The new ASX Corporate Governance Principles: an evolution not a redesign

Principle

Change

Impact

Commentary

Principle 1 – Board and Management

Board/management delineation becomes the sole focus of Principle 1

The core recommendation (Recommendation 1.1) requires entities to establish and disclose a board charter that clearly delineates the matters reserved to the board from those delegated to management. Matters relating to board appointment and composition (previously housed within Principle 1) are consolidated into Principle 2, and workforce diversity matters are moved to the explanatory material under Principle 3.

Refined

We are supportive of the additional clarity this drafting provides.

Principle 2 – Board Composition and Effectiveness

Skills matrix replaced

The prescriptive board skills matrix recommendation is removed. Recommendation 2.2 now requires the board to determine and disclose the mix of skills, knowledge and experience it considers necessary, and the process for assessing those skills. A formal matrix is no longer mandated but remains available as one supporting tool referenced in explanatory material.

Removed

A pragmatic recognition that the matrix format has in many instances become a formulaic compliance output rather than a meaningful governance disclosure. Entities will have greater latitude to disclose their board capability assessment in a format that is genuinely informative for investors.

Board diversity targets are maintained at the existing 30% threshold

Board diversity recommendations are consolidated under Recommendation 2.3 (moved from Principle 1). The 2024 proposal to raise the target to 40/40/20 has not been carried forward. No new numerical targets for other diversity characteristics are proposed. A new disclosure about how diversity is incorporated into board succession planning is introduced.

Consolidated

Entities already meeting the 30% target need not adjust their approach.

The decision not to increase the target provides continuity for boards that have focused succession planning around the existing threshold.

The independence assessment framework is materially liberalised

Three key changes: (1) the closed list of factors in Box 2.3 is moved to non-exhaustive explanatory material; (2) the prescriptive three-year look-back period is removed; and (3) the shareholder-influence threshold is raised from 5% to 10%, aligning with the Chapter 10 'position of influence' concept.

Refined

The proposed changes to the independence assessment framework warrant careful attention and will expand the cohort of directors who may be classified as independent. The alignment of the shareholder-influence threshold to 10% (the Chapter 10 ‘substantial shareholder’/‘position of influence’ concept) rather than the Corporations Act’s 5% threshold is a material liberalisation. Directors associated with shareholders holding between 5% and 10% of voting power who would currently be classified as non-independent under the 4th edition may, under the 5th edition, be capable of being classified as independent (subject to the totality of relevant circumstances).

Director appointment recommendations are consolidated into a single Recommendation 2.6

This covers appropriate checks, materials to support elections and re-elections, written agreements, induction and professional development.

Consolidated

A streamlining measure that reduces complexity without substantively changing expectations for board appointment processes.

Principle 3 – Culture and Stakeholder Engagement

Principle 3 is reframed from policy adoption to cultural stewardship

Where the 4th edition focused on discrete policy adoption (codes of conduct, diversity policies, whistleblower policies), the draft 5th edition reframes the principle around organisational culture:

• New stakeholder engagement recommendation (Recommendation 3.1): A new recommendation requiring entities to engage with security holders and other stakeholders to instil and reinforce culture.

• Values and conduct (Recommendation 3.2): Combines the former code of conduct and values recommendations with board approval of these instruments (‘tone from the top’).

• Consolidated breach reporting (Recommendation 3.3): Rather than separate disclosure requirements for each individual policy (code of conduct, diversity, anti-bribery, whistleblower), a single flexible recommendation requires disclosure of material breaches of any key policies and the board’s mechanisms for monitoring culture.

Consolidated

The recasting of Principle 3 around culture, and the new stakeholder engagement recommendation, signals an expectation that governance frameworks go beyond policies-on-paper to demonstrate genuine cultural stewardship. The consolidation of policy breach reporting into a single flexible recommendation (rather than separate disclosures for each policy) is a sensible reduction in prescriptiveness, but entities will need to ensure they have robust internal reporting lines that enable a coherent annual disclosure. 

Principle 4 – Audit and Assurance

New disclosure requirements for report verification and auditor oversight

• Periodic report verification (Recommendation 4.2): Refined to require disclosure of the verification processes for each ‘periodic corporate report’ (a newly defined term in the glossary), broadening the scope beyond financial statements.

• Auditor tenure and quality (Recommendation 4.3): A new recommendation requiring disclosure of auditor tenure and comprehensive audit quality reviews. This aligns with increasing regulatory attention on audit quality and auditor independence. 

New

The auditor tenure and review recommendation responds to growing regulatory and investor focus on audit quality. Entities will need to review whether their audit committee practices support compliance with these disclosure expectations, including documentation of periodic comprehensive reviews.

Principle 5 – Disclosure 

Accuracy is elevated alongside timeliness and balance

The overarching principle is refined to require that disclosure be accurate as well as timely and balanced. This is a subtle but meaningful change that elevates accuracy as a governance commitment (beyond the existing Listing Rule 3.1 continuous disclosure obligation). The duplicative reference to Listing Rule 3.1 in the former Recommendation 5.1 is removed. 

Refined 

The removal of recommendations that simply restate existing legislative requirements is, in our view, unambiguously positive. It reduces the compliance burden on entities, removes a source of confusion where the Principles and the legislation were not precisely aligned, and – most importantly – addresses the risk that governance reporting becomes a mechanical box-ticking exercise rather than a genuine exercise in transparency and accountability.

Entities should be able to focus their corporate governance statements on matters of substance: what they actually do and why, rather than confirming compliance with obligations that are already legally mandated. 

Principle 6 – Security Holder Rights 

Duplicative recommendations are relocated to a new Part II for foreign entities

Principle 6 is recast from ‘respecting’ to ‘supporting’ security holder rights. Recommendations that have become duplicative following recent Corporations Act amendments (former Recommendation 6.4 on polling for substantive resolutions, and former Recommendation 6.5 on electronic communications) are removed from Principle 6 and relocated into a new Part II of the Principles. Part II (Recommendations 9.1 to 9.7) applies primarily to entities incorporated or established outside Australia, where the relevant Australian legislative protections may not apply automatically. 

Relocated

See above

Principle 7 – Risk Governance 

Environmental and social risk disclosure is replaced with a general material risks recommendation

The former Recommendation 7.4 (which specifically called out environmental and social risk disclosure) is removed and replaced with a new Recommendation 7.4 requiring disclosure of material risks generally. ASX’s rationale is that specific environmental and social risk disclosure is now addressed comprehensively by Chapter 2M of the Corporations Act (climate-related financial disclosure), ASIC Regulatory Guide 247 and Regulatory Guide 280.

The overall principle is updated to reflect the contemporary risk governance landscape, including the mandatory climate reporting regime now in effect. 

Replaced

See above

Principle 8 – Remuneration 

New accountability measures for executive pay and NED remuneration; duplicative requirements removed

• Downward adjustment mechanism (Recommendation 8.2): A new recommendation requires entities to have a mechanism to adjust senior executive performance-based pay downwards ‘when appropriate’. Notably, this uses language that is broader than the concept of post-vesting clawback, encompassing pre-vesting adjustments. The formulation ‘when appropriate’ (rather than the more prescriptive ‘after award, payment or vesting’) gives boards flexibility to determine when the mechanism should be triggered.

• Non-executive director remuneration (Recommendation 8.3(a)): A new recommendation that non-executive directors be remunerated solely by fixed fees (cash, shares or units) and superannuation contributions. This effectively codifies existing best practice and draws a bright line against performance-based or equity-incentive remuneration for non-executive directors.

• NED security holdings (Recommendation 8.3(b)): A new recommendation requiring disclosure of the entity’s approach to non-executive director ownership of securities. Notably, no minimum holding requirement is mandated – the recommendation addresses disclosure of the approach rather than prescription of a policy.

• Duplications removed: Recommendations that duplicated section 300A (remuneration disclosure) and section 206J (hedging prohibition) of the Corporations Act have been removed. 

New/Removed

The new Recommendation 8.3 effectively codifies the existing expectation that non-executive directors should not receive performance-based remuneration. While this is already mainstream practice amongst large-cap entities, some smaller listed entities have historically offered equity-incentive arrangements to non-executive directors (particularly where cash conservation is a concern). Those entities will need to consider whether to discontinue such arrangements or explain their departure from the recommendation under ‘if not, why not’.

The introduction of a formal recommendation for a downward adjustment mechanism is a governance accountability measure that boards should take seriously. While many large entities already have malus and clawback provisions in their incentive plans, the new recommendation’s formulation (‘when appropriate’ rather than ‘after award, payment or vesting’) is deliberately broad and invites boards to consider triggers beyond the traditional fraud or misconduct scenarios – for example, material misstatement, reputational harm, or failure to manage material risks.