Reinforcing the supremacy of the Principles and Recommendations must be a priority
At Governance Institute of Australia, we are concerned that the draft 3rd edition of the ASX’s Corporate Governance Council’s Principles and Recommendations fails to reinforce the key principle underpinning the guidelines — the ‘if not, why not’ approach which has established the guidelines as the pre-eminent good governance template for listed companies in Australia.
In our submission to Council, we make the point that while there are many governance guidelines issued by multiple parties, none of these has been accepted as theguiding framework for governance by listed companies. Listed companies may take other governance guidelines into account, but their governance structures, policies and behaviours are geared to the Principles and Recommendations.
The success of the Principles and Recommendations lies not only in their acceptance that there is no ‘one-size-fits-all’ governance framework, but also in the fact that they meet the needs of investors seeking greater transparency and companies trying to tell their story.
In just 10 years the Principles and Recommendations have changed corporate behaviour fundamentally.
Companies and their boards are now held much more accountable for their stewardship of other people’s money. Today there is much greater transparency about how companies are governed and managed as a result of the accountability expectations that the guidelines enshrine.
In our submission, we also argued that the length of a directorship does not affect independence, pointing out that a quick review of the ASX50 shows that there is no firm threshold for when the length of a directorship affects independence. This is because a mindset that is open to new ideas is a central tenet of independence of judgment, rather than tenure. A director could be on a board for many years and retain independence, and another could join a board and not be independent from day one.
However, we are delighted with the recommendation that the independence of the company secretary be further enhanced by the role reporting directly to the chair. We would also like to see this supported by recognition that the board is responsible for monitoring the performance of the company secretary in their role as governance adviser to the board.
The board effectively only appoints two people — the CEO and the company secretary — and its responsibility in the review of the company secretary as governance adviser is important in maintaining the role’s independence.