Directors and company secretaries are expected to take a more active role in establishing effective risk management practices in their companies under the Third Edition of the ASX Corporate Governance Principles and Recommendations. The independence of directors also appears to be measured to a higher standard.

Under the Third Edition:

  • Risk management: directors are encouraged to take a more active role in evaluating and adapting existing risk management systems, to ensure that business risks are being effectively managed.

    The Corporate Governance Council (CGC) recommends that entities form specific risk management committees, comprising a majority of independent directors (including the chair) and at least 3 members with appropriate technical and industry knowledge (Recommendation 7.1).

  • Role of Company Secretary: the importance of the company secretary in supporting directors to effectively discharge their governance duties and obligations is highlighted.

    The CGC recommends that the company secretary be accountable directly to the board on “all matters to do with the proper functioning of the board” (Recommendation 1.4).

    The CGC observes that the role of the company secretary should include:

    • advising the board and its committees on governance matters;
    • monitoring board policy and procedures to ensure they are followed; and
    • ensuring that the business at board and committee meetings is accurately minuted.
  • Director independence: the recommendations appear to reflect a higher and more objective standard of director independence.

    An independent director must be free of any interests and associations that may or may be perceived to “influence”, in a material respect, his/her capacity to bring independent judgment.

    The CGC suggests that entities regularly assess whether a director has become too close to management to be independent, particularly where his/her tenure exceeds 10 years.

    There is now an express recommendation that listed entities disclose the names of their independent directors, including an explanation as to why those directors are considered independent (Recommendation 2.3).

The Third Edition will apply to ASX-listed entities from their first full financial year commencing on or after 1 July 2014, but entities may (and are encouraged to) opt-in earlier if they choose.

For a more detailed discussion of the changes raised in this article, please click here

Certain amendments to governance-related ASX Listing Rules have also come into effect from 1 July 2014