What Is Corporate Governance and Why Does It Matter?

Wednesday, 26 August 2026

What is corporate governance?

Start with an example. A company approves a policy requiring any transaction above a set value to be escalated to the board. The policy is written, adopted and published in the annual report. Over the following two years, several transactions above that value proceed without ever reaching a board agenda, because the finance team splits them, or classifies them differently, or simply does not connect the policy to the work. The governance framework exists in full. It is not operating.

The distinction between existing and operating is what corporate governance is actually about. The definition still in general use comes from the Cadbury Report, published in the United Kingdom in 1992, which described corporate governance as the system by which companies are directed and controlled. Direction covers strategy, appetite for risk and the decisions that set the course. Control covers the checks that reveal whether the organisation is doing what it said, including reporting, audit, delegations and the board’s oversight of management.

It helps to be clear about what governance is not. It is not management, since the board directs and monitors rather than runs the organisation. It is not compliance, though compliance sits inside it, because an organisation can meet every legal requirement and still be governed badly. And it is not the documents. Charters, policies and terms of reference are the record of a governance system, not the system itself.

What does a governance framework contain?

There is broad international agreement on the components. The G20 and OECD Principles of Corporate Governance, revised in 2023 and used as the main international benchmark, are organised around six areas: the basis for an effective framework, the rights and equitable treatment of shareholders, institutional investors and intermediaries, disclosure and transparency, the responsibilities of the board, and, added for the first time in that revision, sustainability and resilience.

Australian listed entities work to a more specific set. The ASX Corporate Governance Principles and Recommendations are built on eight principles covering foundations for management and oversight, structuring the board to be effective and add value, instilling a culture of acting lawfully, ethically and responsibly, safeguarding the integrity of corporate reports, making timely and balanced disclosure, respecting the rights of security holders, recognising and managing risk, and remunerating fairly and responsibly. They apply through the if not, why not approach, meaning an entity discloses its practices and, where it has not followed a recommendation, explains why and what it does instead.

That approach is the interesting part of the Australian model. It assumes there is no single correct governance structure, since what suits a large bank does not suit a small listed miner, and it puts the burden on the board to justify its choices rather than to tick a list. The weakness is the same as the strength: an explanation can be well drafted and still describe a practice nobody follows.

Why are the rules being rewritten right now?

Anyone learning this material in 2026 is learning it during a revision. The fourth edition of the ASX principles has been in force since February 2019, and a draft fifth edition was released for public consultation on 21 July 2026 by the Advisory Group on Corporate Governance, which built on an earlier 2024 consultation that drew more than 100 written submissions. The Advisory Group intends to make a recommendation to the ASX Limited Board by the end of 2026.

The draft keeps the eight principles and the if not, why not approach, and is described as refining rather than redesigning the framework, with new or more specific recommendations on matters including remuneration arrangements, stakeholder engagement, board oversight of culture and the integration of diversity into succession planning. Two things follow for anyone studying or applying this. First, the fourth edition remains the operative document until the change takes effect, so it is what current disclosures are assessed against. Second, the direction of travel is worth noticing, because the areas being made more explicit are the areas where boards have most often been found wanting.

What does it look like when governance fails?

Failure is rarely the absence of a framework. It is a framework that exists on paper and does not function. When Adam Bell SC reported on The Star in 2022, the New South Wales regulator found the report identified systemic governance, risk and cultural failures at the Sydney casino, with Chief Commissioner Philip Crawford describing it as evidence of an extensive compliance breakdown across key areas of the business, while noting that the majority of the eight thousand employees were doing the right thing. The casino was found unsuitable to hold a licence, its licence was suspended, and it was fined $100 million.

The more instructive part is what happened next. A second inquiry reported in 2024 and found The Star still unsuitable, still lacking effective governance processes and insufficiently independent from its parent company, with six of the thirty recommendations from the first report not implemented or not completed, a remediation plan whose deadlines proved too ambitious, and a group leadership team described as dysfunctional across the intervening period. Two years, a new plan and considerable expenditure had not produced a governed organisation.

The lesson generalises well beyond casinos. Governance is not fixed by adopting a document, and remediation is slower than the people writing the plan expect. What broke was the ordinary machinery: escalation that did not escalate, oversight that accepted assurance instead of evidence, and a culture in which raising the problem was harder than not raising it. Every one of those is present in organisations that will never see a regulator.

Why does corporate governance matter?

Three reasons carry most of the weight. It allocates authority in advance, so that when a difficult decision arrives the question of who decides has already been answered rather than being negotiated under pressure. It creates a second pair of eyes, which is the entire point of separating the board from management, because people close to a decision reliably see it less clearly than people at one remove. And it produces a record, so that a decision can be examined later by someone who was not there.

The costs of getting it wrong are asymmetric, which is the practical argument. Good governance rarely announces itself and its benefits are largely invisible, consisting of things that did not happen. Poor governance is invisible too, right up until the point where it is a regulator, an inquiry or a masthead, at which stage the cost is not proportionate to the failure that caused it.

The gap most directors and senior managers describe is not knowing what the principles say. It is knowing what to do when the framework and the pressure in the room point in different directions: when management assurance is confident and the evidence behind it is thin, or when asking one more question will visibly annoy people. Working through those situations is what AcademyGlobal (AG) built its Diploma in Corporate Governance around, using the decisions participants face on their own boards and committees rather than illustrative ones.

The question worth asking of any governance framework is not whether it exists. It is when it last changed somebody’s mind.

Frequently asked questions

What is the difference between corporate governance and management?

Management runs the organisation day to day. Governance sets the direction, defines the limits of management authority and monitors whether the organisation is doing what it said it would. The board governs and the executive manages, and confusion between the two produces either a board that meddles or a board that rubber stamps.

Is corporate governance a legal requirement in Australia?

Parts of it are. Directors have statutory duties under the Corporations Act and listed entities have disclosure obligations under the ASX Listing Rules. The ASX principles themselves are not mandatory in the same way, since listed entities must disclose the extent to which they follow the recommendations and explain any departures rather than comply absolutely.

Do small organisations and not for profits need corporate governance?

Yes, though the structure should match the scale. A small board still needs clear delegations, a conflict of interest process, reliable reporting and someone able to say no. Not for profits often carry additional obligations to regulators, funders and members, and the consequences of weak governance can be severe because reserves are thin.

What does if not, why not actually mean?

It means a listed entity discloses whether it follows each ASX recommendation and, where it does not, explains why and what it does instead. The approach recognises that appropriate governance varies with size, ownership and circumstances. It only works if the explanation is genuine, since a plausible explanation for a practice nobody follows defeats the purpose.

Who is responsible for corporate governance?

The board holds ultimate responsibility, including for setting risk appetite and monitoring management. The chair carries particular responsibility for board effectiveness, the company secretary for the machinery, and management for operating within the framework. In practice governance quality depends most on whether senior leaders treat challenge as useful or as disloyal.

References

ASX. Corporate Governance Principles and Recommendations.

Institute of Chartered Accountants in England and Wales. The Cadbury Report (1992).

NSW Independent Casino Commission. Star Unsuitable to Hold Casino Licence and 2024 Independent Inquiry into The Star.

OECD (2023). G20 and OECD Principles of Corporate Governance 2023. OECD Publishing, Paris.