Cochlear : COH 2017 Corporate Governance Statement

2017 COCHLEAR LIMITED

Corporate Governance Statement

Corporate Governance Statement 2017 2

Principle 1: Lay solid foundations for management and oversight 2

Diversity 3

Table 1: FY17 Annual Initiatives and Progress 4

Table 2: Cochlear's Gender Equality Indicators 6

Principle 2: Structure the board to add value 7

Composition of the Board 7

Board committees 7

Audit Committee (Recs 4.1 and 7.1) 7

People & Culture Committee (Rec 8.1) 8

Nomination Committee (Rec 2.1) 9

Medical Science Committee (Rec 7.1) 9

Technology and Innovation Committee (Rec 7.1) 9

Skills Matrix 10

Independence 11

The Chair 11

Principle 3: Act ethically and responsibly 12

Principle 4: Safeguard integrity in corporate reporting 14

Principle 5: Make timely and balanced disclosure 14

Principle 6: Respect the rights of security holders 15

Principle 7: Recognise and manage risk 15

Principle 8: Remunerate fairly and responsibly 17

ASX Corporate Governance Council's Corporate Governance Principles and Recommendations (3rd Edition) 17

Cochlear Limited (Cochlear or the Company) is committed to ensuring that its policies and practices reflect good corporate governance and that there is compliance with all corporate governance requirements applicable to Australian listed companies.

In this Corporate Governance Statement, Cochlear discloses the extent to which Cochlear has followed the recommendations set out in the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations (3rd Edition), March 2014 (Guidelines) during the reporting period of 1 July 2016 to 30 June 2017 (FY17). A checklist of the recommendations made in the Guidelines is set out at the end of this statement. References to recommendations in the Guidelines are made throughout this statement in order to indicate how Cochlear follows the recommendations. All policies, charters and terms of reference referred to in this statement are published on the Company's website, www.cochlear.com, in the Corporate Governance section, unless stated otherwise. The Corporate Governance section is located in the Investor Centre area of the Company's website (Rec 6.1). The Investor Centre is found under the Investors tab on the website home page. Cochlear's corporate governance policies and procedures are reviewed on a regular basis and are updated where appropriate.

This Corporate Governance Statement is current as at 17 August 2017. This Corporate Governance Statement was approved by the Board of directors of Cochlear (Board) on 17 August 2017.

There is a clear distinction between the role and responsibilities of the Board and the role and responsibilities of the Company's Chief Executive Officer & President (CEO&P) and the senior executive team (Rec 1.1). The balance of responsibilities between the Board and the executives is reviewed on a regular basis so as to ensure that the division of functions remains appropriate to the needs of the Company.

The Board is responsible to Cochlear's shareholders and other stakeholders for the Company's overall business performance. The Board's prime objectives are to improve shareholder returns and to achieve disciplined and sustainable growth. The Board operates under a Board Charter that details its functions and the matters specifically reserved to it for decision (Rec 1.1). The Board Charter is published in the Corporate Governance section of the Cochlear website. The Board is responsible for setting Cochlear's strategic objectives and for monitoring management's performance and implementation of the strategy. The Board also provides input into management's development of corporate strategy and performance objectives. The Board appoints and removes the CEO&P, oversees succession plans and approves the accounts, budgets, Risk Management Policy (including internal control and compliance), Global Code of Conduct and major capital management and expenditure decisions.

The CEO&P is responsible for the implementation of Cochlear's strategic objectives and operating within the risk appetite set by the Board and for all other aspects of the day-to-day running of Cochlear (Rec 1.1). The CEO&P is assisted by the senior executive team. The CEO&P is accountable to the Board for all authority delegated to the senior executive team. Notwithstanding these delegations by the Board, the CEO&P is expected to consult the Chairman on matters that are sensitive, extraordinary or of a strategic nature and to bring all material matters to the Board's attention. The senior executives brief the Board regularly so as to keep the Board up to date and to assist the directors with monitoring the results of operations. Each month, directors receive operating reports prepared by senior management, covering each region and function. Directors also visit and inspect operations in Australia and overseas from time to time.

The Board may seek independent professional advice at the expense of Cochlear whenever the Board judges such advice to be necessary for its members to discharge their responsibilities as directors.

Individual directors may also seek independent professional advice at the expense of Cochlear where the Chairman agrees (in advance) that separate representation is appropriate. All professional advisors must be suitably qualified and experienced and must be acceptable to Cochlear. No individual directors exercised this right during the year.

The policy for appointment of directors and the selection process are outlined in the Nomination Committee Terms of Reference, which are published in the Corporate Governance section of the Cochlear website. The selection process may include obtaining advice from an external consultant to assist in identifying suitable candidates who meet the required specifications. Before appointing a person as a director, Cochlear performs checks as to the person's character, experience and education (Rec 1.2). These checks may be carried out by Cochlear or by an external consultant. The Chairman separately carries out reference checks for candidates and makes appropriate enquiries in the business community (Rec 1.2).

As a part of the appointment process, prospective directors are asked to disclose existing and proposed directorships as well as any other commitments they have and to confirm that they have sufficient time to fulfil their duties as a director. These commitments are assessed by the Nomination Committee to determine whether it also considers the prospective director has adequate time to perform their duties.

The Nomination Committee regularly reviews the time required from non-executive directors. The Nomination Committee assesses the commitments of the Chairman and all other non-executive directors on an ongoing basis so as to ensure that adequate time is available to discharge Board duties. The current members of the Board are all considered to have sufficient time available to them in order to discharge their responsibilities to Cochlear. The Board's practice and expectation are that non-executive directors consult with the Chairman prior to accepting any significant new appointment.

The Company's Constitution requires that one-third of the directors retire from office at the Annual General Meeting (AGM) each year and that no director serve longer than three years without re-election. The CEO&P is excluded from these requirements. Directors appointed by the Board during a year are required to resign at the AGM next following their appointment. Retiring directors are eligible for re-election. Prof Bruce Robinson, AM will retire at the 2017 AGM as he was appointed by the Board in December 2016. In addition, the Chairman Mr Rick Holliday-Smith and Mr Andrew Denver will also retire by rotation at the 2017 AGM. Each retiring director will stand for re-election at that meeting.

Cochlear provides shareholders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director (Rec 1.2). This information includes biographical details, details of other material directorships and information with regard to the Board's assessment of the director's independence. The information is typically provided in the relevant notice of meeting.

Cochlear has a detailed written agreement with each director and senior executive setting out the terms of their appointment or employment (as applicable) including details of their role, responsibilities, remuneration and their disclosure/compliance obligations (Rec 1.3).

The Company Secretary advises the Board on governance matters and is accountable directly to the Board, through the Chairman of the Board, on all matters to do with the proper functioning of the Board (Rec 1.4). The Company Secretary is also Secretary of the Audit Committee, the Nomination Committee and the Technology and Innovation Committee. The Board appoints and removes the Company Secretary. Each director is able to contact the Company Secretary directly and to meet in person with the Company Secretary.

As a global business, Cochlear is committed to providing an inclusive workplace that attracts the best employees to support the Company's growth initiatives. The Company needs people with a diverse range of skills, expertise and diversity in terms of gender, age and ethnicity. To this end, the focus of the Company's workforce demographics objectives is to continuously build organisational capabilities to achieve Cochlear's business vision and mission.