Corporate governance is an issue of concern among legislators, regulators, and civil society, in Australia and beyond. Even though this concept has existed for a long time, it gained only popularity in the recent decades following the fall of big corporations because of ethical issues especially fraud. Such incidents raised an understanding of ethical requirements, the duties of the board of directors, and the need for accountability in the management of various companies. This essay presents an overview of corporate governance.

Given the benefits of the “Principles of Good Corporate Governance and Best Practice Recommendation” and the emphasis on the role of the board of directors (KPMG & ASX, 2016), this analysis is based on the assumption that the Recommendations by the Council are correct and should be adopted by all companies, whether listed or not. This leads to a second assumption which states that companies that are not listed or those which do not apply the practices provided by the Council are likely to under-perform. The last assumption is that the effectiveness of the Council’s Recommendations are encouraged  by the fact that they express understanding of the differences in companies and allows for flexibility by not forcing the organizations to adopt the suggested practices.

Corporate Governance and Importance in Corporate Sector

Corporate governance is widely understood as the set of methods by which a company is managed and supervised. It comprises of procedures used to set and pursue a corporation's objectives in social, regulatory, and market environments. The mechanisms applied to check and monitor major components of corporations including policies, practices, and decisions. Since the board of directors usually controls all governance-related duties, the effectiveness of the corporate governance depends on an organization’s board.

The most significant benefit of corporate governance is that it improves transparency and accountability within a company. The distribution of duties among participants of corporate governance is dictated by the principles and the structure of governance. In the modern society, interest in corporation practices was influenced by the fall of large corporations in 2001-2002 (and 2008) as most were involved in accounting fraud. However, good corporate governance eliminates chances of scandals, and fraud, among other criminal activities in a company. This further improves the image of the company before the public eye. A study conducted by Zaman, Aslan & Sidiqui (2014) found a positive relationship between financial performance and transparency/disclosure in the banking sector.

Structure and purpose of corporate governance principles by ASX

There are eight principles that ASX principles and recommendations aim to pomote within listed companies and are the main components of its structure. These are summarized below:

    • Set a strong foundation for management and inspection. A listed company is expected to make known the duties of its board and management, and strategies established for monitoring performance.
    • Structure the board to add value. ASX requires the listed companies to create a board that can effectively conduct the assigned duties hence giving importance to qualities such as size, composition, skills, and commitment.
    • Behave ethically and responsibly. A listed company is expected to obey ethical requirements when performing its responsibilities.
    • Safeguard integrity in reporting. Corporate reporting should be guided by procedures that protect the listed company’s integrity.
    • Provision of timely and equitable disclosures. This applies to all issues that could impact the price or value of the securities of a listed company.
    • Show respect for the rights of security holders. A listed company should provide important information and facilities which its security holders need.
    • Identify and manage risk. A listed company is expected to establish an appropriate risk management framework, which it should regularly review to ensure its effectiveness.
      • Express fairness and responsibility in remuneration. This will help a listed company attract high-quality directors, motivate the executives, and will help in value creation.

ASX uses the Principles and Recommendations to communicate the requirements of corporate governance to the listed companies. The requirements ensure that the listed companies have proper practices and are able to achieve the investors’ expectations. However, the Council does not force the listed companies to adopt the Principles and Recommendations as it understands the differences in in size, complexity, history and corporate culture. This policy was accurately recommended and is effective. A study conducted by KPMG, for example, reported a strong connection between the size of an organization and practice of the recommendation. According to the report 93% of S&P/ASX 200, 64% of ASX 2001-500 and 55% of ASX 501+ companied presented skills matrix (KPMG & ASX, 2016). 

ASX “if not, why not” approach

The governance practices that a company chooses is affected by the decisions of its board of directors, who have the legal responsibility to ensure that the governance structure in place fits the company. For this reason, the board may leave out Principles and Recommendations that they deem inappropriate for the organisation they represent. However, the board must explain the reasons for not adopting the “if not, why not” approach. This information provided about the governance plans is particularly important to the market.

It initiates a discussion between the board and shareholders regarding governance issues, helps security holders decide on voting arrangements for given resolutions, and it enables investors determine if investing in the company’s securities will be appropriate. The study by KPMG also reported that companies that did not adopt “If not, why not” approach gave explanations related to either company size or stage of development, particularly for the ASX 501+. Moreover, the study found that organisations that adopted the approach in 2013 report had successfully established a policy.

ASX monitoring process during implementation of corporate governance 

The Principles and Recommendations are applicable to all ASX-listed companies in Australia or other countries regardless of whether they are managed internally or externally. Even though the Principles and Recommendations are meant for listed companies, other bodies can apply the rules and practices. ASX reports its commitment to assessing implementation encounters of listed companies as well as the response of investors to such procedures. According to Roger (2009), ASX Corporate Governance Council establishes guidelines that are subject to constant changes for the purpose of enhancing flexibility and adaptability to the dynamics of the business environment.

Moreover, the Council reviews the guidelines periodically to ensure market's effectiveness and keep investors' confidence. Furthermore, the guidelines are particularly stressed in ASX listing Rules to maintain the effectiveness of the market and to keep the confidence of investors. Besides, there are approved codes that outline what each participant is expected to do to ensure that business is conducted with integrity, honesty, fairness, and in accordance with applicable laws/regulations. Non-compliance to the code of ethics is regarded as misconduct and could result in counselling or disciplinary action that fits the nature of the misconduct (Rogers, 2009).

History and the Evolution of the ASX Governance Principles 

The ASX Corporate Governance Council was launched on 15 August 2002 to create and offer an industry-wide framework for corporate governance that would present listed companies, investors, the market and Australian community with a practical guide. It united 21 groups from different backgrounds.  The ASX Corporate Governance Council finally released the Principles of Good Corporate Governance and Best Practice Recommendations on 31 March, 2003. It was later revised by the Council in 2007 (second edition) and in 2010 to issue the Corporate Governance Principles and Recommendations (Rogers, 2009). The recommendations considered allowing flexibility due to difference in size, complexity and operational processes of various companies. However, accountability was maintained through the “if not, why not” approach. The promotion of corporate accountability and application of the framework has particularly contributed to evolution in corporate governance in Australia.

The impropriety of corporate governance, however, attracted public and political attention across the globe. In the US, for example, there were a set of laws including Enron and MCI Inc. that both led to lose of public confidence in corporate governance. Sarbanes-Oxley Act of 2002 was, therefore, enacted to restore public confidence. In Australia, HIH and One. Tel also failed leading to passage of CLERP reforms. Similar failures in corporate governance led to enacted of Parmalat regulations in Italy. The ASX Corporate Governance Council, therefore, provided the third edition of its Principles and Recommendations in March 2014, to describe best practice for Australian boards and corporations. Even then, it did not force entities to adhere to the terms. The new recommendations focused on the roles, composition, and responsibilities of the Board. Other areas included shareholder communications, constant disclosure, risk management, as well as economic, environmental and social sustainability risks (ASX, 2016).

The Connection between Listing Rules and ASX Principles

Every ASX listed company is usually expected under Listing Rule 4.10.3 to include either a corporate governance statement in accordance to the rule in its report or the URL link to location the statement on the company’s website. Moreover, the statement is required to explain extend to which the organization has complied with the recommendations of the Council. It encourages organizations to compare the corporate governance mechanisms they have in place with the Council’s recommendations and expects them to find out reasons for lack of conformity.

The Listing Rule 4.10.3 facilitates adoption of governance procedures contained in the recommendations by the Council, but they are not forced to. The board can therefore adopt alternative governance practices as long as a clear explanation is given. The rule thus makes use of the “if not, why not” approach regarding the operation of the Principles and Recommendations and thus ensures that the market receives the required level of disclosure about the governance practices of an organization.

g) The Possible Sources for making Disclosures

A listed company using the Principles and Recommendations is allowed to disclose information on either the annual report or on the company’s website. ASX (2014) reports that the Council expects most listed companies to use the opportunity provided by the third edition of the Principles and Recommendations to publish their governance disclosures, such as corporate governance statement, on their websites as opposed to annual reports.

The third edition further states that disclosures should be easily accessible, preferable on a “corporate governance” landing page on the website. In addition, easily accessible link to the landing page should be included in the navigation menu for the website of the organisation. The Council also allows organisations to present the disclosures anywhere on its website provided that details of the location of materials are provided for parties that may want to read it. If a company instead prefers to include the corporate governance statement in the annual report, the Council requires that all the disclosures be presented under a section named “corporate governance”.

Should Corporate Social Responsibility be delegated to ASX by amending the list of governance principles?

While there is no universally accepted definition for corporate social responsibility, most theorists have acknowledged that it integrates social and environmental issues regarding business operation and in relations among stakeholders. In my opinion, corporate social responsibility (CSR) should be delegated to ASX because of the major similarities between CSR and corporate governance. CSR, for example, operates through the principles of sustainability, accountability and transparency while corporate governance observes transparency, accountability, responsibility and fairness.

Moreover, both aspects recognize that activities of firms have effects on the external environment: business environment, the local society in which it operates, and goes as far as the global market. Similar to corporate social responsibility corporate governance includes economic, legal, and ethical concerns that relate to the operation of the business. While corporate social responsibility targets profitability, the corporate governance aims to achieve objectives that promote profitability such as: creating sustainable value, increasing satisfaction of shareholders, and improving credibility, among others.

Should these Principles be Applicable to Non-listed Public Companies as well?

Yes, the principles should be applicable to non-listed public companies. Researchers have reported that good corporate governance policies lead to improved organisational performance because of effective control and better management strategies that are recommended. There is possibility, therefore that non-listed companies which adopt the practices will experience improvement in running of their businesses. The “Principles of Good Corporate Governance and Best Practice Recommendation” by the Council provides ten principles which guide organizations on risk management, performance enhancement and enforcing accountability. These recommendations are beneficial to both listed and non-listed companies.  


The benefits of corporate governance frameworks have contributed to the growth in its adoption and th rise in the number of companies that are listed with the ASX Corporation Government Council. It is possible, therefore, to attribute the failure of non-listed companies to a lack of implementation of practices that are recommended by the Council. The Principles and Recommendations are set in such a way that they are flexible and are revised periodically to accommodate the changes in the business environment. The release of the third edition of the ASX Corporate Governance Council has particularly focused attention on the board of directors, which needs to be properly composed and skilled to enhance effectiveness in performing their duties.