ASX Corporate Governance Principles: Evolution, not redesign

Short and clear on "if not, why not" – without the burden of guidance already covered by regulation – the new ASX Corporate Governance Principles is more evolution than redesign.

ASX Corporate Governance Principles

Boards, investors and market stakeholders are engaging with the consultation draft of a fifth edition of the ASX Corporate Governance Principles and Recommendations. The Principles are a vital part of Australia's corporate governance strength.

Since 2003, they have played a key role in driving good governance practices in listed companies.

The consultation draft has been developed by the ASX Corporate Governance Advisory Group. Chaired by Dr Philip Lowe, this new group replaced the former 17-body ASX Corporate Governance Council that failed to reach consensus on updates in 2024 (Hear Dr Lowe on the AICD's Director Download podcast).

The new draft draws on lessons from that failed process and criticisms about prescription, ESG focus, and overlap with regulation in the Principles. The advisory group has described its review as "evolution, not redesign". That said, there are some great steps forward in the consultation draft.

First, it is shorter – no small feat and something legislators could learn from. Second, it is clear in its ambition to deliver principles-based, market-led, good governance outcomes – and to give the "if not, why not" approach a new lease of life. Third, it winds back detailed commentary. The draft removes more prescriptive detail (fewer "shoulds") and makes it clear explanatory material is not expected to be reported against.

Fourth, the draft strips out guidance where law or regulation has the topic covered. This keeps the focus on governance guidance, not legal compliance.

As the consultation notes, governance expectations continue to evolve and increase, and the draft adopts new approaches in areas including board composition, oversight of culture and governance of remuneration. Some notable elements include:

• Board skills: A focus on board collective skills and experience, not ranking individual skills. A board skills matrix is no longer required.
• Director independence: Changes to the definition, including removing the three-year look-back period and lining up substantial shareholder influence thresholds with the ASX Listing Rules (10% holdings).
• Culture and stakeholders: Boards should have regard to security holders and other stakeholders when acting in the best interests of the entity. The AID's Directors' Best Interests Duty practice statement is referenced.
• Audit oversight: Boards should disclose when their auditor was appointed and last comprehensively reviewed, including tenders and tenure.
• Risk management: Disclosure of social and environmental risks has been replaced with disclosure of "material risks" and how these are managed.
• Remuneration: Boards should be able to adjust executive pay outcomes downwards. Directors should be paid in fixed fees (cash or shares). However, the draft acknowledges that for some firms (startups/exploration) it will be appropriate to consider director fees in options (with "if not, why not" disclosure).
• Diversity: The 2024 review came unstuck in part because of concerns about expanding the scope of board diversity disclosures. The new draft retains the current 30% target (for women and men) on boards for ASX 300 companies. Disclosure of specific characteristics outside gender is not proposed, but entities are asked to disclose how diversity is covered in board succession planning. 

One challenge with the Principles is that over time, deviation has been viewed negatively. The draft aims to strengthen their "if not, why not" basis. Whether this works will depend on the quality of board judgement and disclosures, and the willingness of market participants to engage with "if not, why not" exceptions.

Feedback was due in September, with the advisory group intending to recommend a final version to the ASX board this December, for commencement in 2028.

Audit reform options: Key issues for boards

Audit firm conduct is in the spotlight, with KPMG the latest multidisciplinary partnership to face significant political and public scrutiny for poor corporate conduct. Federal Treasury has been consulting on audit firm reforms.

The proposals are wide-ranging – from structural and operational separation of audit partnerships to new licensing and mandatory rotation of audit firms every 20 years. If implemented, the reforms would see a move towards a more heavily regulated audit sector in Australia, in line with measures implemented in overseas jurisdictions.

High-quality external audit is a critical pillar of Australia's corporate governance framework and well-functioning capital markets. Strong independent audits are a vital governance tool and the AICD will support regulatory change where it strengthens audit quality and independence.

The AICD supports measures to strengthen firm-level accountability and governance, including a licensing regime with ASIC oversight and governance standards for large audit firms. We have called for the extension of whistleblower protections to partnership firms, a current corporate law gap.

We have supported proposals for reporting entities to run audit tenders at least every 10 years, but also encouraged policymakers to consider alternatives to a hard legislative limit on audit firm rotation. The AICD has also encouraged alternatives to prescriptive legislative reform, such as "comply or explain" disclosures or shareholder approval, to reduce compliance costs and regulatory burden.

We have not supported calls for structural changes to audit firms, arguing improved governance and firm-level regulation can be achieved with other reforms. We encourage directors/audit committee members to follow developments closely as they review audit engagements and services. 

This article first appeared as 'On principle' in the Oct/Nov 2026 issue of Company Director Magazine.