Evolutionary not Revolutionary: Coming to grips with the 3 rd edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations Cathy Oster, General Counsel/ Joint Company Secretary, Beach Energy Justin Nelson, Special Counsel, DMAW Lawyers Adelaide – Thursday, 5 June 2014 © Governance Institute of Australia

Presentation outline Key points Principles – a refresher Key new recommendations Other new recommendations or enhancements Consequential ASX listing rule changes

Key points What has not changed Third edition maintains the non-prescriptive, flexible, “if not, why not” approach to disclosure Nine new substantive recommendations Greater flexibility to make governance disclosures via the website Effective date Early adoption

Principles – a refresher Principle 1 – Lay solid foundations for management and oversight Principle 2 – Structure the board to add value Principle 3 – Act ethically and responsibly Principle 4 – Safeguard integrity in corporate reporting Principle 5 – Make timely and balanced disclosure Principle 6 – Respect the rights of security holders Principle 7 – Recognise and manage risk Principle 8 – Remunerate fairly and responsibly

Key new recommendations Recommendation 1.2 A listed entity should:  undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director; and  provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director.

Key new recommendations  Practical issues:  consent to undertake checks;  what is an appropriate check – character, experience, education, criminal record, bankruptcy;  contrast requirement that a police check and bankruptcy search mandatory for directors in an application for listing on ASX;  material adverse information from checks to be disclosed.

Key new recommendations (cont.) Recommendation 1.3 A listed entity should have a written agreement with each director and senior executive setting out the terms of their appointment.  Practical issues:  key topics in a (letter) agreement for a NED: term, time commitment, committees, board specific policies, fee structure, disclosure of interests and conflicts of interest, D&O cover details, deed of indemnity, the right to information and access, the test of independence.

Key new recommendations (cont.) Recommendation 1.4 The company secretary of a listed entity should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board.  Practical issues:  update company secretary PD to align accountability;  update board charter where it includes the role of the company secretary.

Key new recommendations (cont.) Recommendation 2.2 A listed entity should have and disclose a board skills matrix setting out the mix of skills and diversity that the board currently has or is looking to achieve in its membership. Recommendation 2.6 A listed entity should have a program for inducting new directors and provide appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as directors effectively.

Key new recommendations (cont.)  Practical issues:  disclose specific skills and diversity but not linked to particular directors – not broad statements;  gender, location, nationality, tenure / industry knowledge, governance and regulatory matters, strategy, management and leadership, financial competence, public policy, risk management and HSE;  no disclosure of sensitive information;  understanding skills and any skills gaps can focus professional development program for directors.

Key new recommendations (cont.) Recommendations 7.1, 7.3 and Risk Highlight a heightened focus on risk management Recommendation 7.1 – The board of a listed entity should have a risk committee or explain how the board oversees the entity’s risk management framework. Recommendation 7.3 – A listed entity should disclose if it has an internal audit function. Recommendation 7.4 – A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks, and if it does, how it manages those risks.

Key new recommendations (cont.)  Practical issues:  sustainability – reflects increasing focus by stakeholders and proxy advisers on responsible business conduct;  can refer to a sustainability report to comply;  material exposure – real possibility of substantive impact to create/preserve value over short/medium/long term;  see ASIC RG 247 – operating and financial review also addresses this issue.

Other new recommendations Recommendation 4.3 – A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit. Recommendation 6.1 – A listed entity should provide information about itself and its governance to investors via its website. Recommendation 6.4 – A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically.

Consequential ASX listing rule changes Listing rule (corporate governance disclosures) amended to afford greater flexibility to listed entities to make their corporate governance disclosures either in their annual report or on their website; Listing rule 4.7 (entity to give ASX annual report) – amended to require a listed entity to lodge with ASX:  a completed Appendix 4G; and  if the entity chooses to include its CGS under listing rule on its website rather than in its annual report, a copy of the CGS, at the same time as it lodges its annual report with ASX.

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