Overview
The Australian Securities Exchange (ASX) Corporate Governance Council (Council) has recently released its consultation materials for the proposed 5th Edition of the Corporate Governance Council Principles and Recommendations (Corporate Governance Principles). The Council's consultation draft sets out 33 general recommendations and seven additional recommendations that are applicable in specific circumstances (Consultation Draft).
The Consultation Draft maintains the same eight central principles of the 4th Edition of the Corporate Governance Principles, with proposed amendments to the expression of six of these principles. The proposed new language incorporates the entity's value, risk appetite, stakeholders, strategic objectives, and long-term sustainable value into its corporate governance.
The Consultation Draft does not propose to change the current 'if not, why not' approach. Therefore, ASX listed entities will still need to disclose the extent of their compliance with the proposed 5th Edition of the Corporate Governance Principles in accordance with Listing Rule 4.10.3.
Time Frame
The Council has anticipated that the final version of the 5th Edition of the Corporate Governance Principles will be released in early 2025, for the possible commencement on or after 1 July 2025.
This means that the proposed recommendations may apply to entities for their (as applicable):
- Annual report ending 30 June 2026; or
- Annual report ending 31 December 2025.
The ASX has invited comment on the consultation draft and therefore there may be changes in the current proposed 5th Edition of the Corporate Governance Principles.
Next Steps
The Council is now seeking submissions from interested stakeholders on the consultation materials and answers to the consultation questions. Submissions can be made via the online ASX portal and close on 6 May 2024.
Key Changes
What Is New?
Some of the proposed recommendations in the Consultation Draft include:
What Is Proposed to Be Removed?
To reduce the duplication of requirements that are sufficiently regulated by Australian law, some of the general recommendations from the 4th Edition of the Corporate Governance Principles have been removed, or moved to the proposed additional recommendations and amended to only apply to listed entities established outside of Australia (that are potentially not captured by Australian regulatory regimes e.g. the Corporations Act).
This includes removing the current general recommendations to have and disclose an anti-bribery and corruption policy and a whistleblower policy – given those obligations are already regulated under other Australian law provisions.
Recommendations proposed to be moved to the additional recommendations applicable to entities established outside of Australia include:
- Chief Executive Officer (CEO) and Chief Financial Officer (CFO) declaration and approval of financial statements;
- Substantive security holder resolutions be decided by poll;
- Providing security holders with the option to receive electronic communications; and
- Having a hedging policy for equity-based remuneration schemes.
Although these are proposed to be deleted from the general recommendations in the 5th Edition of the Corporate Governance Principles, Australian listed entities must remain compliant with each of these recommendations in accordance with Australian Law.
What Does This Mean for Listed Entities?
Listed entities should begin to:
- Review their code of conduct and relevant policies in light of new recommendations;
- Evaluate remuneration structures of senior executive and NEDs;
- Consider their gender diversity targets and timeframes for meeting these objectives; and/or
- Assess their key stakeholders and engagement processes, and material risks.
How can we help?
As mentioned above, we can expect that there may be further revisions to the final draft after stakeholder engagement, which we will continue to monitor and provide an update once the final 5th Edition of the Corporate Governance Principles is released.