The ASX Corporate Governance Council of the Australian Stock Exchange recently released the Third Edition of the ASX Corporate Governance Principles and Recommendations (ASX Principles) that entities listed on the stock exchange must comply with or explain why they don’t. We have highlighted the key changes below and also outlined why the ASX Principles have relevance to charities.
The updates to the ASX Principles have been drafted to help listed companies adapt to the new financial landscape in the wake of the 2008 Global Financial Crisis.
The changes include:
- recommendations that organisations review the independence of their directors annually to reflect changes in share holdings and relationships with executive management;
- allowing multi-national organisations’ CEOs/COOs to make completeness and accuracy declarations regarding the organisation’s records in any jurisdiction, meaning that overseas managers can lodge foreign declarations with the ASX;
- removing the recommendation to include clawbacks in executive employment contracts for performance-based remuneration;
- strong encouragement for organisations to complete a ‘Director Skills Matrix’ outlining the diversity of skills amongst its current board members and to identify areas in which the board is lacking expertise; and
- removal of the recommendation for an organisation’s board to assess specified business risks. The onus is now on the board itself to determine the greatest risks to the organisation and implement risk management strategies accordingly.
The revised Principles and their relevance to NFPs
Directors, members and other governing bodies of charities may well ask what relevance recommendations of the Stock Exchange have to their operations? The answer is that almost all of the ASX Principles provide useful guidance for the governance of any large charity.
In the listed environment, the ‘security holders’ are the shareholders who seek to benefit from participation in the company by receiving dividends and seeing the value of their shares increase. This is not the case with charities. However, most charities of any size will operate through a corporate structure with members controlling the composition of the board and with members and directors exercising similar respective powers that the shareholders and directors have in a for-profit company. Members of a charitable entity are not participating for their own benefit but to ensure that the charity succeeds, true to its charitable purpose. If the ASX Principles are read in this context, their applicability to most charities can readily be seen.
The ASX Principles seek to promote 8 central elements of good governance. There are 29 specific recommendations giving effect to those central elements. The 8 central principles and their relevance to charities are briefly considered in the following table:
Click here to view table.
More detail on the ASX Principles may be accessed here.
Boards of NFP entities have access to other resources to assist them in establishing and maintaining good governance of charities. In particular, Good Governance Principles and Guidance for NFP Organisations published by the Australian Institute of Company Directors on its website is very useful and may be accessed - click here.
Other material that smaller charities in particular may find useful is on the ACNC website.