2019 Governance Institute Award
July 24, 2019

Corporate Snapshot – October 2019

The Board and Organisational Culture

Effective governance identifies culture as an important element of creating sustainable value. As part of their overall stewardship and oversight of the organisation, directors must take a proactive approach to understanding and assessing the culture in their organisation and work with management to take advantage of opportunities and lead-change where necessary.

The Australian Institute of Company Directors has launched a practical tool to help directors govern organisational culture. It provides a framework for understanding the formal and informal drivers of culture and how to influence both. Get the tool here.


ASX News

Ramping

The ASX has seen examples of listed entities making market announcements it suspects are designed to ‘ramp’ the price of the security rather than to inform the market. The ASX is warning all listed companies that if it detects what it suspects to be a ‘ramping’ announcement, it will not hesitate to suspend the entity and issue a query letter. The ASX reminds all listed entities of the guidance in ASX Compliance Update no 02/18 dated 15 March 2018 about disclosure of customer contracts.

Loyalty, Bonus or Reward Securities

There has been an increase in listed entities issuing ‘loyalty’ securities, usually intended to reward security holders who participate in an issue of securities for their loyalty in holding those securities for a given period. These may conflict with the requirements of Listing Rule 6.1 and Listing Rule 12.5.

Securities in listed entities are expected to be freely trade-able. The ASX recommends listed entities proposing to issue a ‘loyalty” (or similar) securities to first apply to the ASX for in-principle advice that the terms of the securities will satisfy Listing Rules requirements.


ASIC News

Updated Guidance on Climate Change Disclosure

ASIC has updated its regulatory guidance to the disclosure of climate change-related risks and opportunities. This follows the publication of ASIC Report 593: Climate Risk Disclosure by Australia’s Listed Companies, which recommended, among other things that companies and directors:

  • adopt a proactive approach to emerging risks, including climate risk;
  • develop and maintain strong and effective corporate governance to identify, assess and manage risk;
  • comply with the law where it requires disclosure of material risks; and
  • disclose meaningful and useful climate risk-related information to investors – the voluntary framework developed by the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) has emerged as the preferred standard and ASIC strongly encourages listed companies with material exposure to climate change to consider reporting voluntarily under the TCFD framework.

ASIC has made it clear that climate change is an area of ongoing focus.

 

Boards cannot afford to ignore oversight of non-financial risks

ASIC’s report Director and Officer oversight of non-financial risk found the boards reviewed were challenged by important elements of non-financial risk management and their oversight of these risks was less mature than required. The report concluded that boards:

  • need to actively hold management to account for operating within board-approved risk appetite;
  • need to take ownership of the form and content of the information they receive from management so they can adequately oversee the management of material risks;
  • should require reporting from management that prioritises non-financial risks; and
  • should ensure risk committee meetings are held more regularly and devote enough time to be actively engaged and oversee material risks in a timely and effective manner.

Improving Remuneration Policies

Remuneration practices are a major driver of organisational culture and behaviours and the Board plays a key role in determining remuneration governance. Actions that Boards can take to improve remuneration policies include:

  • review and re-calibrate remuneration policies at least annually;
  • investigate the efficacy of reward practices;
  • determine how remuneration aligns with organisational culture, whether rewards policies are specific to individual teams and whether they underpin organisational values and creation of long-term value; and
  • design a remuneration program that moves away from short-term financial targets to one that addresses business strategy, identifies key value drivers and calibrates the targets to ensure a balance between shareholder interests and customer outcomes.

Read more.


Financial Fundamentals for NFP-Directors

Financial governance includes the response to reporting obligations, internal and external, and the consideration of critical financial issues and risks implicit in those processes. For NFP directors this means:

  • being aware of their regulatory reporting responsibilities and the need to present information for funding applications, funding acquittals and in response to requests for information;
  • being responsible for ensuring the NFP is solvent and pays its debts when they fall due. Significant penalties may apply for directors of NFPs that trade while insolvent; and
  • having an appropriate level of financial literacy, which is the ability to:
    • acquit formal legal and statutory obligations as they relate to financial matters, such as signing off on the annual financial reports;
    • monitor financial results to assess solvency and going concern;
    • balance risk mitigation (financial and non-financial) with the ability to drive their NFP’s financial performance by understanding the ‘story’ told by its financial reports; and
    • know when financial experts are required to assist with the above points.

The AICD has published Financial Fundamentals for Not-for-Profit Directors – a resource for NFP directors to develop their financial literacy. Other AICD resources for NFPs include Not-for-Profit Governance and Performance Study and other free resources to help NFPs understand and achieve good governance.

 


Sources of information: Australian Government; Australian Institute of Company Directors (AICD); Australian Securities and Investments Commission (ASIC); Australian Securities Exchange (ASX); Governance Institute of Australia (GIA).

Disclaimer: Mertons’ Corporate Snapshot is only intended to provide a general overview on matters of interest. It is not intended to be comprehensive and is not legal advice. We attempt to ensure that content is current but we do not guarantee its currency. You should seek legal and / or professional advice before acting or relying on any content.