By Dr Philip Lowe, Advisory Group Chair
In July, ASX released for consultation its latest Corporate Governance Principles. SIAA speaks with Advisory Group Chair Dr Philip Lowe.
- What was the approach the Advisory Group has taken in drafting the 5th edition?
The approach was evolution, not redesign. The Advisory Group started from the position that the core architecture of the Principles continues to serve the market well, particularly the eight Principles and the ‘if not, why not’ framework.
The priority was to make the framework clearer, more practical and more contemporary: removing duplication with law, reducing prescriptive policy detail, and drawing a sharper distinction between Principles, Recommendations and Explanatory Material. The draft also builds on the former Council’s 2024-25 consultation where proposals were well supported and remain appropriate.
- The ‘if not, why not’ framework is intended to provide listed entities of varying size and market capitalisation the flexibility to determine that a particular recommendation is not suitable for them (and provide reasons for not following the recommendation). How does this draft clarify the basis of the ‘if not, why not’ framework in a way that addresses this?
The draft reinforces that ‘if not, why not’ is about transparency, not uniformity. It does not require every entity to adopt the same governance practices. In the ‘if not, why not’ approach, every entity must report against the Recommendations and, where they take a different approach, explain the alternative arrangements and why those arrangements are appropriate for their circumstances.
The flexibility matters in a diverse listed market. The governance needs of a large ASX 50 entity can differ materially from those of an early-stage listed entity, but investors still need clear explanations that allow them to assess governance quality.
- We have observed a trend in annual reports to provide additional pages to their governance reports at a cost to pages on their business. For investors, transparency about the business is key and disclosure of practice against the Recommendations should not come at cost to quality of disclosure about the entity’s business. Do you think the new draft will achieve this outcome?
Yes, that is part of the objective. Governance disclosure should be useful, not simply longer, and should connect to the entity’s business, strategy, material risks and operating environment.
The draft removes duplication where matters are already dealt with by law or regulation, reduces prescriptive policy content and makes clear that entities report against the Recommendations, not the Explanatory Material. That should help shift the focus from checklist reporting to explanations that are meaningful to investors.
- Can you explain the reasoning behind why the gender diversity objective has been set at least 30% of women and 30% of men for ASX 300 entities?
The current gender objective for ASX 300 boards has been retained because it is well understood and has delivered results. The objective is for boards to have at least 30 per cent women and men – so it acts as a floor. This recommendation has contributed to a significant increase in the number of women on boards, although some companies have not yet met this recommendation. The Advisory Group hopes to see further progress over time.
The draft also broadens the discussion by asking boards to explain how diversity, including thought, experience, perspectives and gender, is considered in board succession planning.
- Which proposed change elicited the greatest debate among the advisory group?
Diversity attracted close attention because stakeholders hold strong views about both its dimensions and the right level of prescription. The draft retains the ASX300 gender objective, and the Advisory Group spent considerable time discussing how to bring into focus other aspects of diversity.
Remuneration also attracted close attention because it is central to aligning executive and director interests with an entity’s objectives and attracting and retaining skilled leaders. The challenge is to have recommended remuneration governance practices that continue to support long-term value creation and transparency without adding unnecessary prescription or duplication.
- How does the draft deal with culture and stakeholder engagement?
The draft places more emphasis on culture in the governance framework. It recognises that a strong culture of doing the right thing and acting consistently with the entity’s values and strategy is a key element of long-term value creation. Boards need mechanisms to understand whether the organisation is acting consistently with its values, and whether serious issues or trends are being escalated.
The draft also introduces a recommendation that boards have regard to security holders and other stakeholders and disclose the processes used to engage with them. It recognises that long-term value creation is supported through effective relationships with a wide-ranging group of stakeholders, including investors, employees, customers, suppliers, communities and regulators.
The Advisory Group on Corporate Governance (AGCG) is an independent advisory body that recommends changes to the Corporate Governance Principles and Recommendations (Principles). Information on the Advisory Group and call for consultation can be found here.
