Boards are under continuous pressure to show that they are committed to best practice and early adoption of the updated Principles and Recommendations provides a platform for organisations to demonstrate this.
In these last weeks of the reporting season for those ASX listed entities with a 30 June balance date, it will be interesting to see how many more entities will choose to adopt early, and report against, the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations 4th Edition.
ASX listed entities with a 30 June balance date are only expected to measure their governance practices against the 4th edition of the Principles and Recommendations commencing with the financial year beginning 1 July 2020 and ending 30 June 2021. However, the ASX encourages the early adoption of the updated recommendations, and for this purpose, has made available an updated and editable Appendix 4G that references the updated recommendations.
It is not surprising to see boards adopt the updated Principles and Recommendations earlier than necessary. Boards are under continuous pressure to show that they are committed to best practice, and that their organisation meets, and reflects, the broader community expectation that the organisation’s corporate culture reinforces lawful, ethical and responsible behaviour across all levels of its reporting lines. This is one of the key amendments to the updated Principles and Recommendations, and early adoption provides a visible platform for organisations to demonstrate this.
What eventually became a less controversial change to the Principles and Recommendations, Principle 3 now requires a listed entity to instil a culture of acting lawfully, ethically and responsibly – it focuses on an organisation’s values; its reputation and standing in the community. This replaced the originally proposed concept of a “social licence to operate” which saw heated debate during the ASX’s public consultation process on the proposed changes to the Principles and Recommendations.
Specifically, Recommendation 3.1 requires that a listed entity should articulate and disclose its values – these are the meaningful statements that define what is core to the organisation and how it is to conduct itself. The requirement to articulate a statement of values is in addition to the requirement to produce a code of conduct – the subject of Recommendation 3.2.
The updated Principles and Recommendations then require that certain policies, specifically, the diversity policy and the whistleblower policy, be linked to the statement of values. These policies are deliberately highlighted by the ASX as they speak to an organisation’s “corporate culture” – briefly, these policies are meant to highlight the extent of an organisation’s diversity of representation and thought, and its culture of speaking up without fear. These are core to assessing “good” corporate culture.
It is not yet clear as to what the ASX’s expectations are in respect of organisations articulating a separate statement of values. For many ASX listed entities their code of conduct already provides a statement of values, although often in the form of a succinct paragraph and sometimes in bullet points. In any case, the code of conduct acts as the summary of the organisation’s key policies and the behavioural expectations of its people in abiding by those policies. However, no doubt there is expectation that a separate statement of values will provide greater insight into the organisation’s cultural makeup.