LIC Governance Spotlight: 4th edition of the Corporate Governance Principles and Recommendations (New) – Part 2

27 Jun 2018

In this update, we examine Part 2 of the proposed changes to the existing principles and recommendations to the ASX’s Corporate Governance Council’s 4th edition of the Corporate Governance Principles and Recommendations as they relate to a Listed Investment Company (LIC). The new principles and recommendations can significantly impact a LIC’s governance & operations framework.


ASX Listing Rule 4.10.3 requires LICs to provide a Corporate Governance Statement which must disclose the extent to which the LIC has followed the principles and recommendations set by the ASX Corporate Governance Council (Council). In the event a LIC has not followed the recommendations detailed by the Council, it must detail ‘why not’.

On 2 May 2018, the Council released a consultation paper seeking input on proposals to update and issue a new edition of its Corporate Governance Principles and Recommendations (Principles and Recommendations). It is proposed that the number of recommendations be expanded from 29 to 38.

The Council’s complete consultation package is available here.

Part 1 of this Update is available here. It was released in May and details a high-level review of the proposed new Principles and Recommendations and its impact on LICs. This paper will consider the proposed changes to the existing Principles and Recommendations not covered in Part 1. The new Principles and Recommendations are expected to be released in early calendar 2019 and is expected to come into effect for a listed entity’s first full financial year commencing on or after 1 July 2019.

Proposed changes to existing Principles and Recommendations

The proposed changes to the existing Principles and Recommendations are detailed below:

Recommendation 1.1: a listed entity should have a board charter.

Recommendation 1.2: a listed entity should undertake background checks on senior executives before engaging them. As LICs do not typically have senior executives, this may not apply to LICs.

Recommendation 1.5: a listed entity should:

  • disclose its diversity policy in full;
  • have measurable objectives for achieving gender diversity in the composition of its senior executive team, workforce and board; and
  • have a measurable objective of at least 30% of each gender on its board if the listed entity is in the S&P / ASX300 index by a specified date.

Recommendation 1.6 and 1.7: a listed entity should have annual board and management performance reviews.

Recommendation 2.3: the references to “associations” be revised to “affiliations”. The proposed commentary to this recommendation also focuses on “personal relationships” to capture family, friendship or other social or business connections and proposes that directors who are receiving performance based remuneration should not be considered independent.

Recommendation 2.6: a listed entity should have programmes that periodically review whether existing directors have the skills, knowledge, and experience to deal with new and emerging business and governance issues.

Recommendation 6.2: a listed entity should have an investor relations program that facilitates effective two-way communication to investors. The proposed commentary to this recommendation outlines that a listed entity should seek opportunities to engage with retail investors and understand matters of concern or interest to smaller investors.

Recommendation 6.3: a listed entity should disclose how it facilitates and encourages participation at meetings of security holders. The proposed commentary to this recommendation outlines this can be achieved by choosing a venue that is reasonably accessible to security holders or utilising technology to facilitate participation of security holders.

Recommendation 7.2: a listed entity should ensure that it is operating with due regard to the risk appetite set by the board.

Recommendation 7.4: the reference to “economic, environmental and social sustainability risks” be revised to “environmental and social risks”. As LICs have very few or no employees, they do not have direct material exposure to environmental and/or social risks. However, LICs may have exposure indirectly through its investment portfolio and the Investment Manager or Investment Committee (as applicable) should consider, whether an LIC should amend its investment guidelines to include environmental and social impacts of the companies that it invests in.

This update is prepared by the Company Secretarial Team at Boardroom Pty Limited. The update is designed to provide general information and is not designed to replace legal or tax advice or a detailed review of the subject matter nor is it intended to cover all circumstances.

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Contact BoardRoom for more information:

Tom Bloomfield

General Manager, Growth & Partnerships
+61 2 9290 9617