ASX publishes Consultation Draft – Corporate Governance Principles & Recommendations (5th Edition)
27 March 2024
27 March 2024
On 27 February 2024, the ASX Corporate Governance Council (Council) released a consultation draft for the fifth edition of its Corporate Governance Principles and Recommendations (Principles and Recommendations), seeking feedback from interested stakeholders (Consultation Draft). Publication of the Consultation Draft follows an extensive internal engagement process among the members of the Council since 2022, through which the Council procured a broad range of perspectives and contributions in finalising the draft.
The Council describes the Consultation Draft as "evolutionary", rather than "revolutionary". It responds to evolving investor and community expectations and recognises developments in public policy and regulatory reforms.
The Consultation Draft retains its existing fundamental structure, including the eight central Principles, but proposes a number of new or amended Recommendations (and supporting commentary) across a range of corporate governance matters and removes certain existing Recommendations to reduce unnecessary regulatory overlap under Australian law.
The proposed changes address a range of issues including board skills, diversity and inclusion, corporate conduct and culture, stakeholder relationships, corporate reporting, risk management and remuneration, with the intention of strengthening listed entities' governance and increasing transparency for investors.
The Council is inviting submissions on the proposed amendments to the Principles and Recommendations until 6 May 2024.
Following the closure of the consultation period, the Council anticipates releasing the fifth edition of the Principles and Recommendations in early 2025, to indicatively take effect for financial years commencing on or after 1 July 2025.
Topic |
Recommendation |
Current Position |
Explanation of key changes |
Board |
2.2 |
An entity should have and disclose a board skills matrix setting out the mix of skills that the board currently has or is looking to achieve in its membership. |
|
Diversity and inclusion |
2.3 and 3.4 |
|
|
Independence of directors |
Box 2.4 factors |
Box 2.4 includes a number of factors relevant to assessing the independence of directors, including whether a director is (or is linked to) a "substantial holder", defined, broadly, as a security holding interest of 5% or more. |
The Consultation Draft proposes to increase the security holding threshold in Box 2.4 from a "substantial holder" (5% or more) to a "10% holder" (10% or more). The proposed change reflects that Australian law has other significant regulation relating to conflicts of interest, including material personal interests of directors and related party transaction provisions. |
Corporate conduct and culture |
3.2 |
A listed entity should have a code of conduct and report material breaches of that code to its board or a board committee. |
|
Stakeholder relationships |
3.3 |
Principle 3 generally sets out guidance for listed entities to promote a culture of acting lawfully, ethically and responsibly. |
|
Corporate reporting and assurance |
4.2 |
A listed entity should disclose its process to verify the integrity of any periodic report it releases to the market that is not audited or reviewed by an external auditor. |
|
Risk management |
7.4 |
A listed entity should disclose whether it has any material exposure to environmental or social risks and, if it does, how it manages or intends to manage those risks. |
|
Remuneration |
8.2 and 8.3 |
Various guidelines are provided to listed entities regarding appropriate remuneration structures for executive and non-executive directors. |
|
Reducing regulatory overlap |
3.3 |
Various Recommendations, including:
|
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Authors: Ben Stewart, Partner; Miriam Kleiner, Partner; and Reuben Edlin, Associate.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.