Legal development

ASX publishes Consultation Draft – Corporate Governance Principles & Recommendations (5th Edition)

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    What you need to know

    • 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.

    What are the Principles and Recommendations?

    • The Principles and Recommendations were first introduced in 2003, with subsequent editions published in 2007, 2014 and 2019. They are structured around, and seek to promote, eight central Principles, which set out recommended corporate governance practices for entities listed on the ASX, that, in the Council's view, are likely to achieve good governance outcomes and meet the reasonable expectations of most investors in most situations.
    • The Council states that the phrase "corporate governance" describes "the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled within corporations", and considers that good corporate governance can contribute to the long-term sustainable value of listed entities.
    • The Principles and Recommendations apply to all entities listed on the ASX, regardless of the legal form they take, whether they are established in Australia or elsewhere, and whether they are internally or externally managed.
    • Importantly, the Principles and Recommendations follow an "if not, why not" approach to reporting, meaning that while the Principles and Recommendations are not mandatory, an entity must disclose why it has not adopted a Recommendation if it decides against doing so.

    What are the key changes proposed to the Principles and Recommendations?

    • The current edition of the Principles and Recommendations (4th edition) includes eight Principles, 35 general Recommendations and three additional Recommendations that apply only in limited cases.
    • The Consultation Draft maintains the existing eight Principles (with some changes to expression), and now has 33 general Recommendations and seven additional Recommendations that apply only in limited cases.
    • The key changes proposed in the Consultation Draft are summarised in the table below. In addition to the changes to the Recommendations, the Consultation Draft includes substantial additional or modified commentary to assist listed entities in understanding and applying the Recommendations.



    Current Position 

    Explanation of key changes 



    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.

    • Principle 2 has been amended to highlight the importance of both collective board skills and individual director skills.

    • The Consultation Draft proposes that:
      (a) Entities disclose a board skills matrix setting out both the mix of skills that the board currently has and is looking to achieve in its membership.
      (b) Entities disclose its process for assessing that the relevant skills and experience are held by its directors.

    • Consistent with the current Principles and Recommendations, commercially sensitive information may still be excluded from disclosure (for example, such as the fact that the board may be looking to acquire a particular skill as part of an as-yet unannounced and incomplete plan to move into a different field of activity).

    Diversity and inclusion

    2.3 and 3.4

    • Recommendation 1.5 currently addresses diversity, including to recommend the disclosure of diversity and inclusion policies and certain gender metrics, and the disclosure of a board's approach and progress on gender diversity.

    • For S&P/ASX300 entities, the Council sets a target to achieve gender diversity in the composition of their boards of not less than 30% of each gender within a period specified by the entity.

    • The Consultation Draft proposes to deal separately with board diversity (new Recommendation 2.3) and workforce diversity and inclusion policies (new Recommendation 3.4), and is focussed on enhanced disclosure of the progress and effectiveness of diversity and inclusions practices across a range of diversity characteristics.

    • The key changes proposed by new Recommendation 2.3 include that an entity should:
      (a) Have and disclose a measurable objective and timeframe for achieving gender diversity in the composition of its board.
      (b) Disclose the entity's progress in achieving the measurable objective in the reporting period.
      (c) If it is considering any other relevant diversity characteristics for its board membership, disclose those diversity characteristics (noting that the Council is not proposing to set a target for any such other diversity characteristics).

    • The Consultation Draft also proposes to increase the S&P/ASX300 board gender diversity target to at least 40% women / at least 40% men / up to 20% any gender.

    • Proposed new Recommendation 3.4 now also recommends that entities disclose the effectiveness of their diversity and inclusion practices (and not just disclosure of the policy and certain metrics), with the intention of drawing out outcomes beyond the reporting of the requested metrics.

    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


    A listed entity should have a code of conduct and report material breaches of that code to its board or a board committee.

    • The Consultation Draft seeks to balance transparency for key stakeholders with an outcomes-focussed approach that promotes a "speak-up" culture.

    • In particular, the Consultation Draft proposes disclosure (on a de-identified basis) of the outcome of actions taken by an entity in response to material breaches of its code.

    • More generally, the Consultation Draft amends and expands upon the existing Recommendation 3.2 to provide that a listed entity should instil and continually reinforce a culture across the organisation of acting lawfully, ethically and responsibly.

    Stakeholder relationships


    Principle 3 generally sets out guidance for listed entities to promote a culture of acting lawfully, ethically and responsibly.

    • The Consultation Draft addresses stakeholder relationships in a number of ways, including, in particular, an express reference to dealings with external stakeholders in Principle 3 and a new Recommendation that a listed entity should have regard to the interests of the entity's key stakeholders (including having processes for the entity to engage with stakeholders and to report material issues to the board).

    • The Council's commentary provides that an entity's consideration of the interests of its other stakeholders should be consistent with the long-term interests of security holders.

    • As to who are "key stakeholders", the Council acknowledges that this will vary between entities and over time and is to be determined by the entity.

    Corporate reporting and assurance



    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.

    • The Consultation Draft proposes to expand this disclosure of processes for verification to all periodic corporate reports, including the extent to which a report has been the subject of assurance by an external assurance practitioner. The Council proposes this change to reflect the range of information increasingly expected to be reported by listed entities (including climate/sustainability reports, if prepared), and the ongoing development of reporting and assurance requirements.

    • The Consultation Draft now also proposes that listed entities disclose:
      (a) The tenure of its audit firm and audit engagement partner as at the end of the reporting period.
      (b) When the appointment of the external auditor was last comprehensively reviewed and the outcomes from that review.

    • The Council's commentary states that audit committees should periodically undertake a comprehensive review of the effectiveness and independence of the auditor, and should consider whether a recommendation should be made to the board to seek removal of the auditor by shareholders, to put the audit to tender, or for rotation of the audit engagement partner. The Consultation Draft does not propose to introduce additional tenure or rotation requirements, however.

    Risk management


    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.

    • The Consultation Draft expands Recommendation 7.4 to cover the disclosure of all "material risks", rather than identifying specific risks or categories of risks for all entities to report against. This approach is intended to support entities as new risks emerge and regulation or standards continue to be developed, and moves away from generic ESG and risk disclosures.

    • A "material risk" relates to a risk that is material to a listed entity's prospects over the short, medium or longer term (with the relevant time period being individual to the circumstances of the entity).

    • The Consultation Draft encourages enhanced quality of existing reporting of material risks to business models and strategy (such as reporting of material risks required for an operating and financial review in a directors' report), but is not intending to creating additional reporting obligations.

    • The Consultation Draft now specifically elevates governance risk (in addition to environmental and social risks), given the highly publicised corporate governance failures as a result of conduct, compliance and operational risk failures. However, the Council's commentary clarifies that it is not necessary to report against the environmental, social and governance risk categories individually, but rather their inclusion in Recommendation 7.4(a) is to assist entities to consider the range of risks relevant to them.

    • The Council's commentary does not prescribe climate or other sustainability reporting, although such reporting may complement the requirements of the amended Recommendation.


    8.2 and 8.3

    Various guidelines are provided to listed entities regarding appropriate remuneration structures for executive and non-executive directors.

    • New Recommendation 8.2 is intended to reflect and simplify existing commentary, and in particular, proposes that non-executive directors should not receive performance-based remuneration, on the basis that such arrangements may lead to bias in their decision-making and compromise their objectivity.

    • The Council provides that, while it is generally acceptable for non-executive directors to receive securities as part of their remuneration (which may require security holder approval for such equity payments), non-executive directors should not receive options with performance hurdles attached or performance rights as part of their remuneration. Non-executive directors should also not receive any benefits, other than superannuation, in connection with their retirement.

    • New Recommendation 8.3 addresses clawback arrangements, and proposes that listed entities should have remuneration structures that can clawback or otherwise limit performance-based remuneration outcomes of its senior executives after award, payment or vesting, and to disclose (on a de-identified basis) the use of those provisions during the reporting period.

    Reducing regulatory overlap


    Various Recommendations, including:

    • Disclosure of whistleblower policy

    • Disclosure of anti-bribery and corruption policy

    • CEO and CFO declaration for financial statements

    • Substantive security holder resolutions on a poll

    • Offering electronic communications to security holders

    • Separate disclosure of remuneration policies for non-executive directors, other directors and senior executives

    • Policy on hedging of equity-based remuneration

    • The Council proposes to remove these Recommendations on the basis that there is already significant regulation by Australian law (including, in some cases, duplication).

    • Some of these requirements are now reflected in commentary, or in new Recommendations applicable to entities established outside Australia.

    What does this mean for me?

    • Consultation in relation to the Consultation Draft is open until 6 May 2024. Following the closure of the consultation period, the Council will have regard to all feedback and aim to finalise the fifth edition of the Principles and Recommendations by early 2025.
    • The revised Principles and Recommendations will potentially have effect for financial years commencing on or after 1 July 2025, subject to stakeholder consultation and ASX confirmation.
    • Listed entities should review the proposed changes included in the Consultation Draft now, and consider implementing appropriate strategies and procedures in advance of a potential effective date of 1 July 2025. In particular, listed entities will need to revisit whether their existing corporate governance policies will be fit for purpose under the new Principles and Recommendations, and implement procedures to comply with the new and amending reporting obligations going forward.
    • If you have any queries regarding the proposed changes and how they may impact your policies and procedures, please contact your usual Ashurst contact or any of the members of the Ashurst team listed below.

    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.


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