ASX-listed entity board independence + composition (CGC Principle 2)
ASX entities should have majority-independent boards + clear board charter.
Who must comply
Entities admitted to the ASX official list as an ASX Listing. ASX Debt Listings and ASX Foreign Exempt Listings are outside Listing Rule 4.10.3 (Guidance Note 9).
What triggers it
Being an ASX Listing at any time during a reporting period. The board decides whether to adopt each Principle 2 recommendation; if it does not follow one for any part of the period, it must say so and give its reasons and any alternative practice adopted.
When due
Each reporting period. The corporate governance statement (or the URL where it is published) goes in the annual report, must be current at the balance date or a later date the entity specifies, and must be approved by the board. An Appendix 4G is lodged with ASX at the same time as the annual report.
Evidence required
Board-approved corporate governance statement and Appendix 4G; nomination committee charter, membership and meeting attendance; board skills matrix; independence assessments of each non-executive director against the Box 2.3 factors, made at least annually; record of each director's length of service; director induction and professional development records.
Max penalty
No penalty attaches to departing from a Principle 2 recommendation, provided the departure and reasons are disclosed. Failing to give the corporate governance statement or Appendix 4G required by Listing Rules 4.10.3 and 4.7.3 is a breach of the Listing Rules, which ASX enforces under its compliance and enforcement practices
Who must comply with this? The applicability test by industry, business structure and size.
Summary
Principle 2 of the Corporate Governance Principles and Recommendations (fourth edition, February 2019) asks a listed entity to structure its board to be effective and add value. Its recommendations are that a majority of the board be independent directors (2.4); that the chair be an independent director and not the same person as the CEO (2.5); that the entity have a nomination committee of at least three members, a majority independent and chaired by an independent director, or explain its alternative processes (2.1); that it disclose a board skills matrix (2.2); that it disclose which directors it considers independent and each director's length of service (2.3); and that it run induction and professional development for directors (2.6). The recommendations are not mandatory: Listing Rule 4.10.3 requires each entity to report against them on an 'if not, why not' basis.
Enforced by
Entity types
Topics
Related
- CWLTHMaintain insider trading policy + share trading window (listed entities)ASX Listing Rule 12.12 requires written policy on directors + senior managers trading entity securities.
- CWLTHApply 'if not why not' against ASX Corporate Governance Council Principles & Recommendations (4th ed)ASX-listed entities must disclose against 8 Principles + 38 Recommendations annually.
- CWLTHComply with ASX continuous disclosure (Listing Rule 3.1)Listed entities must immediately disclose price-sensitive information to the market.
- CWLTHTwo-strikes rule on listed-company remuneration report (s 250R)If a remuneration report attracts 25%+ no votes twice running, a spill resolution must be considered.
Frequently asked questions
- Who must comply with ASX-listed entity board independence + composition (CGC Principle 2)?
- Entities admitted to the ASX official list as an ASX Listing. ASX Debt Listings and ASX Foreign Exempt Listings are outside Listing Rule 4.10.3 (Guidance Note 9).
- What triggers ASX-listed entity board independence + composition (CGC Principle 2)?
- Being an ASX Listing at any time during a reporting period. The board decides whether to adopt each Principle 2 recommendation; if it does not follow one for any part of the period, it must say so and give its reasons and any alternative practice adopted.
- When is ASX-listed entity board independence + composition (CGC Principle 2) due?
- Each reporting period. The corporate governance statement (or the URL where it is published) goes in the annual report, must be current at the balance date or a later date the entity specifies, and must be approved by the board. An Appendix 4G is lodged with ASX at the same time as the annual report.
- What is the maximum penalty for ASX-listed entity board independence + composition (CGC Principle 2)?
- No penalty attaches to departing from a Principle 2 recommendation, provided the departure and reasons are disclosed. Failing to give the corporate governance statement or Appendix 4G required by Listing Rules 4.10.3 and 4.7.3 is a breach of the Listing Rules, which ASX enforces under its compliance and enforcement practices
- What evidence is required for ASX-listed entity board independence + composition (CGC Principle 2)?
- Board-approved corporate governance statement and Appendix 4G; nomination committee charter, membership and meeting attendance; board skills matrix; independence assessments of each non-executive director against the Box 2.3 factors, made at least annually; record of each director's length of service; director induction and professional development records.
Source: https://www.asx.com.au/about/regulation/corporate-governance-principles-and-recommendations. Rules Mate is not a law firm. Always verify against the live regulator source before acting.