Proposed changes to the ASX corporate governance principles and recommendations

The 4th Edition of the ASX Corporate Governance Principles and Recommendations were issued in 2019.

On 27 February 2024, the ASX Corporate Governance Council released its Consultation Draft for the 5th Edition of the Principles and Recommendations. The proposed changes are intended to strengthen listed entities’ governance and increase transparency for investors.

The consultation materials are available from the ASX website. The consultation draft includes a number of consultation questions and feedback is sought by 6 May 2024. It is currently envisaged that the fifth edition of the Principles and Recommendations will be issued early in calendar 2025, to potentially take effect for financial years commending on or after 1 July 2025.

Key proposed changes

Whilst the revisions to the ASX Corporate Governance Principles and Recommendations do not change the core principles, there are a number of significant proposed changes to the General Recommendations, deleting a number of General Recommendations that are covered by Australian law and introducing new General Recommendations aimed at strengthening listed entities’ governance, and increase transparency for investors.

A summary of changes is shown below:

The new recommendations or updated disclosure expectations broadly relate to:

• Disclosure of board skills and diversity, and related processes
• The interests of a listed entity’s key stakeholders and how the entity engages with them
• Non-executive directors not receiving performance-based remuneration or retirement benefits
• Performance-based remuneration clawback provisions for senior executives
• Disclosure of the outcomes of code of conduct breaches (on a de-identified basis)
• Disclosure of verification processes for periodic reports, as well as auditor tenure review processes
• Disclosure of a listed entity’s material risks, as assessed by the entity, rather than specific material environmental and social risk.

New recommendations and updated disclosure expectations

General recommendations which are new or have updated disclosure expectations compared to the previous edition include:

• Recommendation 2.2 (board skills held and sought, and the process for assessing skills and experience)
   
• Recommendation 2.3(c) (disclosure of relevant board diversity characteristics being considered)
• Recommendation 3.2(c) (deidentified disclosure of outcomes from code of conduct breaches)
• Recommendation 3.3 (interests of key stakeholders)
• Recommendation 3.4 (diversity and inclusion effectiveness)
• Recommendation 4.2 (verification processes for periodic corporate reports)
• Recommendation 4.3 (disclosure of auditor tenure and review)
• Recommendation 7.4 (disclosure of material risks)
• Recommendation 8.2 (nonexecutive director remuneration)
• Recommendation 8.3 (provisions for clawback of performance-based remuneration and de-identified disclosure of their use).

The ASX Corporate Governance Council intends for these changes to strengthen listed entities’ governance and increase transparency for investors. For example, several changes relate to corporate culture, accountability and integrity of reporting. A number of these disclosures are outcomes focused.

Additional recommendations for entities established outside Australia

The following new recommendations apply only to entities established outside Australia. These recommendations arise from the deletion of recommendations for significant regulation by Australian law:

• Recommendation 9.3 (CEO and CFO declaration for financial statements)
• Recommendation 9.4 (substantive security holder resolutions on a poll)
• Recommendation 9.5 (offering electronic communications to security holders), and
• Recommendation 9.7 (policy on hedging of equity-based remuneration).

Recommendations deleted 

Recommendations have been removed where there is significant regulation by Australian law (including, in some cases, duplication). These are as follows:

• Recommendation 3.3 (disclosure of whistleblower policy)
• Recommendation 3.4 (disclosure of anti-bribery and corruption policy)
• Recommendation 4.2 (CEO and CFO declaration for financial statements)
• Recommendation 6.4 (substantive security holder resolutions on a poll)
• Recommendation 6.5 (offering electronic communications to security holders)
• Recommendation 8.2 (separate disclosure of remuneration policies for non-executive directors, other directors and senior executives), and
• Recommendation 8.3 (policy on hedging of equity-based remuneration).

Please contact your local PKF adviser if you require any gap analysis of your current documentation.