Andrew Hay
Partner •
Brisbane
ASX-plained: Simplification of the ASX Corporate Governance Principles now underway
4 minutes
Although the exact focus of the review is not yet known, we have identified six key areas that are likely be reviewed to ensure they remain fit for purpose, and aligned with market expectations.
The updating and simplification of the ASX Corporate Governance Principles are now underway.
Chaired by former Reserve Bank of Australia governor, Dr Philip Lowe, the Advisory Group on Corporate Governance (AGCG) aims to provide advice to the ASX Board on a revised set of Corporate Governance Principles by the end of 2026, with public consultation on draft revisions expected in Q3 2026.
The AGCG has committed to retaining the eight broad Principles and the "if not, why not" approach, which has broad market acceptance. It's also emphasised the importance of simplification, reducing compliance burdens, and aligning with international best practices.
Why the ASX Corporate Governance Principles need review now
The Principles (currently in their 4th edition and last revised in 2019), are a key framework for promoting good corporate governance in Australia. They operate on a disclosure-based "if not, why not" approach, requiring listed entities to either follow the recommendations or explain any departures. The first edition was published in 2003 by the ASX Corporate Governance Council, a collaborative, industry-based body of 20 member organisations representing a broad cross-section of Australian business and investment stakeholders.
A proposed 5th edition was rejected in February 2025 because the previous ASX Corporate Governance Council couldn't reach a broad consensus on its content. Following this, the ASX convened a Review Panel to assess the process for developing and updating the Principles. The Panel's recommendations, outlined in its September 2025 report, propose significant changes to the governance and renewal process for the Principles.
How the AGCG proposes simplifying the Principles
The AGCG has indicated that simplification involves:
Retaining the eight broad Principles and the "if not, why not" approach, which allows companies to explain deviations from the Principles rather than mandating strict compliance.
Reducing the complexity of the current 63-page rule book to make it more accessible and less burdensome for companies to comply with.
Providing clearer and more practical guidance to companies without creating additional compliance obligations.
Addressing concerns that overly prescriptive governance requirements may discourage companies from listing on the ASX, contributing to a "listings drought" and reducing the attractiveness of the Australian market for foreign investment.
The Principles that need to be simplified
While the AGCG has not yet specified which Principles will be simplified, the following areas are likely to be reviewed, based on industry conversations, commentary and the ASX Corporate Governance Council Review Panel Report to ensure they remain fit for purpose, and aligned with market expectations.
As part of their review, there is no doubt that the AGCG will look overseas to seek some guidance on global trends and what other countries are deeming "fit for purpose" from a corporate governance perspective.
Area
Current issue
Simplification opportunity
Diversity reporting
The draft 5th edition of the Principles proposed expanding diversity reporting beyond gender to include characteristics such as sexuality, age, Indigenous heritage, and disabilities. This proposal was a key point of contention and contributed to the rejection of the draft. Stakeholders expressed concerns about the practicality, compliance burden, and potential overreach of such requirements.
Retain gender diversity reporting as a core focus but introduce broader diversity categories (eg., age, heritage, disabilities) as voluntary disclosures rather than mandatory requirements.
Overlapping requirements
Some aspects of the Principles overlap with existing legal or regulatory requirements, such as executive remuneration, which is already comprehensively regulated under the Corporations Act 2001 (Cth). APRA-regulated financial institutions are also subject to mandatory governance standards under Prudential Standard CPS 510 Governance, including requirements for board composition, remuneration committees, audit committees and risk committees. This duplication creates unnecessary complexity and compliance costs for listed entities.
Streamline governance requirements by removing duplication. Focus the Principles on areas where practices go beyond legal requirements (eg. board independence or stakeholder engagement).
Renewal and update process
The current ad hoc approach to updating the Principles creates uncertainty in the market and can lead to delays in addressing emerging governance issues. The lack of a formal renewal cycle also contributes to inefficiencies in the consultation and update process.
Led by the newly formed Advisory Group of Corporate Governance, it should establish a formal renewal cycle for the Principles, such as a review no less than every three years, to ensure timely updates, market certainty and ensure the Principles align with modern regulatory and community expectations (for example, ESG, cybersecurity and other global best practices adopted by ASX).
Note, ASX Limited's Board holds final responsibility for developing, approving, and issuing the Principles.
Guidance on emerging governance issues
The Principles currently lack sufficient guidance on emerging governance issues, such as environmental, social, and governance considerations, which are increasingly important to investors and stakeholders.
Develop industry-specific ESG guidelines to help companies in sectors like mining, energy, and financial services address unique challenges.
Encourage companies to adopt global ESG frameworks, while maintaining flexibility for smaller entities.
Flexibility and market attractiveness
Stakeholders have raised concerns that overly prescriptive governance requirements may deter companies from listing on the ASX, contributing to the "listings drought" and reducing the attractiveness of the Australian market for foreign investment.
Introduce tiered governance requirements based on company size or market capitalisation. For example, smaller entities could comply with simplified governance standards, while larger entities adhere to more comprehensive requirements.
Length and accessibility
The current 63-page document is seen as lengthy and complex, which may discourage smaller entities from fully engaging with the Principles.
Reduce prescriptiveness and consider separating commentary into a separate document to clarify its non-mandatory nature.
Key takeaways: the best and worst case scenarios
The simplification of the ASX Corporate Governance Principles has attracted considerable commentary over the years from ASIC, academics and industry participants. It's clear that simplification and periodic updates alone are insufficient if the implementation is not fit for purpose. The most significant benefits and potential risks to consider are:
Best case
Simplifying the ASX governance principles could enhance accessibility and reduce compliance costs, particularly for smaller companies, which make up a significant portion of ASX-listed entities. The ASX is characterised by a high proportion of small-cap companies, with 82% of listed entities having a market capitalisation of less than AU$500 million. A streamlined governance framework could alleviate the disproportionate burden these smaller entities face in meeting complex governance requirements, allowing them to focus on growth and strategic priorities.
Moreover, simplification could improve clarity and consistency in compliance. By adopting a more standardised approach, similar to the UK’s Corporate Governance Code, the ASX could provide clearer guidance on key issues such as board independence, diversity, and risk management. This could enhance investor confidence and attract more companies to list on the ASX. Additionally, a simplified framework could encourage greater alignment with global best practices, making Australian companies more competitive in international markets.
Worst case
Oversimplification of the ASX governance principles risks undermining the flexibility that has been a hallmark of the "if not, why not" model. This flexibility has been instrumental in supporting the ASX’s role as a platform for early-stage growth companies, which benefit from the ability to tailor governance practices to their unique circumstances. A rigid, one-size-fits-all approach could deter smaller or emerging companies from listing, pushing them towards private equity markets, which have been growing rapidly in Australia.
Additionally, simplification could lead to a dilution of critical governance standards, particularly in areas like diversity, climate risk disclosure, and cyber-security, which are increasingly important to investors and stakeholders. The importance of robust governance mechanisms in addressing conflicts of interest, enhancing board accountability, and fostering long-term value creation cannot be understated. This is particularly significant given that superannuation funds now hold over a third of ASX market capitalisation and, alongside the rise of private credit, institutional investors have become increasingly active in scrutinising listed companies' governance frameworks, policies, and practices. A less rigorous framework could widen existing gaps, such as the underrepresentation of certain groups and other forms of diversity on boards, or the lack of comprehensive risk management practices, particularly in industries with high systemic importance like financial services.
Disclaimer
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.