ASX Governance Council to drop recommendations for clawback and limited director tenure

The now-finalised third edition of the ASX Corporate Governance Council (Council) Principles and Recommendations published on Thursday 27 March has dropped proposed recommendations included in the discussion paper that:

  • Companies have a remuneration ‘clawback’ policy (recommendation 8.3)
  • Director tenure over 9 years might cause doubts about the independence of a director (box 2.1, now box 2.3)

In addition, disclosure of a board skills matrix is now required – albeit with some caveats regarding the disclosure of individual director’s skills and commercially sensitive information.

The new 3rd edition of the Principles and Recommendations also includes many “refinements” to the previous remuneration recommendations.

We provide a summary of the more significant changes below.


Most of the issues associated with the clawback recommendations were identified in Guerdon Associates’ submission to the Council on the consultation paper (see HERE).

However, rather than fixing the obvious definitional issues, and despite almost complete support for the proposed recommendation from the investor community, the Council has decided not to proceed with proposed recommendation 8.3. Instead, it has included a broad reference in the commentary guidance to recommendation 8.2 that:

“The disclosures regarding the remuneration of executive directors and other senior executives should include a summary of the entity’s policies and practices regarding the deferral of performance-based remuneration and the reduction, cancellation or clawback of performance-based remuneration in the event of serious misconduct or a material misstatement in the entity’s financial statements.”


The decision to exclude the tenure proposal came after the Council met resistance from some of the country’s biggest companies.

This opposition is best understood by a review of the data. An investigation by The Wall Street Journal found that 21% of non-executive directors in the ASX 50 had served on their respective boards for nine or more years. Hence, a large number of these companies provided submissions to indicate that the guideline was not a good idea.

Part of the reason for the change may be the potential for disruption that effectively introducing a tenure limit would cause.

A number of investor groups and proxy advisers expressed their support for the change, but other stakeholder groups opposed including tenure at all, while some agreed that length of tenure was a relevant factor in assessing independence but considered that prescribing nine years (or any other fixed period) was arbitrary and subjective.

A number of financial services organisations also expressed concern that APRA has, in the past, applied the Council recommendations to its regulated institutions on a mandatory basis and therefore the change could result in all directors with a tenure of more than nine years on the board of an APRA-regulated institution no longer being considered by APRA to be independent.

To address these issues, Council has removed the reference to nine years tenure from what is now box 2.3 and replaced it with a reference to a person having been a director of the entity “for such a period that his or her independence may have been compromised”.

It has also included the following guidance in the commentary:

“The Council recognises that the interests of a listed entity and its security holders are likely to be well served by having a mix of directors, some with a longer tenure with a deep understanding of the entity and its business and some with a shorter tenure with fresh ideas and perspective. It also recognises that the chair of the board will frequently fall into the former category rather than the latter. The mere fact that a director has served on a board for a substantial period does not mean that he or she has become too close to management to be considered independent. However, the board should regularly assess whether that might be the case for any director who has served in that position for more than 10 years.”

So, now listed entities will need to explain why the independence of directors with more than 10 years service has not been compromised by their length of service.


The revised Principles and recommendations retain the “encouragement” in the consultation draft for an enhanced focus on risk, and the establishment of board risk committees (either stand-alone, or in combination with the audit committee). In addition, the elevation of “sustainability risk” as a category of risk singled out for attention by the board remains, despite the strong views expressed that this is one of several sources of risk, and does not need its own focus.

Board skills and evaluation

The Council has strengthened proposed recommendation 2.5 (now 2.2) regarding the disclosure of a board skills matrix, as reviewed by us HERE.

It is pleasing to see that our concerns regarding the commercial sensitivity of information have been addressed in the amendments. Entities are given the flexibility to disclose the mix of skills and diversity that the board either currently has or is looking to achieve, as well as to make collective disclosures across the board as a whole.

Similar concerns about the commercial sensitivity of the proposed disclosures have also been addressed in the commentary to the board performance evaluation Recommendation 1.6, which now includes: “…when disclosing whether a performance evaluation has been undertaken the entity should, where appropriate, also disclose any insights it has gained from the evaluation and any governance changes it has made as a result.” (our emphasis)


There have been a host of refinements made to produce the 3rd edition remuneration recommendations. Some of these are unfortunately victims of fashion, or, in the Council’s own words, “current market practices”, which may not necessarily underpin good governance. Here is a summary of the main (but not all) changes (with Guerdon Associates emphasis and commentary added as appropriate).

Recommendation 8.2 (disclosure of executive and non-executive director remuneration policies) has been amended:

  • to replace the reference to “performance shares” in the Guidelines for Executive Remuneration and for Non-Executive Director Remuneration with “performance rights” (to reflect current market practices in remuneration). GA comment: This is still not perfect. Performance rights are a subcategory of equity that is performance contingent. “Share rights” is the more generic term, and will capture rights that are also only service or time contingent. 
  • to remove the statement in the Guidelines for Executive Remuneration that performance-based remuneration “should take into account individual and corporate performance” (a number of respondents considered this to be unduly restrictive)
  • to amend the Guidelines for Non-Executive Director Remuneration to state that it is “generally” acceptable for NEDs to receive securities as part of their remuneration to align their interests with the interests of other security holders and also to add after the statement that “non-executive directors generally should not receive options” the words “with performance hurdles attached” (to take account of submissions that options are frequently used by cash-strapped, start-up companies to attract and retain quality directors). GA comment: At last, there is recognition that options are often the only form of NED pay that is feasible for cash strapped start-ups and explorers that are a backbone of economic growth. 
  • to change the references in the Guidelines for Non-Executive Director Remuneration to non-executive directors not receiving performance-based remuneration because it may “compromise their independence” to “compromise their objectivity” (to avoid conflicting with the list of factors affecting independence outlined in box 2.3). GA comment: This is perhaps not the best outcome. In our experience NED performance-based pay would compromise independence, in that it raises conflicts of interest between the judgment of performance by NEDs and their pay outcome, and the fact that where this occurs, NED performance pay is usually on the same basis as the reward for executives.


The third edition of the ASXGC Principles will take effect for an entity’s first full financial year commencing on or after 1 July 2014.

Changes to the ASX Listing Rules to give effect to the new Principles will also be made, and the ASX has indicated it will be making a separate announcement about those changes shortly.

The new guidelines, as well as a detailed discussion of the changes and consultation provided by the Council is available HERE.

© Guerdon Associates 2024
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