Corporate Governance Principles and Recommendations

1 ASX Corporate Governance Council Corporate Governance Principles and Recommendations 3rd Edition ASX Corporate Governance Council Disclaimer Although Council members and their related bodies Corporate ( Council ) have made every effort to ensure the accuracy of the information as at the date of publication, the Council does not give any warranty or representation as to the accuracy, reliability or completeness of the information. To the extent permitted by law, the Council and their respective employees, officers and contractors shall not be liable for any loss or damage arising in any way, including by way of negligence, from or in connection with any information provided or omitted or from any one acting or refraining to act in reliance on this information.

2 Copyright 2014 ASX Corporate Governance Council. Actuaries Institute ACN 000 423 656, Association of Superannuation Funds of Australia, ACN 002. 786 290, Australian Council of Superannuation Investors, Australian Financial Markets Association ACN. 119 827 904, Australian Institute of Company Directors ACN 008 484 197, Australian Institute of Superannuation Trustees ACN 123 284 275, Australasian Investor Relations Association ACN 095 554. 153, Australian Shareholders' Association ACN 000 625 669, ASX ABN 98 008 624 691, Business Council of Australia ACN 008 483 216, CPA Australia ACN 008 392 452, Financial Services Council ACN 080 744 163, Financial Services Institute of Australasia ACN 066 027 389, Governance Institute of Australia ACN 008 615 950, Group of 100, Institute of Public Accountants ACN 004 130 643, The Institute of Chartered Accountants in Australia ARBN 084 642 571, The Institute of Internal Auditors - Australia ACN 001 797 557, Law Council of Australia ACN 005 260 622, Property Council of Australia ACN 008 474 422, Stockbrokers Association of Australia ACN 089 767 706.

3 All rights reserved 2014. Contents Foreword 2. About the Council 2. What is Corporate Governance ? 3. The purpose of the Principles and Recommendations 3. The basis of the Principles and Recommendations . the if not, why not' approach 3. The application of the Principles and Recommendations 4. The structure of the Principles and Recommendations 4. The linkage with ASX's Listing Rules 5. Where to make Corporate Governance disclosures 6. Disclosing the fact that a recommendation is followed 6. Disclosing the reasons for not following a recommendation 7. Effective date 7 1. Acknowledgments 7. Principle 1: Lay solid foundations for management and oversight 8. Principle 2: Structure the board to add value 14. Principle 3: Act ethically and responsibly 19.

4 Principle 4: Safeguard integrity in Corporate reporting 21. Principle 5: Make timely and balanced disclosure 24. Principle 6: Respect the rights of security holders 25. Principle 7: Recognise and manage risk 28. Principle 8: Remunerate fairly and responsibly 31. The application of the Recommendations to externally managed listed entities 35. Glossary 37. Foreword The ASX Corporate Governance Council Following a comprehensive review in 2012- Principles and Recommendations ( Principles 13, the 21 members of the ASX Corporate and Recommendations ) were introduced Governance Council ( Council ) agreed that in 2003. A substantially re-written second it was an appropriate time to issue a third edition was released in 2007 and new edition of the Principles and Recommendations .

5 Recommendations on diversity and the The changes in the third edition reflect global composition of the remuneration committee developments in Corporate Governance were added in 2010. since the second edition was published. The opportunity has also been taken to Since the release of the second edition in simplify the structure of the Principles and 2007, there has been considerable focus Recommendations and to afford greater across the world on Corporate Governance flexibility to listed entities in terms of where they practices in light of the events leading up make their Governance disclosures. to, and during, the Global Financial Crisis. In response, a number of jurisdictions have Alan Cameron AO. adopted new legislation regulating Corporate Chair, ASX Corporate Governance Council behaviour and/or upgraded their Corporate 27 March 2014.

6 Governance codes. About the Council 2. The Council was convened in August 2002. It Business Council of Australia brings together various business, shareholder CPA Australia and industry groups, each offering valuable insights and expertise on Governance issues Financial Services Council from the perspective of their particular Financial Services Institute of Australasia stakeholders. Its primary work has been the development of the Principles and Governance Institute of Australia Recommendations . Group of 100. The members of the Council are: Institute of Chartered Accountants Australia Actuaries Institute Institute of Internal Auditors - Australia Association of Superannuation Funds Institute of Public Accountants of Australia Law Council of Australia ASX.

7 Property Council of Australia Australasian Investor Relations Association Stockbrokers Association of Australia Australian Council of Superannuation Investors Further information about the Council, including Australian Financial Markets Association a copy of its charter, is available at: Australian Institute of Company Directors Australian Institute of Superannuation Trustees Australian Shareholders' Association What is Corporate Governance ? The phrase Corporate Governance describes Good Corporate Governance promotes investor the framework of rules, relationships, systems confidence, which is crucial to the ability of and processes within and by which authority is entities listed on the ASX to compete for exercised and controlled within corporations.

8 Capital. It encompasses the mechanisms by which companies, and those in control, are held to account. 1. The purpose of the Principles and Recommendations These Principles and Recommendations set The Council recognises, however, that different out recommended Corporate Governance entities may legitimately adopt different practices for entities listed on the ASX that, Governance practices, based on a range of in the Council's view, are likely to achieve good factors, including their size, complexity, history Governance outcomes and meet the reasonable and Corporate culture. For that reason, the expectations of most investors in most Principles and Recommendations are not situations. mandatory and do not seek to prescribe the Corporate Governance practices that a listed entity must adopt.

9 3. The basis of the Principles and Recommendations . the if not, why not approach Which Governance practices a listed entity information about the entity's Governance chooses to adopt is fundamentally a matter arrangements so that: for its board of directors, the body charged security holders and other stakeholders with the legal responsibility for managing its in the investment community can have a business with due care and diligence2 and meaningful dialogue with the board and therefore for ensuring that it has appropriate management on Governance matters;. Governance arrangements in place. security holders can factor that information Under the Principles and Recommendations , into their decision on how to vote on if the board of a listed entity considers that a particular resolutions; and Council recommendation is not appropriate to investors can factor that information into its particular circumstances, it is entitled not to their decision on whether or not to invest in adopt it.

10 If it does so, however, it must explain the entity's securities. why it has not adopted the recommendation . the if not, why not approach. The if not, why not approach is fundamental to the operation of the Principles and Requiring this explanation ensures that the Recommendations . market receives an appropriate level of 1 Justice Owen in the HIH Royal Commission, The Failure of HIH Insurance Volume 1: A Corporate Collapse and Its Lessons, Commonwealth of Australia, April 2003 at page xxxiv. 2 Sections 180 (in the case of a listed company) and 601FD(1)(b) (in the case of a listed trust) of the Corporations Act. The application of the Principles and Recommendations The Principles and Recommendations apply to entities should apply and make disclosures all ASX listed entities, regardless of the legal against the Recommendations .