The ASX Corporate Governance Council (the Council), the entity responsible for setting governance principles and recommendations for ASX-listed companies, is to be replaced. Some stakeholders suggest that the reason is that the Council has, ironically, failed to govern itself effectively enough to carry out its purpose.

The ASX convened an independent expert panel to assess the process after the Council received significant pushback and media attention for failing to reach broad consensus over its proposed 5^th edition of the Principles, despite debating them for a year.

The failure to update the Principles was over the level of prescription that was being injected into the proposed 5^th edition of the Principles. Some investors and many directors claimed the new edition was catering to “woke agendas” with the proposal that board diversification should include sexual orientation, religious beliefs, and socio-economic background. Containing many other diversity-themed proposals, the proposed 5^th edition would increase disclosure and reporting requirements for companies large and small, not to mention the potential for privacy breaches. The proposed Principles raised concerns about the Australian market losing its appeal for foreign investment (see ASIC review HERE).

The ASX took action to appoint an independent panel to review the Council processes.

The review summarised three key observations contributing to the inefficacy of the Council:

1. 1. The size of the Council and way in which members were represented made the process arduous and difficult for everyone to agree on key issues.
   2. The Council was not meeting frequently enough to enable effective consideration of relevant governance developments and make necessary amendments.
   3. A well-resourced and experienced secretariat is needed to facilitate the operations of the Council, which may not be sufficiently fulfilled by only one individual.

The expert panel proposed five material changes to improve the efficacy of the ASX Corporate Governance Council. These comprised of:

1. 1. Shifting responsibility for the Principles to the ASX with support of a small advisory group.
   2. The advisory group to reflect a diverse spectrum of key stakeholders appointed in their individual capacity rather than a representative capacity. They would be expected to apply their experience and expertise to objectively further the interests of listed entities, shareholders and the general market.
   3. Regularly scheduled meetings to consider emerging governance issues. Ad hoc meetings could be held as necessary.
   4. Enact a transparent public consultation process to finalise recommendations by the advisory group, ideally within 6 months of the consultation process starting, and;
   5. Adopt a formal renewal cycle that requires consideration of whether an update to the Principles is due, and if so, commencing the public consultation process.

Importantly, the review noted “strong support” for the ‘if not, why not’ approach. The review urged ASX to keep this function, one which requires companies to provide rationale if they choose not to adopt the Corporate Governance Principles.

Remuneration Principles are not likely to be continued, given that the report specifically stated that the Principles should not address or regulate matters that are already enshrined in law or other regulatory sources. For example, executive remuneration is now comprehensively regulated under the Corporations Act 2001 (Cth). 

The ASX will assume primary responsibility for corporate governance guidelines assisted by an advisory group. It has appointed Philip Lowe, former Reserve Bank of Australia governor, as chair for the new corporate governance advisory group.

The full Panel report can be found HERE.

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