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ASX Director Background Checking

Background to the ASX requirements

The new Australian Securities Exchange (ASX) Corporate Governance Principles and Recommendations (CGPR) 3rd edition 2014 took effect on 1 July 2014 and apply for a listed entity’s first full financial year commencing on or after this date.

According to the ASX, if you have a 30 June 2014 balance date, you must adhere to the new ASX CGPRs until the second half of 2015 and report any non-compliance.

Overall, the reporting requirements mean that all listed entities should be taking practical steps in order to adhere to with the new ASX CGPR if it wants to be in a position to report compliance.

Corporate Governance Principles & Recommendations

According to the ASX Corporate Governance Council, the term “Corporate Governance” refers to:

“the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled within corporations”.

The recommendations in the CGPR have the intention of setting out clear corporate governance practices for entities listed on the ASX. Should they comply, the Council believes the entity will attain good governance outcomes and meet the standards of the majority of investors in most situations.

Most of the changes in the 3rd edition of the CGPR formalise as recommendations aspects which already existed as commentary/guidelines in the 2nd edition of the CGPR.

Some of the more significant amendments include recommendations on appointing a risk committee, CEO and CFO providing Board declarations on half year financials and options to reduce annual report content. Additionally, listed entities are required to perform formal background checks on all new directors.

Director Background Checking

The ASX advises that a listed entity should “undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election as a director”. The commentary attached to this recommendation outlines that these should include checks relating to the individual’s:

  • Character;
  • Experience;
  • Education;
  • Criminal Record;
  • and Bankruptcy History.

According to Gfin Group, “For the last few years, new ASX listing have been required to do formal background checks on their directors. What’s new is an already listed entity now has to undertake background checks before appointing a new director or putting a new candidate to share holders for election.”

Recommendations for Compliance

Given the ASX’s requirements regarding background checks for Directors, PeopleCheck recommends the following package as a minimum in order for listed entities to comply with the CGPR.

The ASX advises that background checks should be completed before appointment or the individual being put forward for election, so these should be arranged in the weeks preceding the Director’s official appointment date.

This will allow time for the necessary background checking information and consent to be collected from the individual and the required checks undertaken, which takes an average of 2 to 5 working days to complete.

Consideration should also be given to whether the Director has resided overseas and may have previous experience or qualifications in international locations. If so, equivalent international background checks should be undertaken, including criminal history and bankruptcy checks in the country/ies in which the individual resided.

References

  • ASX – http://www.asx.com.au
  • ASX Corporate Governance Council – Corporate Governance Principles and Recommendations 3rd Edition
  • Gfin Group – http://gfin.com.au

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