Important information for ASX Listed Entities

First Review of Corporate Governance Reporting under Revised Principles and Recommendations

ASX Markets Supervision (ASXMS) has conducted the first review of corporate governance reporting under the Revised Principles and Recommendations for listed entities with a 31 December balance date. The latest review (PDF 511KB) is available on asx.com.au.

The Revised Principles and Recommendations were released in August 2007. The effective date for the Revised Recommendations to apply to an entity's reporting is the first financial year starting on or after 1 January 2008. For entities having a 31 December financial year end, the effective date for reporting in accordance with the Revised Recommendations is the reporting period ending 31 December 2008.

There were 168 listed entities (9% of total listed entities) subject to the 31 December 2008 corporate governance review. A key change introduced in the Revised Recommendations is an emphasis on the disclosure of an entity's actual practice when corporate governance reporting. No longer is it sufficient for a company to report that it has certain practices in place. The Revised Recommendations require that the entity disclose or provide a summary in the annual report of the practices or specific policies that govern the practices.

To take account of the emphasis on disclosure of information in the Revised Recommendations, the corporate governance review process undertaken by ASXMS divided the Recommendations into practice-based Recommendations (x19) and information-based Recommendations (x8), and gave greater scrutiny to each element of the practice-based Recommendations and the information required by the information-based Recommendations.

As this is the first group of entities required to report against the Revised Recommendations, ASXMS has taken the opportunity to provide feedback to assist companies in preparing their corporate governance statements for the 30 June 2009 financial year end.

To assist entities in their corporate governance reporting, ASXMS has prepared a summary of the key messages to be followed by listed entities in the preparation of annual reports for the financial year end 30 June 2009. ASXMS will be reviewing 30 June 2009 annual reports consistently with these key messages to ensure that each element of each Recommendation is reported against in some way (i.e. either adopted or 'if not, why not' reporting). These key messages are provided to assist entities understanding the increased level of reporting that is required under the Revised Recommendations. Key messages in relation to each Recommendation are included

ASX Key Messages Corporate Governance Reporting

In the review of 30 June 2009 annual reports, ASXMS will be looking for the following information in the Corporate Governance statement/annual reports. If these are not provided, reasons should be given for why they are not provided and how the entity otherwise addresses these matters.

Principle 1

• A statement that the entity has established the functions reserved to the board;
• A statement that the entity has established the functions delegated to senior executives;
• A clear description or disclosure of the functions reserved to the board; and
• A clear description or disclosure of the functions delegated to senior executives.

Recommendation 1.2

• A clear description of the process for evaluating the performance of senior executives.

Recommendation 1.3

• An explanation of whether an evaluation of senior executives took place in the financial year;
• If a performance evaluation of senior executives took place a statement as to whether it was in accordance with the process disclosed;
• A statement as to where a copy of matters reserved for the board is publicly available;
• A statement as to where a copy of matters delegated to senior executives is publicly available; and
• A statement as to where a copy of the board charter is publicly available.

Principle 2

• A statement as to whether the board has a majority of directors who are independent; and
• A statement as to which directors are independent and which are not.

Recommendation 2.2

• A statement as to who is the chair of the board and if the chair is independent.

Recommendation 2.3

• A statement as to who is the CEO and, if the same person is the chair, a statement as to the reasons why.

Recommendation 2.4

• A statement as to whether the board has established a nomination committee.

Recommendation 2.5

• A clear description of the process for evaluating the performance of the board, its committees and individual directors.

Recommendation 2.6

• A description of the skills and experience of each director and their period of office;
• Details of the names of the directors considered to be independent and the reasons why they are independent;
• If any of the relationships set out in Box 2.1 apply and the director is still regarded as independent a statement explaining why a director is still considered to be independent;
• A statement whether or not there is a procedure in place for directors to take independent professional advice at the expense of the entity;
• Details of the names of members of the nomination committee and attendance at meetings;
• If the board has not established a nomination committee a statement as to how the functions of the nomination committee are performed;
• An explanation of whether an evaluation of the board, its committees and directors took place in the reporting period;
• If a performance evaluation of the board, its committees and the directors took place a statement as to whether it was in accordance with the process disclosed;
• A description of the procedure for the selection and appointment of new directors and re election of incumbents;
• A statement as to where a copy of the nomination committee charter or a summary is publicly available; and
• A description of the board's policy for the nomination and appointment of directors and details of where this information is publicly available.

Principle 3

• A statement that the entity has established a code of conduct as to the:
  
  • Practices necessary to maintain confidence in the company's integrity;
  • Practices necessary to take into account their legal obligations and the expectations of their stakeholders; and
  • Responsibility and accountability of individuals for reporting and investigating reports of unethical practices; and
• Disclosure of the terms of the code of conduct or a summary of the code of conduct in the annual report or a clear statement as to where the code of conduct is disclosed.

Recommendation 3.2

• A statement that the entity has established a policy concerning trading in the entity's securities by directors, senior executives and employees; and
• Disclosure of the terms of the trading policy or a summary of the trading policy in the annual report or a clear statement as to where the trading policy is located.

Recommendation 3.3

• A statement as to where the code of conduct or a summary is publicly available; and
• A statement as to where the trading policy or a summary is publicly available.

Principle 4

• A statement that the entity has established an audit committee.

Recommendation 4.2

• A detailed description of the composition of the audit committee including the names of the directors and whether they are independent or not.

Recommendation 4.3

• A statement that the entity has adopted an audit committee charter.

Recommendation 4.4

• Details of the names and qualifications of those appointed to the audit committee;
• If the board has not established a audit committee a statement as to how the functions of the audit committee are performed;
• Details of the number of meetings of the audit committee;
• A statement as to where a copy of the audit committee charter is publicly available; and
• A statement as to the procedures for the selection, appointment and rotation of external audit engagement partners.

Principle 5

• A statement that the entity has established written policies designed to ensure:
  
  • Compliance with ASX Listing Rule disclosure; and
  • Accountability at a senior executive level for that compliance; and
• Disclosure of the terms of the continuous disclosure policy or a summary of the policy in the annual report or a clear statement as to where the policy is disclosed.

Recommendation 5.2

• A statement as to where the continuous disclosure policy or a summary is publicly available.

Principle 6

• A statement that the entity has designed a communications policy:
  
  • For promoting effective communication with shareholders; and
  • Encouraging shareholder participation at AGMs; and
• Disclosure of the terms of the communications policy or a summary of the policy in the annual report or a clear statement as to where the policy is disclosed.

Recommendation 6.2

• A statement as to where the communications policy or a summary is publicly available.

Principle 7

• A statement that the entity has established policies for the oversight of material business risks;
• A statement that the entity has established policies for the management of material business risks; and
• Disclosure of the terms of the risk management policies or a summary of the policies in the annual report or a clear statement as to where the policies are disclosed.
• The categories of risk reported on or referred to in the annual report.

Recommendation 7.2

• A statement that the board has required management to design and implement a risk management and internal control system to manage the entity's material business risks;
• A statement that the board has required management to report to it on whether those risks are being managed effectively; and
• A statement that management has reported to the board as to effectiveness of the entity's management of its material business risks.

Recommendation 7.3

• A statement that the board has received assurance from the CEO and CFO that the s. 295A declaration is founded on a sound system of risk management and internal control, and that the system is operating effectively in all material respects in relation to financial risks.

Recommendation 7.4

• A statement that the board has received the report from management under Recommendation 7.2;
• A statement that the board has received assurance from the CEO and CFO under Recommendation 7.3; and
• A statement as to where the entity's policies on risk oversight and management of material business risks are publicly available.

Principle 8

• A statement that the entity has established a remuneration committee.

Recommendation 8.2

• A description of the structure of non-executive directors' remuneration and executive directors' and senior executives' remuneration in sufficient detail that the distinction is clear.

Recommendation 8.3

• Details of the names of the members of the remuneration committee and their attendance at meetings;
• If the board has not established a remuneration committee a statement as to how the functions of the remuneration committee are carried out;
• Details of the existence and terms of any schemes for retirement benefits other than superannuation, for non executive directors;
• A statement as to where a copy of the remuneration committee charter is publicly available;
• A statement as to where a summary of the entity's policy on prohibiting transactions in associated products which limit risk of participating in unvested entitlements under any equity based remuneration schemes is publicly available.