Corporate Law Report: ASX Principles and Corporate Governance

This report provides a comprehensive overview of corporate law, with a specific focus on the principles and guidelines established by the Australian Securities Exchange (ASX). It delves into the significance of corporate governance, outlining its purpose, structure, and impact on companies. The report examines the 'if not, why not' approach adopted by the ASX, which promotes flexibility in corporate frameworks and the monitoring processes employed to ensure the implementation of corporate governance. It also explores the history and evolution of ASX governance principles, including changes to the 2014 edition, and the connection between listing rules and ASX principles. Furthermore, the report discusses disclosure requirements, corporate social responsibility, and the applicability of ASX principles to non-listed public companies, concluding with an assessment of the benefits of adhering to ASX guidelines for both listed and non-listed entities.

Running head: CORPORATE LAW
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Introduction:
Australian Securities exchange is a leading authority, which promoted the doable
guidelines for a company and tried to develop the base of the company. However, following
topics are essential to understand the credibility of ASX towards the successful establishment
of the company.
Corporate governance and its importance:
A company is directed and controlled by certain rules. These rules are governed by the
system of corporate governance. The main objective of the corporate governance is to make a
balance in between the various stakeholders and concentrates over the action plans and other
internal management system (Council and Exchange 2014). In a company, the Board of
Directors are the main driving source who is responsible for the activities of the company. On
the other hand, directors of the company are appointed by the shareholders. All the important
decisions of the company are taken by the company including the appointment of corporate
officers, making of dividend policies and optimise the financial segmentation. The
independent members of the company are playing an important role in case of corporate
governance. It has been observed that they are diluting the power of the shareholders and
helps to align other shareholders (dos Santos et al. 2016).
Considering the works done by the system, it can be stated that corporate
governance has created certain impacts on the company. It helps to set out certain transparent
rules for the company and controls the relation in between the shareholders and the directors.
It also helps to increase environmental awareness and configure the ethical behaviour that
should be maintained for the betterment of the company. Good corporate governance is

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necessary as the reliability and integrity of a company depends on the process of its operation
and the relation between shareholders and directors. Positive corporate governance motivates
the investors to allocate their money in the company.
Purpose and structure of the corporate governance as described by ASX:
Australian Securities Exchange has recommended certain guidelines for the
betterment of company. The main purpose of the guidelines is to set out the corporate
performances and take reasonable steps for securing the interest of the shareholders.
However, the companies have a power to quash the recommendation proposed by ASX if
they think that the recommendation is not proper. However, in those cases, the company has
to explain the reason for non-accepting the recommendation. The principles and
recommendations provided by ASX motivate a company to have focus on the process of
corporate performance (Shimeld, Williams and Shimeld 2017).
The structure of the recommendations relating to corporate governance is based on
eight principles. Australian Securities Exchange has suggested forming an entity that will be
responsible for the management works of the company and the entity should perform in an
effective manner. Several companies are enlisted under ASX and the entities should operate
ethical behaviour. All the listed entities should have to act independently but integrity must
be maintained by them. All the company related disclosures should have to make by the
companies on time and the rights of the security holders must be protected. Every enlisted
company should have to maintain a risk management framework to deal with the future risks
(Adams and Borsellino 2015).

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‘If not, why not’ approach:
The main aim of the principles on corporate governance made by Australian
Securities Exchange is to develop the basis of the companies so that they can implement
reasonable corporate framework for the betterment of the company. However, it has been
observed in certain circumstances that the all the recommendations made by the ASX are not
maintained by the company. In these case, ASX council are adopting the “if not, why not”
approach. According to the approach, ASX will identify the recommendations that are not
maintained by the company and will attempt to know the reason for making such decision of
non-maintaining the recommendation by the companies. The companies should have to show
the causes and according to ASX, this approach can bring a flexible structure within a
company and the possibility of genuine governance can be enhanced. This approach is
applied on every company that are enlisted under the Australian Securities Exchange and this
system allows amending the recommendations to certain extent. The base of the approach is
quite liberal and if any company, other than the ASX listed companies, found the
effectiveness of the approach can adopt the same and apply on their company related
operations.
Monitoring process of ASX regarding implementation of corporate governance:
Good corporate governance can make a company reliable and assists to create a
positive relationship in between the stakeholders. Australian Securities Exchange is helping
the companies to develop their base and promotes certain guidelines for the betterment of the
company. Certain obligations are imposed on the companies by ASX through code of
conduct and in case of failure to follow the rules; ASX can take disciplinary actions against
the alleged company (Nottage and Aoun 2017). ASX is monitoring the implementation of
corporate governance through these obligations. It has been stated by ASX that all the

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operations of the company should be based on honesty and fairness. All the company related
laws should have to be applied for the company affairs and the code of conducts are to be
maintained by every company. Each enlisted company is required not to participate in any
program that contradicts the policy of ASX. All the properties and information of third party
should not be used by the companies. Every company should oversee the risks and annual
report for the risk implementation process should be submitted by the companies. All these
processes will help to develop a liberal company rules and the interest of the companies can
be protected by following these rules.
History and the evolution of the ASX Governance Principles for changes to the current
edition 2014:
All the corporate governance principles taken by ASX have resulted into a good
communicative approach and all the principles suggested by ASX have created good impacts
on the Australian society. The third edition of the principles and recommendations by ASX
are considered as latest evolution (Exchange 2014). All the corporate governance plans of
ASX has helped the enlisted companies to avoid the financial crisis in Australia and certain
new requirements become necessary to be included under the principle and recommendation
of ASX. It has been recommended in the third edition that every company should disclose
their internal audit function and the social and environmental sustainability risks are to be
assessed properly by the company.
The third edition 2014 has concentrated over the eight structural principles of the
recommendation. All the rules are to be imposed and applied by the ASX on step-by-step
process and additional layers are avoided in this case. The “if not, why not” approach was
developed at this stage and it has been observed that the security holders are given power to
communicate with the Board on governance matter. Certain guidelines have been prescribed

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for security holders regarding their vote casting and the investor can choose the company
freely. The third edition has concentrated over the appointment of the directors and provision
for checking the background of the directors before their appointments have been mentioned
too. It also encompasses certain guidelines for the evaluating the performance of the senior
executives.
Connection between listing rules and ASX principles:
Listing rules are certain standards that a listed company should have to follow for
selling its shares and securities. In Australia, the Security Exchange has also provided certain
guidelines for the listed companies for the financial evolution of the companies and
prescribed certain provisions for exchanging the shares and securities of the company. There
are twenty listing rules prescribed by the ASX. The listing rules are helping the company and
its investors to maintain their marketing reputation. According to Wilkinson, the subsequent
changes in listing rules have sharpen the credibility of these rules (Wilkinson 2014). The
listing rules are also helped the companies to combat the international competitiveness and
provide certain facilities by capital rising.
The principles of the ASX are also imposed on the listed companies and sort out
certain guidelines for the management of the company. These principles are also intended to
develop the base of the company so that the investors can find it reliable enough to invest
their money (Barnes and Howson 2017). It brings clarity in the company policies. Therefore,
it has been observed that both the principles and the listing rules are imposed on the enlisted
companies of ASX. Further, both the matters are intended to develop the corporate
governance of a company. Hence, both the matters are inter-related to each other.

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Possible source for making disclosures:
In its principle and recommendation section, Australian Security Exchange has stated
that the enlisted companies are bound to disclose certain things to the investors and to the
ASX. It has been quoted by ASX that “aware of any information concerning the enlisted
banks that a reasonable person would expect to have a material effect on the price or value of
the entity’s securities” (Holub and Mitchell 2017). The information can be related to number
of developments, whether internal or external; effect of product market concern; amendment
in the asset valuation along with possible liabilities. If the company is under litigation, it
should also be disclosed. It is mandatory for the enlisted companies to submit financial report
to the Australian Securities and Investment Commission.
Corporate social responsibility and ASX:
In the financial market of Australia, ASX plays an important role. The rules and
process of ASX has evidenced a huge success during the financial crisis in Australia. All the
guidelines stated by ASX have able to unite all companies and proper discipline has been
maintained regarding this (McMullen and Chung 2017). The main object of ASX is to
develop the base of the companies and it is able to achieve its goal to certain extent.
Corporate social responsibility is a vital part that ensures the credibility of a company and
codified guidelines are needed to handle this part properly. Therefore, this chapter should be
included under the list of governance of ASX. The Board should monitor the environmental
and social risks and liability of the company in these cases. The Board may promote the part
through its risk management framework. A proper strategy on the corporal responsibility
could lead the company to have certain impacts on the society (Ferguson and Clee 2016).
Further, corporate social responsibility will provide the company recognition of well

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managed entity that will help to attract the investors to allot their capital in it. Therefore, the
corporate social responsibility should be delegated to Australian Security Exchange.
ASX principles and non-listed public companies:
All the principles and guidelines promoted by ASX are mandatory for the enlisted
companies in Australia. However, a non-listed company can also follow the guidelines
generated by ASX. However, those guidelines are not mandatory for them. During the
financial crisis, it has been observed that many non-listed companies had followed the
guidelines of ASX and benefitted from these (Lewis 2017). Therefore, all the principles of
ASX can be followed by non-listed companies in Australia.
Conclusion:
To sum up, it can be advised that the principles and guidelines of ASX are quite
liberal and it helps to develop the base of the companies. The approaches made by the
authority have helped to develop integrity within the company and all the amendments made
by the Australian Security Exchange regarding the principles have liberalized the framework
of the companies. Additionally, it has generated certain guidance to the non-listed companies
too. The nature of the guidelines is legal and the effectiveness of those principles is also
worth seeing. All the amendments made by the authority are for the sake of developments.
Therefore, considering all the above noted topics, it can be stated that the guidelines
generated by ASX are quite liberal and the listed as well as non-listed companies are quite
benefitted from those guidelines.

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Reference:
Adams, M.A. and Borsellino, G., 2015. The unspoken reality of diversity on
boards. Governance Directions, 67(2), p.78.
Barnes, L. and Howson, K., 2017. Board Governance in the Not-for-Profit Sector: The"
GOLDEN" Rule Model for Recruitment and Retention of Voluntary Boards of Directors.
Council, A.C.G. and Exchange, A.S., 2014. Corporate governance principles and
recommendations . ASX Corporate Governance Council.
Cunningham, M., 2015. ASX update: The emerging tech bourse. Company Director, 31(5),
p.12.
dos Santos, M.A., Santos, M.S., Tura, B.R., Félix, R., Brito, A.S.X. and De Lorenzo, A.,
2016. Budget impact of applying appropriateness criteria for myocardial perfusion
scintigraphy: The perspective of a developing country. Journal of Nuclear Cardiology, 23(5),
pp.1160-1165.
Exchange, A.S., 2014. Corporate Governance Principles and Recommendations . Sydney:
ASX Corporate Governance Council, 27 March.
Ferguson, R. and Clee, K., 2016. The terms of your placement agreement are
paramount. Governance Directions, 68(4), p.238.
Holub, M. and Mitchell, J., 2017. Overseas Buybacks on the ASX: Disclosure Requirements
and Signalling Impact. AUSTRALIAN BUSINESS LAW REVIEW, 45(1), pp.28-60.
Lewis, K., 2017. The regulatory perspective: ASX consults on reverse takeovers rule
amendments. Governance Directions, 69(4), p.201.

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McMullen, A.L. and Chung, W., 2017. Not all barrels are created equal: understanding the
difference between standards of regulatory disclosure can impact your investment
decisions. The APPEA Journal, 57(2), pp.506-510.
Nottage, L.R. and Aoun, F., 2017. Corporate Governance, Corporate Responsibility and Law:
Independent Director Requirements in Australia and the Asian Region.
Shimeld, S., Williams, B. and Shimeld, J., 2017. Diversity ASX Corporate Governance
Recommendations: A step towards change?. Sustainability Accounting, Management and
Policy Journal, 8(3).
Wilkinson, S., 2014. Key changes to proposed ASX listing rules. Governance
Directions, 66(4), p.223.