The ASX Corporate Governance Council has issued The revised Corporate Governance Principles and Recommendations (pdf). The revised Principles will start on a company’s first financial year commencing on or after 1 January 2008.

The ASX has provided a document setting out the differences between the 2003 and 2007 editions of the Principles and Recommendations

In summary, the key changes are:
• ‘Best practice’ has been removed from the title and the text of the document – to be known as the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations – to eliminate any perception that the Principles are prescriptive and so not to discourage companies from adopting alternative practices and ‘if not, why not’ reporting where appropriate.
• There are now eight Principles instead of ten with Principle 8 amalgamated into Principles 1 and 2, and Principle 10 amalgamated into Principles 3 and 7. These changes make the document more user-friendly by structuring the guidance more logically.
• Guidance to Principle 2: Structure the Board to Add Value sets out a list of “relationships affecting independent status” that a company should take into account when determining the independence of a director rather than providing a definition of independence. Companies are required to disclose their reasons for considering a director ‘independent’ notwithstanding the existence of one of these relationships.
• Council recommends that companies’ trading policies should prohibit hedging unvested options and that any hedging of vested options should be disclosed to the company under Principle 3: Promote Ethical and Responsible Decision-Making. Council’s position complements the Government proposal to amend the Corporations Act to require companies to disclose their policy on hedging of options.
• Principle 7: Recognise and Manage Risk now makes it clear that material business risks involve both financial and non-financial risks. Companies are encouraged to adopt appropriate risk oversight, management policies and internal control systems rather than disclosing specific material business risks.

• Recommendation 7.2 now deals with “material business risks” in broad terms. Where a company has risks relating to sustainability or corporate social responsibility (CR) that are material to its business they should be considered in the context of the revised Recommendation 7.2.

• Recommendation 7.3 contains a revised version of the existing “assurance” or “sign-off” on financial reporting risks. The Recommendation requires the board to disclose that it has received assurance from the CEO/CFO that the declaration under section 295A of the Corporations Act is founded on a sound system of risk management and internal control which is operating effectively in all material respects in relation to financial reporting risks.

• Recommendation 9.4 has been deleted and instead commentary has been added to Recommendation 8.2 suggesting companies may wish to consult shareholders about equity-based incentive plans involving the issue of new shares to executives, other than directors, prior to implementing them.