The Directors Manual> ROLE OF THE BOARD > CODES OF CONDUCT > [¶1−700] Promoting ethical and responsible 1

decision−making

CODES OF CONDUCT
[¶1−700] Promoting ethical and responsible decision−making
Principle 3 of the ASX Corporate Governance Principles and Recommendations seeks to ensure that the company actively
promotes ethical and responsible decision−making through formal and transparent codes of conduct.
Recommendation 3.1 states:
"Companies should establish a code of conduct and disclose the code or a summary of the code as to:
• the practices necessary to maintain confidence in the company’s integrity
• the practices necessary to take into account their legal obligations and the reasonable expectations of their
stakeholders
• the responsibility and accountability of individuals for reporting and investigating reports of unethical practices."
The commentary on this recommendation states that companies should formulate policies on appropriate behaviour of directors,
senior executives and employees. Companies should encourage the integration of these policies into company−wide
management practices. A code of conduct supported by appropriate training and monitoring of compliance with the code are
effective ways to guide the behaviour of directors, senior executives and employees and demonstrate the commitment of the
company to ethical practices. Companies should ensure that training on the code of conduct is updated on a regular basis.
Companies should consider making advisers, consultants and contractors aware of the company’s expectations as set out in the
code of conduct.
The ASX Corporate Governance Council suggests that companies may find it useful to consider the following matters when
formulating a code of conduct:
1. Give a clear commitment by the board and senior executives to the code of conduct. This is often linked to statements
about the aspirations or objectives of the company, its core values, and its views about the expectations of shareholders,
employees, customers, suppliers, creditors, consumers and the broader community.
2. Detail the company’s responsibilities to shareholders and the financial community generally. This might include
reference to the company’s commitment to delivering shareholder value and how it will do this, and the company’s
approach to accounting policies and practices, and disclosure.
3. Specify the company’s responsibilities to shareholders, employees, customers, suppliers, creditors, consumers and the
broader community. This might include reference to standards of product quality or service, commitments to fair value, fair
dealing and fair trading, and the safety of goods produced.
4. Describe the company’s approach to the community. This might include environmental protection policies, support for
community activities, and donation or sponsorship policies.
5. Articulate the company’s responsibilities to the individual. This might include the company’s privacy policy, and its
policy on the use of privileged or confidential information.
6. Outline the company’s employment practices. This might include reference to occupational health and safety,
employment opportunity practices, special entitlements above the statutory minimum, employee security trading policies,
training and further education support policies, practices on drug and alcohol usage and policies on outside employment.
7. Describe the company’s approach to business courtesies, bribes, facilitation payments, inducements and commissions.
This might include how the company regulates the giving and accepting of business courtesies and facilitation payments,
and prevents the offering and acceptance of bribes, inducements and commissions and the misuse of company assets and
resources.
8. State the measures the company follows to promote active compliance with legislation wherever it operates. This might
include stating whether the company’s policy is to comply with Australian or local legal requirements regarding
employment practices, responsibilities to the community and responsibilities to the individual, particularly if the host
country follows materially different standards than those prescribed by Australian law or international protocols.
9. Specify how the company handles actual or potential conflicts of interest. This might include reference to how the
company manages situations where the interest of a private individual interferes or appears to interfere with the interests of
the company as a whole, and how the company prevents directors, senior executives and employees from taking improper
advantage of property, information or position, or opportunities arising from these, for personal gain or to compete with the
company.
10. Identify measures the company follows to encourage the reporting of unlawful or unethical behaviour and to actively

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The Directors Manual> ROLE OF THE BOARD > CODES OF CONDUCT > [¶1−720] Elements of codes of conduct 2

promote ethical behaviour. This might include reference to how the company protects those, such as whistleblowers, who
report violations in good faith, and its processes for dealing with such reports.
11. Describe the means by which the company monitors and ensures compliance with its code.
Recommendation 3.2 states:
"Companies should establish a policy concerning trading in company securities by directors, senior executives and
employees, and disclose the policy or a summary of that policy."
This recommendation includes a requirement for a formal trading policy as well as issues that might be addressed in a trading
policy.

[¶1−710] Recognising the legitimate interests of stakeholders

Principle 3 of the ASX Corporate Governance Principles and Recommendations requires the company, among other things, to
recognise legal and other obligations to all legitimate stakeholders.
This topic is discussed at ¶1−700.

[¶1−720] Elements of codes of conduct

The following elements are usually found in a code of conduct:
• A general statement signed by the chairperson and/or the chief executive emphasising the board’s and management’s
commitment to the code. It may include an overall statement of the company’s objectives, a mission statement or a
summary of the company’s basic philosophy.
• A section dealing with responsibilities to shareholders and the financial community generally. It may include statements
on:
 openness and the disclosure of information;
 accounting policies and practices;
 insider trading, which in listed companies may include specific guidelines; and
 conflicts of interest.
• A section on relations with customers and consumers, which may include reference to:
 the standards of service to be offered to customers;
 a commitment to offering high quality and fair value;
 the safety of goods produced;
 product recall and related policies;
 pricing polices and practices; and
 the use of market power.
• A section on relations with suppliers which may include reference to:
 procurement procedures, including guidelines to suppliers;
 the tendering procedures used, including a commitment to fair and equal treatment of tenderers; and
 payment terms and procedures.
• A section on employment practices which may include reference to:
 the company’s policies on occupational health and safety;
 any policies covering equality of employment opportunity;
 any special entitlements that employees may have to superannuation, above the legal minimum; and
 policy and practice on alcoholism and drug dependence, possibly including disciplinary procedures.
• A section on responsibilities to the community, which may include references to:
 environmental policy;

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The Directors Manual> ROLE OF THE BOARD > CODES OF CONDUCT > [¶1−730] Establishing and reviewing the code of conduct 3

 support for community activities; and

 policy and practice on donations.
• A section on personal conduct, which may include reference to:
 the offering and acceptance of bribes, inducements and commissions;
 policy on the giving and receiving of gifts and entertainment;
 use of privileged or confidential information;
 the handling of conflicts of interest;
 the misuse of company assets and resources; and
 personal conduct outside hours of work, including outside employment.
• One or more sections dealing with any pieces of legislation, regulations or community standards which are relevant to the
company but not included above.
• A section on the monitoring of compliance and the means to be used in ensuring compliance in all of these areas.

[¶1−730] Establishing and reviewing the code of conduct

Setting the tone and establishing the standards must involve both the board and management, and again it must be for the board
to decide on the extent of its own involvement. An effective board is unlikely to involve itself in the drafting of a code of
conduct or a set of policies for the company as a whole but it is likely to show a close interest in their content and to consider
them and discuss them with management when they are first developed. It is also good practice for the board to review the
policies regularly and to see to it that they are updated when necessary. At least it should enquire periodically whether changing
circumstances require the modification of any of the policies it has previously approved.
For reasons of self−preservation, as well as good practice, the board will also involve itself in the monitoring of compliance.
Where legislation is involved it may well be advisable for legal advice to be taken on the extent of monitoring expected by the
regulatory authorities. In other cases the board will probably wish to discuss with management how the policies are being
communicated throughout the company and the appropriate method and frequency of monitoring arrangements. Methods such as
management sign off arrangements and the use of the internal auditors should be considered.
It is recommended that the code of conduct be reviewed regularly and updated when necessary. It is also important that the code
be communicated to, and be well understood by, all employees.
If the directors are not setting a good example and are not seen to be adhering to the company code of conduct it is unlikely that
the code will be effective. The company code must therefore apply to all directors but it is likely that there will be matters on
which directors need quite detailed guidance, such as trading in the company’s shares or asking questions of members of
management, which do not apply outside the boardroom. If these were to be included in the company code it might well become
too long to be of practical use. It is therefore common for companies to develop separate codes of conduct for the board.

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