Under the listing rules, companies are required to disclose when they fail to conform with the principles and give reasons why, under a framework designed to encourage boards to abide by the guidelines – but which does not force them to do so.

The council was forced to backtrack on a fourth edition of its principles in 2019 after a proposal to require companies justify their “social licence to operate” was howled down as an example of over-reaching political correctness.

Governance Institute chairman Pauline Vamos said there is a danger that the more prescriptive the principles become, the more they could duplicate, or be at odds with other disclosure regimes, such as climate risk disclosures or gender reporting. Small companies, in particular, could find the regime too onerous and start to consider their listed status, she said.

“The more prescription you apply, the harder it is for smaller organisations to meet the requirements,” she said. “Some organisations would believe these principles are overly prescriptive.”

Ms Vamos also warned a proposal for boards to detail their directors’ skill sets could also result in companies having to disclose commercially sensitive information about their strategy.

In seeking feedback on the new principles, Ms Johnstone said the amendments consider “developments in public policy and regulation, and evolving community expectations”.

Ms Johnstone, who is a consultant to law firm DLA Piper, has a long history of advising boards and senior management on directors and officers duties and legal risk.

‘Box-ticking’

On the expansion of diversity reporting, the council said “an entity’s board benefits from a diversity of thinking and perspectives. In particular, having directors of different ages, race, backgrounds and personal circumstances can help bring different perspectives and experiences to bear and avoid ‘groupthink’.”

Equivalent guidelines in the UK require at least one member of the board should be from an ethnic minority background and in the US, the NASDAQ exchange has introduced phased targets for different cohorts to have one member who is an underrepresented minority (which is currently subject to legal challenge).

While such corporate governance disclosures would generally be made in a company’s annual report or its website, the Governance Institute was among those to question whether “the Council has considered how companies would practically make [the] disclosure”.

“The proposed recommendation is likely to put pressure on boards to tick diversity boxes,” it said in its submission, and warned “diversity characteristics, other than age and gender and in some cases ethnicity, are generally the subject of voluntary disclosure so may not necessarily represent a true picture”.

Despite support from many industry groups, the changes have also triggered alarm in some quarters, particularly with the onset of mandatory climate reporting and other regulatory changes being imposed on companies.

Calls for delay

The Australian Institute of Company Directors has called for a delay in adopting the changes. The group, which is led by chief executive Mark Rigotti, said it had received mixed member feedback on disclosing diversity characteristics in addition to gender.

“Some members have expressed concern about the benefit of prospective disclosure to the market and perceived complexities,” the submission, signed by the AICD’s head of policy Louise Petschler said.

“Members have also observed that it is unclear what this disclosure is seeking to achieve, relative to disclosures in other jurisdictions which focus more directly on current board representation.”

AICD members have expressed concern about disclosing individual skills, warning it could lead to greater director liability and undermine boards’ collective decision-making.

The AICD said the changes created the “risk [of] individual directors being targeted in the event of a governance failure (e.g. cybersecurity incident) where those individuals are assessed to hold a high level of skill in a nominated category”.

Ms Vamos noted the ASX principles stood alongside a raft of other regulations with which companies must comply, such as those from the Australian Securities and Investments Commission and the Australian Prudential Regulation Association in the case of banks and insurers.

One leading fund manager, who asked not be named, said the problem was the principles had got “so far away” from the core business of delivering returns to shareholders.

Other groups including KPMG and Australian Council of Superannuation Investors, led by CEO Louise Davidson, strongly support the changes.

“Appropriate disclosure of director skills and experience is crucial for investor insight into the board’s ability to govern the entity effectively,” ACSI said.

“The proposed changes would give investors further insight into how directors’ skills and experience are assessed and indicate whether the board is satisfied it has the right composition. Such disclosures would also support investor confidence in the nomination process.”

And on diversity: “ACSI’s view is that in selecting directors, the board should consider a range of diversity factors that could add value to board decision-making through varied perspectives, including but not limited to gender, age, LGBTQI+ identity, education and professional experience, socio-economic background, religion, ethnicity, and/or experience living with disability.”

Fund manager Geoff Wilson said greater diversity of gender, backgrounds and skills was a good thing.