ASIC’s review of corporate governance

As the principal corporate regulator, ASIC is very much in ‘the disclosure business’, keenly aware of the importance of timely, accurate information. It is the lifeblood of our financial markets, just as it also plays a critical role in ensuring investors and consumers’ interests are sufficiently protected. Which is why it has been disappointing to see the inaccurate commentary on ASIC’s review of corporate governance.

Here are the facts. As part of this review, announced in August 2018, ASIC established the Corporate Governance Taskforce to carry out a broad assessment of the corporate governance practices of ASX100 companies.

The work of ASIC’s Corporate Governance Taskforce is designed to shine a light on ‘good’ and ‘bad’ practices observed across the corporate environment, with two specific workstreams identified so far:

• director and officer oversight of non-financial risk; and
• executive remuneration, which is a clear driver of conduct.

Within this broader review, the Corporate Governance Taskforce engaged an expert in organisational culture and risk behaviour to assess how behavioural factors might enhance or inhibit the effectiveness of boards.

The behavioural expert observed five board meetings and three board committee meetings in total. No further observations were planned, or occurred, and there are no plans for the expert to be ‘embedded’ in boards, or to have other companies’ deliberations monitored by an external observer. This behavioural analysis also included interviews and written surveys.

All observations and interviews by the behavioural expert with directors were conducted on a voluntary basis. Those companies and directors embraced the exercise in the spirit in which it was intended – as a worthwhile initiative to shed light on how boards and companies function in the current environment.

This initiative is not new. The behavioural review approach has been adopted by other foreign regulators, including De Nederlandsche Bank (Dutch Central Bank), which incorporates behavioural assessments of boards into its supervisory approach. It is worth noting that no ASIC staff were present at any of the board observations by the behavioural expert.

It is important to retain a sense of proportion and perspective. The broader governance review conducted solely by ASIC staff involved 21 listed companies drawn from the ASX100, including eight financial services companies. The review was designed to gain the views of companies of various sectors and scale. As part of that analysis, the Corporate Governance Taskforce reviewed a substantial number of documents and conducted 97 interviews with company directors, officers and managers.

ASIC intends to publish reports later this year on the non-financial risk oversight and remuneration aspects of its review.

The Taskforce’s review of corporate governance forms an important part of ASIC’s enhanced approach to supervision, which includes the Close and Continuous Monitoring program for large financial institutions. Visit asic.gov.au to find out more.