The ASX Just Made Corporate Governance Easier to Fake

The Australian stock exchange just made corporate governance harder to police.

Not by removing the rules entirely — ASX keeps its famous "comply or explain" model (officially "if not, why not"), where listed companies must either follow each recommendation or explain why they didn't. That system is almost 30 years old and has never actually forced anyone to do anything. But the new draft of the 5th edition of the ASX Corporate Governance Principles, released on July 21 by ASX as the draft 5th edition, strips away enough of the guardrails that the "explain" lane is about to get a lot wider.

The basic point is that ASX is moving from prescribing specific governance behaviors to trusting boards to figure it out themselves. That sounds mature and sophisticated. It is also the sort of shift that makes it much easier for a board in trouble to say the system worked fine.

Let's walk through what actually changed.

The board skills matrix — the one place where investors could check whether a company's directors actually had the competencies the company claimed to need — is no longer mandatory. Boards still have to disclose the skills they think are necessary and how they assessed them. But the formal matrix, which at least forced a side-by-side view of who sat on the board and what they were supposed to be good at, is now optional. The ASX calls it "evolution rather than redesign." That is a fair description of a system becoming less constraining.

Director independence rules are liberalized. The old framework had a closed list of factors that could disqualify someone and a hard three-year look-back period. Both are gone. The threshold for when a substantial shareholder can influence a director is raised from 5% to 10%, aligning with a separate chapter of the listing rules. In practice, directors who were borderline independent before may now comfortably fit the label. The ASX is not saying anyone is corrupt. It is saying that a board should be trusted to draw its own line on where loyalty ends and independence begins. That is a line that tends to be drawn in the board's favor.

The prescriptive commentary boxes that used to tell companies exactly what to do have been cut down. The number of recommendations dropped from 38 to 36 per the ASX advisory group's July meeting, with the trimmed ones mostly duplicating obligations already in the Corporations Act. Which is true — but some of those duplications existed for a reason. When a rule appears in two places, a company can't accidentally miss it in one. Removing overlap is cleaner for compliance officers; it is less helpful for investors trying to figure out whether governance was actually done or just not required.

On culture, the shift goes in both directions. Boards must now disclose how they engage with security holders and other stakeholders — a new requirement that sounds like more scrutiny. But the separate breach-reporting requirements for individual policies (code of conduct, diversity, anti-bribery, whistleblower) are collapsed into a single flexible disclosure about "material breaches." The word "material" does a lot of heavy lifting there. A board that wants to show it has a clean house can now argue that most breaches weren't material.

The most visible change for ordinary investors may be in remuneration. Performance-based pay for senior executives now must include a downward adjustment mechanism — not just clawbacks after vesting, but pre-vesting discretion to cut payouts when outcomes don't match expectations. Non-executive directors, meanwhile, must be paid solely through fixed fees. Performance-based NED pay is effectively off the table under the new 5th edition draft. That last one matters because it severs a link between boardroom optics and the board's own pocketbook. If the NEDs aren't getting equity incentives, their remuneration committee isn't also their investment committee.

Here is the machine, plainly. ASX operates on a disclose-or-defend model. Companies publish a corporate governance statement and say, for each principle, "we comply" or "we don't, and here's why." Investors are supposed to read the "why" and decide whether to be alarmed. The problem with this system has always been that most investors don't read governance statements, and even those who do have no way to compare one "explain" against another. By reducing prescription, ASX has widened the range of acceptable explanations. That is the structural move.

Now, why does this matter now, rather than in two years when the new edition actually takes effect? Because the timing tells you what ASX thinks is broken about the current system. It isn't that companies were doing too little governance. It's that too much of the framework felt like box-ticking — compliance theater that generated paperwork without improving outcomes. The ASX's own advisory group, chaired by former RBA governor Philip Lowe, apparently concluded that fewer rules, better targeted, would produce better behavior than more rules, poorly enforced.

The counterargument is obvious. If you remove the guardrails on a system that already depends on voluntary compliance, the result is less compliance, not better compliance. Boards that were cutting corners will find new justification. Companies under performance pressure — which is most of the ASX these days — will use the looser framework to argue that what looks like weak governance is actually board judgment in action.

That's where Endeavour Group is useful as a case study, even if they haven't issued a specific announcement about the new principles. Endeavour, which owns Dan Murphy's and BWS across 1,700+ stores and 350+ hotels, was spun out of Wesfarmers in 2021 and has been limping toward profitability since. The new CEO, Jayne Hrdlicka, started in January 2026 after being appointed in April 2025. FY26 results showed underlying EBIT of A$845 million, down from A$926 million the prior year, with A$372 million in asset write-downs on top of a "brutal reset" underway and a target of A$300 million in cost savings by FY29. The stock is at about A$59.50, down roughly 8.5% year to date and 13% over the past four months.

Put that company into a governance framework where skills matrices are optional, independence is softer, breach reporting is flexible, and the board gets to decide what counts as material — and you have a scenario where the gap between the governance statement and the investor's experience could widen considerably. Endeavour's board doesn't need to lie. It just needs to exercise the judgment that ASX has now explicitly trusted them with.

Board: "Our governance is sound." Investor: "Your EBIT fell and you wrote down A$372 million in assets." Board: "The new principles say we get to assess our own risk framework, and we consider these restructuring costs to be operational, not governance-related."

That is not fraud. It is the system working exactly as designed. Which may be the more interesting point.

The practical question for investors is whether the "if not, why not" disclosure will become more of a real explanation, as ASX hopes, or more of a polite form letter. The answer probably depends less on ASX than on whether investors and their intermediaries decide to treat governance statements as actual decision inputs rather than compliance artifacts. Right now, neither side seems to be doing much of that. A looser framework doesn't fix a broken incentive.

The simplest model is this: when the regulator makes compliance easier, compliance doesn't necessarily improve. It becomes cheaper. And when governance becomes cheaper, the boards that need the least governance are the ones who celebrate most.