ASX Corporate Governance Council Principles and Recommendations (4th Edition)

The eight principles

The ASX Corporate Governance Council Principles and Recommendations (4th Edition) are structured around eight key principles. These principles provide a framework for listed entities to demonstrate good governance practices. Principle 1 focuses on establishing strong foundations for management and oversight. Principle 2 addresses the structure of the board, aiming for effectiveness and value creation. ASX Listing Rules continuous disclosure requirements are relevant to many governance considerations.

Principles 3 through 6 concern the operational aspects of a listed entity. Principle 3 emphasises a culture of lawful, ethical, and responsible behaviour. Principle 4 concerns the integrity of corporate reporting. Principle 5 relates to timely and balanced disclosure. Principle 6 highlights the importance of respecting the rights of security holders.

The final two principles address ongoing management and accountability. Principle 7 requires entities to recognise and manage risk. Principle 8 focuses on ensuring fair and responsible remuneration practices.

Effective date and structure

The 4th edition was released on 27 February 2019 and became effective for a listed entity's first full financial year commencing on or after 1 January 2020. This means companies needed to be applying the new guidelines from the start of their financial year following this date. The recommendations relating to ASX Listing Rule 10.1 related party transactions are included within this edition.

The structure of the 4th edition remains consistent with previous versions, retaining the same 8 high-level Principles. However, the number of recommendations has increased from 29 in the 3rd edition to 35.

New focus areas are incorporated within the recommendations, including corporate culture, social licence to operate, anti-bribery and anti-corruption, whistleblower protections, and shareholder vote disclosure. Diversity recommendations now specifically reference a 30% gender-diversity objective for S&P/ASX 300 entities.

Listing Rule 4.10.3 disclosure

ASX Listing Rule 4.10.3 mandates that every listed entity include a statement within its annual report, or a separate corporate governance statement linked from it, detailing the extent to which the entity has adhered to the recommendations of the ASX Corporate Governance Council. This disclosure operates on an ‘if not, why not’ basis, meaning that any deviation from a recommendation must be accompanied by a clear explanation. ASX Listing Rules continuous disclosure applies to all disclosures.

To assist with transparency and ease of reference, Listing Rule 4.7.4 requires entities to lodge an Appendix 4G with ASX. This document provides cross-references to the specific location within the annual report where each recommendation is addressed.

Failure to provide adequate disclosure, or providing misleading information, can constitute a breach of the ASX Listing Rules continuous disclosure and may trigger ASX surveillance. It is important to note that neither ASIC nor ASX ‘approve’ the governance arrangements chosen by listed entities; these disclosures are used as a surveillance input.

Practical board response

To implement the ASX Corporate Governance Principles and Recommendations, boards typically refresh charters. This includes charters for the board itself, board committees, the code of conduct, the whistleblower policy, and the anti-bribery policy. This ensures alignment with the recommendations.

A recommended practice is to conduct an annual gap analysis. This analysis should occur at least three months before the financial year end. This timeframe allows sufficient time to remediate any identified gaps before reporting. If an entity chooses not to adopt a recommendation, a specific and substantive explanation for this decision is required, avoiding generic denials. Smaller entities, those outside the S&P/ASX 300, may depart from some recommendations based on cost-benefit considerations, but must still provide this explanation. ASX Listing Rule 10.1 related party transactions may be relevant in such considerations.

Companies must align their corporate governance statement disclosures with broader continuous disclosure obligations. This is mandated under ASX Listing Rule 3.1.