The ASX Corporate Governance Council is an independent body with 19 members representing a wide range of stakeholders in the governance of listed entities. The author is the Law Council of Australia’s representative on the Council.
The Council had been working on a 5th edition of the ASX Corporate Governance Principles and Recommendations for well over 2 years when it became apparent in February that it would not be possible to achieve a broad consensus on the revised Principles, and the 5th edition was abandoned. A material minority of members were unwilling to approve a second post-consultation draft. The 4th edition, published in early 2019, continues to apply, which is a pity because the last draft of the 5th edition was a far better document despite the small number of unresolved issues.
A drafting committee of 14 members was formed in 2022. It was decided at the outset to make ad hoc revisions to the 4th edition rather than a wholesale rewrite. A consultation draft was published in February 2024. Consultation in various forms continued into early 2025. The consultation process took too long, creating a disclosure vacuum, and during that period a note in the draft commentary (not a principle or recommendation) concerning disclosure of individual diversity characteristics was criticised ad nauseum in the press, even though the Council had quickly decided to delete that note from the draft.
The small number of issues that remained unresolved were mainly concerned with board composition and processes: diversity, independence, skills matrices and performance reviews. These matters should have been capable of resolution but the elapse of time and the unwieldy Council structure made that very difficult.
Where to from here?
It is not disputed that Australian listed entities need a clear set of governance principles. The ASX Corporate Governance Principles and Recommendations have served listed entities, and also as a guide for the broader corporate community, very well for over 20 years. But times change, laws change, and governance evolves. Principles need to be revisited periodically.
The matters that could be considered in order to find a way forward to ensure the continued good governance of Australian listed entities include the following. This is not an exhaustive list:
- Recognise the final authority of the ASX to approve the governance principles that apply to its listed entities.
- Re-establish the Council as a smaller advisory body, with a single representative of each group of material stakeholders.
- Rewrite the Principles and Recommendations in a more concise, clearer form
- Set a 5 year review period to recognise emerging governance issues and accommodate new laws and regulations.
- Reduce the compliance burden but include measures to discourage mere lip-service.
- Give greater attention to the interests of shareholders, which warranted barely 3 pages in the 50+ pages of the draft 5th edition
- Seek to achieve general alignment with governance codes in other main jurisdictions to avoid competitive disadvantage
- Recognise that governance requirements must facilitate and be consistent with growth of the entity’s business
- Avoid duplication and inconsistency with laws and regulations
- Preserve the flexibility of “if not, why not”.
We encourage ASX to consider these important matters promptly to ensure that we have a clear set of current governance principles rather than a 4th edition that may quickly become of limited relevance.
