In this article, senior associate Kristy McCluskey discusses the fourth edition of the ASX Corporate Governance Principles and Recommendations, particularly the amendments to Principle 3 which deals with corporate culture.
Released in February this year after extensive consultation, the fourth edition takes effect for an entity's first full financial year commencing on or after 1 January 2020.
The Principles and Recommendations set out corporate governance practices the ASX Corporate Governance Council recommends ASX-listed entities follow to facilitate good corporate governance outcomes. The fourth edition incorporates most of the revised principles and recommendations contained in the consultation draft. While the Principles and Recommendations are not mandatory, listed entities are required to benchmark their corporate governance practices against the Principles and Recommendations on an "if not, why not" basis.
Importantly, Principle 3—Instil a culture of acting lawfully, ethically and responsibly has been substantially re-written from the consultation draft, following an overwhelming response during the consultation period.
The consultation draft proposed that entities elect to be "a good corporate citizen" and required them to "instil and continually reinforce a culture ... of acting lawfully, ethically and in a socially responsible manner". Submissions warned against attempts to prescribe corporate culture and concepts such as a "social licence to operate".
While investor groups supported the concept of "social licence to operate", other submissions were "troubled by the term", arguing "it is vague, subjective and elastic".
References to "social responsibility" and "social licence to operate" do not appear in the latest edition and have instead been replaced with references to "reputation" and "standing in the community". The Council has stated that these terms are synonymous with "social licence to operate" and are "more likely to be better understood and therefore more consistently applied by listed entities, their boards and other stakeholders".
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