ACSI Governance Guidelines updated in a post-Royal Commission world

The Australian Council of Superannuation Investors (ACSI) today released its updated Governance Guidelines to sharpen the focus in the wake of Banking and Financial Services Royal Commission.

ACSI’s governance guidelines are used to assess the governance practices of the ASX300 and assist in voting recommendations. ACSI members include 39 institutional investors and asset managers.

ACSI CEO Louise Davidson said,
“Good governance is not negotiable.”
“Public trust in business remains shaken and companies have more work to do to meet the expectations of the broader community.”
“Poor governance practices were on full display during the Royal Commission. A number of companies have since paid dearly in terms of their reputation and profitability. Unfortunately, investors in those companies have worn the cost too.”

ACSI’s governance guidelines provide a steer to companies on how board decisions or actions will be viewed by long-term investors.
Davidson said that ACSI’s guidelines promote robust governance practices including how companies manage ESG risks and opportunities.

“One principle underpins everything we do. We are focussed on financially material ESG risks and opportunities over the long-term, to protect and enhance the retirement savings that are entrusted to our members.”

In the ninth edition of our Guidelines, we have made a number of updates. Key changes include:

  • Accountability

    We reinforce the importance of the board demonstrating accountability.

  • Risk management

    We stress the need to incorporate ESG issues into risk frameworks and highlight the board’s role in ensuring management is operating within the risk profile.

  • Remuneration

    We address the disconnect between investors and companies on variable pay. We reinforce the concept of ‘reasonableness’ and the relevance of the board’s track record in exercising discretion. We ask boards to regularly assess the effectiveness of their remuneration structures and make meaningful disclosures.

  • Culture

    We reiterate the importance of corporate culture and our expectation that companies should articulate and disclose their values to underpin the desired culture. We emphasise the board’s role in overseeing corporate culture.

  • Social licence to operate

    We reinforce our view that acting in the best interests of the company requires the board to consider the interests of a broad range of stakeholders and ask companies to articulate how they do this.

  • Diversity

    We restate our view that companies should set a time frame within which they will achieve gender balance on their boards.

Davidson said,
“Good corporate governance is critical to investment performance and returns. ACSI’s updated guidelines provide a sharpened focus on long-term investors expectations”
In collaboration with its members, ACSI updates the Guidelines every two years to ensure they reflect contemporary expectations.

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