RURAL FUNDS GROUP — Governance Information 2014

Feb 11, 2014

Checklist - compliance with ASX Corporate Governance Recommendations

Rural Funds Management Ltd ACN 077 492 838 as trustee for Rural Funds Group ARSN 112 951 578

Dated 16 January 2014

Level 11 Central Plaza Two 66 Eagle Street Brisbane QLD 4000 GPO Box 1855 Brisbane QLD 4001 Australia ABN 42 721 345 951 Telephone +61 7 3233 8888 Fax +61 7 3229 9949

Rural Funds Management Ltd ACN 077 492 838 as trustee for Rural Funds Group ARSN 112 951 578

Checklist – compliance with ASX Corporate Governance Recommendations

Our analysis of compliance has been completed on the basis that the directors of Rural Funds Management Ltd (RFM) as trustee for Rural Funds Group (RFF) have or will adopt the following policies:

• (a) corporate governance charter which includes:
  • (i) board charter;
  • (ii) directors' code of conduct;
  • (iii) audit committee charter;
  • (iv) board selection policy
  • (v) standing rules for committees;
  • (vi) security holder communication policy;
• (b) RFM code of conduct;
• (c) risk management policy;
• (d) compliance manual;
• (e) continuous disclosure policy;
• (f) diversity policy; and
• (g) securities trading policy.

Analysis

	ASX Recommendation			Comments
1.1	Companies should establish the functions reserved tothe board and those delegated to senior executives anddisclose those functions.		Y	The broad functions and responsibilities of the board are set out insections3.3 and 3.4 of the corporate governance charter. The specificresponsibilities of the board are set out in section 3.5 of the corporategovernance charter. Matters delegated to the company secretary,managing director, CFO and committees are set out in sections 3.13 to3.15.
1.2	Companies should disclose the process for evaluatingthe performance of senior executives.		Y	This will be disclosed on RFM's website. See also section 3.10 of thecorporate governance charter.
1.3		Companies should give the following information:
	(a)	an explanation of any departure fromRecommendations 1.1, 1.2 or 1.3 (i.e. why theyhave not complied with (b)); and		Not applicable.
	(b)	whether a performance evaluation for seniorexecutives has taken place in the reportingperiod and whether it was in accordance withthe process disclosed.	Y	This will be disclosed in RFF's annual reports.
	A statement of matters reserved for the board, or theboard charter or a statement of areas of delegatedauthority to senior executives should be made publiclyavailable, ideally by posting it to the company's websitein a clearly marked corporate governance section.		Y	A summary of RFM's corporate governance charter will be posted onRFM's website.
		A trust should clarify the relationship between theresponsible entity and the parent company whererelevant, and articulate the role and responsibilities ofthe board and management of the responsible entity.	Y	See section 7 of RFM's product disclosure statement.
	Trusts should also have regard to the responsibilities ofexternal directors and the compliance committee underpart 5C.5 Corporations Act.		Y	See section 3.16 of the corporate governance charterand compliancemanual.

		ASX Recommendation	Compliance(Y/N)	Comments
2.1	A majority of the board should be independentdirectors.		Y	See section 3.6 of the board charter.
2.2		The chairman should be an independent director.	Y	See section 3.6 of the board charter.
2.3		The roles of the chairman and chief executive officershould not be exercised by the same individual.	Y	See section 3.6 of the board charter.
2.4	The board should establish a nomination committee.		N	RFM's board is currently comprised of three directors and it is notintended that any further directors be appointed in the immediatefuture. Given the number of directors currently appointed and theintention not to appoint any further directors, it is not considerednecessary for the board to establish a separate nomination committee.
2.5	Companies should disclose the process for evaluatingthe performance of the board, its committees andindividual directors.		Y	This will be disclosed on RFM's website. See also section 3.10 of thecorporate governance charter.
2.6		Companies should give the following information:
	(a)	the skills, experience, and expertise relevant tothe position of director held by each director inoffice at the date of the annual report;	Y	This will be disclosed in RFF's annual report. See also section 3.20 ofthe corporate governance charter.
	(b)	the names of the directors considered by theboard to constitute independent directors andthe company's materiality thresholds;	Y	This will be disclosed in RFF's annual report. See section 3.8 of thecorporate governance charter.
	(c)	the existence of any of the followingrelationships and an explanation of why theboard considers the director to be independent,notwithstanding the existence of thoserelationships:
		(i)if the director is a substantial securityholder or an officer of, or otherwiseassociated directly with, a substantialsecurityholder;		Not applicable.

ASX Recommendation			Compliance(Y/N)	Comments
	(ii)	if the director is employed, or haspreviously been employed in anexecutive capacity by the company oranother group member, and there hasnot been a period of at least three yearsbetween ceasing such employment andserving on the board;		Not applicable.
	(iii)	if the director has within the last threeyears been a principal of a materialprofessional adviser or a materialconsultant to the company or anothergroup member, or an employeematerially associated with the serviceprovided;		Not applicable.
	(iv)	if the director is a material supplier orcustomer of the company or othergroup member, or an officer of orotherwise associated directly orindirectly with a material supplier orcustomer; or		Not applicable.
	(v)	if the director has a material contractualrelationship with the company oranother group member other than as adirector;		Not applicable.
(d)		a statement as to whether there is a procedureagreed by the board of directors to takeindependent professional advice at the expenseof the company;	Y	This will be disclosed on RFM's website. See also section 3.11of thecorporate governance charter.
(e)		a statement as to the mix of skills and diversityfor which the board of directors is looking toachieve in membership of the board;	Y	This will be disclosed on RFM's website. Seealso section 2.6of thecorporate governance charter.

ASX Recommendation		Compliance(Y/N)	Comments
(f)	the period of office held by each director inoffice at the date of the annual report;	Y	This will be disclosed on RFM's website. This will be disclosed in RFF'sannual report.
(g)	the names of members of the nominationcommittee and their attendance at meetings ofthe committee, or where a company does nothave a nomination committee, how thefunctions of a nomination committee are carriedout;	N	See above comments in relation to nominations committee.
(h)	whether a performance evaluation for theboard, its committees and directors has takenplace in the reporting period and whether it wasin accordance with the process disclosed; and	Y	This will be addressed in RFF's annual report.
(i)	an explanation of any departures fromrecommendations 2. 1 to 2.6.		See above comments in relation to nominations committee.
	The following material should be made publiclyavailable, ideally by posting it to the company's websitein a clearly marked corporate governance section:		A summary of RFM's policy in relation to these corporate governancematterswill be posted on RFM's website.
(a)	a description of the procedure for the selectionand appointment of new directors and the reelection of incumbent directors;	Y	See section 3.20 of the corporate governance charter.
(b)	the charter of the nomination committee or asummary of the role, rights, responsibilities andmembership requirements for that committee;and	N	See comments above in relation to nominations committee.
(c)	the board's policy for the nomination andappointment of directors.	Y	See sections 3.6, 3.9 and 3.20 of the corporate governance charter.

		ASX Recommendation	Compliance(Y/N)	Comments
	If there is technical conflict in implementing therecommendation that a director be independent andthat the chairman be an independent director or a leadindependent director, where the responsible entity is awholly-owned subsidiary of a parent company such as afund manager and all the directors are employees of theparent then this should be discussed and clarified in anyexplanation of a departure from the recommendations.			Not applicable.
3.1		Companies should establish a code of conduct anddisclose the code of or a summary of the code as to:		See RFM code of conduct.
	(a)	the practices necessary to maintain confidencein the company's integrity;	Y
	(b)	the practices necessary to take into accounttheir legal obligations and the reasonableexpectations of their stakeholders;	Y
	(c)	the responsibility and accountability ofindividuals for reporting and investigatingreports of unethical practices.	Y
3.2	Companies should establish a policy concerning diversityand disclose the policy or a summary of that policy. Thepolicy should include requirements for the board toestablish measureable objectives for achieving genderdiversity and for the board to assess annually both theobjectives and progress in achieving them.Note:thisrecommendationreplacedtherecommendationthatestablishcompaniesa securitiestradingpolicy. Thisunderisnow a requirementASXRule129Listing		Y	See the diversity policy.A summary of RFM's policy in relation to thiscorporate governance matter will be posted on RFM's website.
3.3	Companies should disclose in each annual report themeasureable objectives for achieving gender diversityset by the board in accordance with the diversity policyand progress towards achieving them.		Y

ASX Recommendation			Compliance(Y/N)	Comments
3.4	Companies should disclose in each annual report theproportion of women employees in the wholeorganisation, women in senior executive positions andwomen on the board.		Y
3.5	Companies should provide an explanation of anydepartures from recommendations 3.1 to 3.5.			Notapplicable.
	available:(a)(b)	The following material should be made publiclyan applicable code of conduct or a summary;andthe diversity policy or a summary of its mainprovision.	YY	A summary of RFM's policy in relation to these corporate governancematters will be posted on RFM's website.
4.1		The board should establish an audit committee.	Y	See section 3.17 of the corporate governance charter.
4.2		The audit committee should be structured so that it:
	(a)	consists only of non-executive directors;	Y	See section 3.17 of the corporate governance charter.
	(b)	consists of a majority of independent directors;	Y	See section 3.17 of the corporate governance charter.
	(c)	is chaired by an independent chairman, who isnot a chairman of the board; and	Y	See section 3.17 of the corporate governance charter.
	(d)	has at least three members.	N	It is not possible for RFM to comply with this requirement as the boardconsists of only three directors, one of which is non-independent.Instead, section3.17 of the corporate governance charter provides thatthe audit committee must consist of at least two members.
4.3		The audit committee should have a formal charter.	Y	See Schedule 1 of the corporate governance charter.

	ASX Recommendation			Comments
4.4.	(a)	Companies should provide the following information:the names and qualifications of those appointedto the audit committee and their attendance atmeetings of the committee, or, where acommittee does not have an audit committee,how the functions of an audit committee are	Y	Thisinformation will be set out in RFF's annual report.
	(b)	carried out;the number of meetings of the audit committee;and	Y
	(c)	an explanation of any departure fromrecommendations 4.1 to 4.4.		Not applicable.
	The following material should be made publiclyavailable, ideally by posting it to the company's websitein a clearly marked corporate governance section:(a)the audit committee charter; and		Y	A summary of RFM's policy in relation to these corporate governancematters will be posted on RFM's website.See section 5 of Schedule 1 of the corporate governance charter.
	(b)	information on procedures for the selection andappointment of the external auditor, and for therotation of external audit engagement partners.	Y
5.1	Companies should establish written policies designed toensure compliance with ASX Listing Rule disclosurerequirements and to ensure accountability at a seniorexecutive level for that compliance and disclose thosepolicies or a summary of those policies.		N	RFM currently does not have written policies designed to ensurecompliance with the ASX Listing Rules but is currently undertaking areview of its compliance framework which will include updating itscompliance framework to address this requirement.
5.2	Companies should disclose any departures fromrecommendations 5.1 or 5.2.			See above.
	The policies or a summary of those policies designed toguide compliance with Listing Rule disclosurerequirements should be made publicly available, ideallyby posting them to the company's website in a clearlymarked corporate governance section.		Y	A summary of RFM's policy in relation to these corporate governancematters will be posted on RFM's website.

	ASX Recommendation	Compliance(Y/N)	Comments
6.1	Companies should design a communications policy forpromoting effective communication with security holdersand encouraging their participation at general meetingsand disclose their policy or a summary of that policy.	Y	See continuous disclosure policy.A summary of RFM's policy in relationto this corporate governance matter will be posted on RFM's website.
6.2	Companies should disclose any departure fromrecommendations 6.1 or 6.2 in its corporate governancestatement of its annual report.		Not applicable
	The company should describe how it will communicatewith its security holders publicly, ideally by posting thisinformation on the company's website in a clearlymarked corporate governance section.	Y	A summary of RFM's policy in relation to this corporate governancematterwill be posted on RFM's website.
	Trusts should consider the range of means by whichthey may achieve the same results, including thepossibility of convening general meetings.	Y	RFM could not justify costs associated with holding a general meetingwhich was not required under the Corporations Act, Listing Rules or RFFconstitution. Instead RFM will provide RFF members the opportunity todiscuss annual report with RFM's management team and auditors ifrequired.
	Trust should include in the annual report a statementdisclosing the extent to which it has achieved the aimsof the provisions of section 250RA (auditor to attendlisted company AGM) during the reporting period andgive reasons for not doing so.	Y
7.1	Companies should establish policies for the oversightand management of material business risks and disclosea summary of those policies.	Y	See risk management policy.A summary of RFM's policy in relation tothis corporate governance matter will be posted on RFM's website.
7.2	The board should require management to design andimplement the risk management and internal controlsystem to manage the company's material business risksand report to it on whether those risks are beingmanaged effectively. The board should disclose thatmanagement has reported to it about the effectivenessof the company's management of its material businessrisks.	Y	See risk management policy.

		ASX Recommendation	Compliance(Y/N)	Comments
7.3	The board should disclose whether it has receivedassurance from the chief executive officer (orequivalent) or the chief financial officer (or equivalent)that the declaration given under section 295ACorporations Act (declaration about the listed entity'sfinancial statements) is founded on a sound system ofrisk management and internal control and that thesystem is operating effectively in all material respects inrelation to financial reporting risks.		Y	See risk management policy.
7.4		Companies should give the following information:
	(a)	an explanation of any departures fromrecommendations 7.1 to 7.4;		Not applicable.
	(b)	whether the board has received the report frommanagement under recommendation 7.2; and	Y
	(c)	whether the board has received assurance fromthe chief executive officer (or equivalent) orchief financial officer (or equivalent) underrecommendation 7.3.	Y
		A summary of the company's policies on risk oversightand management of material business risks should bemade publicly available, ideally by posting it to thecompany's website in a clearly marked corporategovernance section.	Y	Asummary of RFM's policy in relation to these corporate governancematters will be posted on RFM's website.
8.1	The board should establish a remuneration committee.		N
8.2	The remuneration committee should be structured sothat it:		N
	(a)	consists of a majority of independent directors;
	(b)(c)	is chaired by an independent director;has at least three members.

		ASX Recommendation	Compliance(Y/N)	Comments
8.3	Companies should clearly distinguish the structure ofnon-executive directors' remuneration from that ofexecutive directors' remuneration.		N
8.4	The following material or a clear cross-reference to thelocation of the material should be included in thecorporate governance statement in the annual report:
	(a)	the names of the members of the remunerationcommittee and their attendance at meetingsofthe committee, or where a company does nothave a remuneration committee, how thefunctions of a remuneration committee arecarried out;	N	See below comments in relation to remuneration committee.
	(b)	the existence and terms of any schemes forretirementbenefits, other than superannuation,for non-executive directors; and		Not applicable.
	(c)	an explanation of any departure fromRecommendations 8.1 to 8.4.		RFM's board consists of only three directors. Accordingly, RFM hasformed the view that it is not necessary to establish a separateremuneration committee.
	The following material should be made publiclyavailable, ideally by posting it to the company's websitein a clearly marked corporate governance section:
	(a)	the charter of the remuneration committee or asummary of the role, rights, responsibilities andmembership requirements for that committee;	N	Not applicable.
	(b)	a summary of the company's policy onprohibiting entering into transactions inassociated products which limit the economicrisk of participating in unvested entitlementsunder any equity-based remuneration schemes.	N	Not applicable.