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Governance Challenges in 2012

This article appeared in the December 2011 edition of the Listed @ ASX newsletter.

ASX chairman David Gonski says executive remuneration, continuous disclosure, gender diversity, investor relations and corporate sustainability are key issues for boards. 


2012 shapes as another challenging year for boards of ASX-listed companies on governance and business issues. An Australian Institute of Company Directors survey in August of 523 directors across the public, private and not-for-profit sectors found director sentiment had fallen by almost a third over six months. The main reasons were increased economic uncertainty overseas, the downtrend in global financial markets and restrained consumer confidence in Australia.

Listed @ ASX asked ASX Limited non-executive chairman David Gonski, AC, for his personal view on key governance issues for listed companies in 2012. Gonski also chairs Coca-Cola Amatil and is one of Australia’s most respected commentators on governance and board issues.
Gonski believes every year should be challenging for boards, given shareholders elect directors to deal with complex issues. Asked about general governance issues for 2012, Gonski nominated executive remuneration, continuous disclosure, gender diversity, investor relations and corporate sustainability. Here is an edited summary of the interview.

Listed @ ASX: David, why do you nominate executive pay as the biggest governance issue for 2012?

David Gonski: Clearly, the executive pay debate was on the minds of boards in 2011 and will be so again in 2012. We saw the Two Strikes rule apply in the recent annual general meeting season. Boards of companies with one strike will need to consider in the year to come how that affects their approach to executive pay and broader governance issues. It will be interesting to see how many spill resolutions are passed to get rid of the board of companies that receive their second strike at next year’s AGM, given the spill resolution requires 50 per cent of eligible votes cast.

(Editor’s note: The recently introduced Two Strikes rule means shareholders of listed companies must vote on whether to spill all board positions if 25 per cent or more of votes cast are not in favour of adopting the remuneration report at two successive annual general meetings.)

Listed @ ASX: David, with so many other board challenges right now, continuous disclosure compliance seems to receive less prominence in stories about governance issues. Yet you consider continuous disclosure a key board issue in 2012. Why so?

David Gonski: Continuous disclosure compliance is a very important board issue that has been with all listed company boards for a long time. ASX has done, and continues to do, important work in this area. High volatility in global financial markets will mean boards have to pay even more attention to their company’s continuous disclosure obligations, to ensure the market is fully informed at all times.

Listed @ ASX: Gender diversity was another prominent board issue in 2011. Do you expect more debate on this issue in 2012?

David Gonski: Yes. A full year will have passed since listed companies started producing gender diversity policies on female representation on boards and senior management roles, and measuring their progress. Stakeholders will want to see how companies articulate those policies, and whether they have adhered to them. I believe stakeholders will put more pressure on companies that have low female representation in key board and executive roles, to explain their position.

(Editor’s note: The ASX Corporate Governance Council made an important change to the Corporate Governance Principles and Recommendations on gender diversity in June 2010. It recommended ASX-listed entities disclose in their annual report: their achievement against gender objectives set by the board; and the proportion of women on the board, in senior management and employed through the whole organisation. More information on the recommendation is available here.)

Listed @ ASX: David, why do you nominate investor relations as a key governance issue in 2012?

David Gonski: I strongly believe that the rapport a company has with its shareholders will become an even more important issue for boards in 2012. Boards will need to ensure their companies have robust investor relation strategies, and that the chairman and chief executive spend the appropriate amount of time talking to both institutional and retail investors, listening to their concerns, and taking prompt action where appropriate. With the global economy so problematic, investors will want more communication with their companies in 2012, so they can better understand how market ups and downs are affecting overall corporate strategy.

Listed @ ASX: David, why will sustainability be a key governance issue for boards in 2012?

David Gonski: Again, it comes back to the rapport companies have with their stakeholders. Boards are being called on by stakeholders to lead by example with their thinking – and their actions – when it comes to sustainability, of which corporate social responsibility is an important part. One needs look no further than the Occupy protests worldwide to sense the public mood about corporate greed or other poor corporate sustainability practices. I believe boards will have to be more available to stakeholders in 2012 on sustainability issues.

Listed @ ASX: David, you have mentioned several governance issues for 2012. Do any key business issues stand out in 2012?

David Gonski: There is no doubt that debt renewal is becoming a bigger issue for listed companies. Australian companies do less business in Europe than other regions, but the European sovereign debt crisis is damaging European banks, which are a very large part of the global banking system. If that funding source becomes much more constrained, the cost of debt could increase for companies worldwide, and renewal of debt in 2012 may become more difficult. Some companies may look for longer-dated debt, and others may take a more conservative approach to gearing levels. Whatever happens, boards will need to continue to monitor debt issues as part of their broader risk-management governance.

Information provided is for educational purposes and does not constitute financial product advice. You should obtain independent advice from an Australian financial services licensee before making any financial decisions. Although ASX Limited ABN 98 008 624 691 and its related bodies corporate (‘ASX’) has made every effort to ensure the accuracy of the information as at the date of publication, ASX does not give any warranty or representation as to the accuracy, reliability or completeness of the information. To the extent permitted by law, ASX and its employees, officers and contractors shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided or omitted or from any one acting or refraining to act in reliance on this information. This document is not a substitute for the Operating Rules of the relevant ASX entity and in the case of any inconsistency, the Operating Rules prevail.

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