Board oversight of culture: monitoring mechanisms under the ASX draft 5th edition
A practical implementation note for boards considering how to design and describe a culture-monitoring mechanism under draft Recommendation 3.3 of the proposed 5th edition of the ASX Corporate Governance Principles and Recommendations.
Draft Recommendation 3.3 proposes that listed entities disclose the mechanisms their boards have in place to monitor culture.
The Explanatory Material identifies a range of possible information sources, including workforce surveys, whistleblowing, legal and policy breaches, escalation patterns, stakeholder considerations and risk culture.
This note provides a practical structure for considering how those sources operate together as a board monitoring mechanism.Â
Much of the information a board uses to form a view of culture is prepared by the executives whose conduct forms part of that culture. Breach volumes, survey results and management commentary are selected and framed before they reach the board. This is a structural feature of the reporting line.
It carries a design consequence. A monitoring arrangement assembled entirely from management-prepared information describes management's account of culture.
What the note covers
Six components of a culture-monitoring mechanism
The implementation note addresses:
- Culture questionsÂ
- Information sourcesÂ
- Escalation pathwaysÂ
- Board interpretationÂ
- Board actionÂ
- Periodic reviewÂ
The note also includes an illustrative disclosure showing how an entity might describe the operation of its culture-monitoring mechanism.
Conext
Prepared in connection with the ASX Draft 5th Edition consultation
This implementation note has been prepared in connection with draft Recommendation 3.3 of the proposed 5th edition of the ASX Corporate Governance Principles and Recommendations.
The 5th edition remains in draft. The note should be read in that context and may be updated following publication of the final edition.
Prepared by Liam Brown, Founder, NorthSeat.
This resource provides general governance information. Organisations should consider their own legal, regulatory, constitutional and governance requirements when designing their arrangements.