Click here to hear audio.
Kristy Dixon, Partner at Addisons, joins us to discuss the ASX consultation paper outlining new corporate governance principles and consequential changes to listing rules. Kristy welcome to BRR Media.
So Kristy this consultation paper will be the third edition released since 2003, why the review?
That's right Jacqui the first version of the Principles and Recommendations was released in 2003, the Council conducted a major review in 2007 that was a general review to ensure that the document remained relevant it was followed by a small review in 2010 which incorporated some diversity principles and an update to the Remuneration Committee recommendation. But this review which was determined to be conducted by the Council late last year basically the motivation around it is to incorporate the perceived lessons from the GFC into the Principles and Recommendations which basically means a particular focus on risk.
So you said that there is a focus on risk and there also seems to be a focus on sustainability risks, why is this and what are the main changes in this area?
Yeah that's right in addition to the sort of GFC risk assessment, the Council has also looked to the increasing attention that's been given by the investment community both locally and internationally to environmental and social sustainability issues. The importance of this issue to the listed entities as the Council sees it from a corporate governance point of view it's not about imposing some sort of ethical standard on those listed entities, that's not the role of corporate governance, but that the position an entity takes with respect to environmental and social sustainability it may raise investment risks; for example the ASX has been giving road shows around the country talking about what's being raised in these updates, and they give an example of a Green Peace ad that was put out raising concerns about a company supplying palm oil to Nestle for its Kit Kats, and it raised concerns about the environmental damage caused by that company to rainforests. That advertising campaign went viral and they were pointing out that that can have a major financial impact on a company, both in terms of the reaction of its customers, but also investors and that these issues are becoming more important to investors. So on that basis the updated principles and recommendations include a recommendation that a listed entity disclose whether, and if so how, it has regard to economic, environmental and social sustainability risks.
Definitely an important area for businesses and their investors. So I'm sure they all want to know when will the new corporate Governance Principles and Listing Rules take effect, and what will they mean for business?
Sure. The draft edition put out by the Council came out in August; it's still subject to consultation that closes mid November. That also applies to the consequential changes that are proposed to the ASX Listing Rules. Once that closes for submissions the Council has indicated that they'll try to get out a final version of the Third Edition during the first calendar quarter of 2014, similarly the Listing Rule changes should be finalised by the end of this year. If that time frame is achieved then that means the new edition will take effect from the first financial year of each listed company commencing on or after 1 July 2014. What that means is if you're a listed entity with a 30 June balance date then the newer version will apply for your financial year 1 July to 30 June 2015. There are other changes to the Listing Rules that may take effect earlier than that but these main areas around risk and sustainability issue that will be the first time that those companies will need to report against that recommendation.
Definitely an important space to watch for businesses. Kristy thank you so much for joining us at BRR.
More than welcome, thanks Jacqui.
That was Kristy Dixon, Partner at Addisons. Listeners if you have any questions for Kristy you can send them through either using the panel on your screen or send an email to [email protected]