If investors and regulators want to understand why the number and quality of ASX-listed entities is shrinking—and why the better ones are being picked off by private equity – they should listen to David Gonski. After all, Gonski is dubbed by The Australian Financial Review (AFR) as “the chairman of everything.”
Speaking recently at an AI discussion hosted by law firm Ashurst, Gonski – whose corporate ‘successes’ include chairing ASX and ANZ – remarked that “the No. 1 thing for directors now is to understand their business.”
Gonski’s observation is striking and a classic Kinsley gaffe: an accidental disclosure of an uncomfortable truth that reveals more about the failings of ASX listed entity governance practice than perhaps intended. Why are boards filled with directors who often lack any real understanding of the businesses they are charged with overseeing?
Independence often means ignorance
The answer lies in the ASX’s decades-long preference for ‘independent’ directors, a doctrine zealously advanced by governance bodies and the professional director class that thrives on it. In practice, independence often means ignorance. Directors are appointed for their detachment rather than their expertise or alignment. They delegate stewardship to managers but often lack the knowledge to meaningfully evaluate them. Such arrangements may serve the careers of professional non-executives, but they do little to protect shareholder interests.
Private equity takes the opposite approach. It installs directors with real knowledge and financial alignment – people chosen for what they know and what they stand to lose. Unsurprisingly, private equity leaders claim, with some justification, that their governance model delivers superior financial returns through superior governance.
The contrast could not be sharper: listed company boards dominated by part-time independents with negligible stakes, versus private boards where directors and managers have real skin in the game.
In another domain, we have witnessed the effects of placing individuals with limited understanding in charge of intricate and complex organisations, who then proceed to make serious mistakes yet the consequences they face are minimal. That domain is government.
There is no evidence that independent-heavy boards improve outcomes. On the contrary, research by Professor Peter Swan and others demonstrates that the exclusion of significant shareholders and knowledgeable insiders degrades governance standards and erodes performance. Yet the ASX and the Australian Institute of Company Directors continue to promote a governance model that rewards detachment over accountability.
The consequences are visible in the market itself. The ASX is hollowing out with a shrinking number of listed entities. Those exiting are not just small players but large, profitable, dividend-paying enterprises like Sydney Airports, CSR, Newcrest Mining, and Suncorp Bank. They have been replaced by fewer, smaller, and more speculative firms. Quality, maturity, and diversity are in decline. This is not a temporary lull—it is a structural weakening of Australia’s public markets.
The reason is straightforward: private capital is increasingly cheaper than public capital, and governance is a big part of that calculus.
For over 250 years, economists have stressed that directors need skin in the game. Instead, ASX rules penalise material director ownership, deeming significant shareholders ‘non-independent’ and sidelining them from boards. Directors without stakes in the business can line their pockets while bearing little risk themselves. This misalignment raises agency costs—the classic problem in principal-agent theory, where managers and directors pursue their own interests rather than those of shareholders.
ASX’s preferred governance model is that the ideal board is large, diverse, and dominated by independent non-executives with no material stake in the company. The preference for this model is not based on evidence but rather the ‘vibe’. This model has been repeatedly tested in practice and has repeatedly failed shareholders, as the recent James Hardie acquisition of AZEK illustrates. Compliance with governance ‘principles’ may tick the boxes, but it does not protect investors from value destruction.
The ASX needs a better model
The stakes are far larger than the ASX’s own relevance. A shrinking, less diverse market limits opportunities for ordinary investors. Public markets also play a crucial role in transparency, price discovery, and wealth mobility. Their decline forces savers and superannuation funds into costlier private channels dominated by gatekeepers who extract their own tolls. The result is diminished returns for everyday Australians.
The corporate governance industrial complex – regulators, academics, activists, journalists, and the professional director class – has entrenched a system that rewards symbolism over substance. They promote independence and stakeholder rhetoric while ignoring the fundamental truth: effective governance requires aligned incentives and genuine accountability to owners. Private equity has embraced this reality. The ASX, meanwhile, continues to drift.
Unless ASX rethinks its preferred corporate governance model and restores the alignment between owners and management, its public markets will continue to shrink in size, quality, and relevance. And while the consultants and ticket-clippers may prosper, the cost of failure will be borne by the investors who can least afford it: ordinary savers whose superannuation depends on strong, transparent, and accessible public markets.
As Black Swan author Nassim Taleb posited: “When skin in the game is absent, so is accountability.” Without fundamental change, the ASX risks becoming a marketplace not of owners, but of caretakers, and this is no foundation for enduring prosperity.
Dimitri Burshtein is a principal at Eminence Advisory. Peter Swan AO is emeritus professor of finance at the UNSW Sydney Business School.