of size or industry;
- A confirmation that it is the role of each Board to determine the issue of independence. Boards should examine whether any conflicts of interest compromise directors' capacity to discharge their fiduciary duties to all shareholders. The Review Group noted that true independence is primarily an attitude of mind. The Review Group accepted that some companies may be well served by having directors with specific expertise and knowledge of the company's business, but who may fail a strict test of independence, provided full disclosure is made to shareholders, using the indicators outlined in the recommendations;
- A recommendation that the Listing Rule requirement to have an audit committee whose composition complies with the Recommendations be limited to the top 300 listed companies. The current ASX listing rule and Council guidelines extend to the top 500 companies and are considered onerous for smaller companies and their shareholders with the benefits to such companies and their shareholders outweighed by the costs involved;
- The need for further guidance on executive remuneration disclosure, particularly the need to provide more useful information to shareholders such as examples of the impact of performance hurdles, share price movements and other relevant factors on rewards potentially earned under equity and option plans.
"Much of the concern expressed to us was based on a lack of awareness of the flexibility of the Council's approach. Ultimately, 'best practice' is whatever practices provide the most effective governance. 'Compliance' with the Council's principles means mandatory disclosure. It does not, and should not, require conformance with every recommendation. We believe a significant part of the investing community has yet to understand this."
The Review Group expects to reconvene in November following analysis by ASX of disclosure in the major profit-reporting season.
