Risk Management & Governance: ASX proposal to strengthen risk recommendations as part of an update of its corporate governance principles

Risk Management & Governance: ASX proposal to strengthen risk recommendations as part of an update of its corporate governance principles

The Australian Institute of Company Directors’ (AICD) Boardroom Reportfor September flagged that a consultation paper has been issued by the Australian Securities Exchange (ASX) Corporate Governance Council seeking comments on a  proposed third edition of its Corporate Governance Principles and Recommendations.  Two of the substantive changes outlined in the paper suggest the strengthening of recommendations relating to risk management.  These are as follows:

“Introducing new and strengthened recommendations in relation to risk, including a recommendation that boards establish a risk committee (either as a stand-alone committee or as part of the responsibilities of the audit committee) and conducting at least annual risk management reviews either at the board or committee level (principle 7)”

“Introducing a new recommendation that listed entities disclose whether, and if so how, they have regard to economic, environmental and social sustainability risks (Recommendation 7.4)”.

There is an increasing onus on Boards to have a good understanding of the risk environment in which the organisation operates, are able to articulate qualitative measures for risk appetite and risk tolerance, have mechanisms in place to evaluate strategic and emerging risk issues and are effective in overseeing the management and acceptance of risk by the organisation.  In reality, many Boards fall short of these expectations.  The proposed changes to corporate governance principles and recommendations are likely to be seen as a step forward for both shareholders and Board members alike.

Riskwest has significant expertise in assisting Board and Executive teams to understand and evaluate strategic and operational risk issues. Contact us for more details.