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Why the ASX is losing Its best companies

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.

 

14 Comments
Ian B
September 24, 2025

Agreed 100%. In many cases, independent directors not only don't really understand the business but my perception is that too many are on several boards which makes it makes it even more difficult to stay abreast of all pertinent information.

Ruth from Brisbane
September 24, 2025

I am impressed with most of the content in this article. I think the party is over. The children have had their fun kicking over the furniture. Now, it is time for adults to take charge and get the room cleaned up. I too would appreciate a 'like' facility.

Glen Cunningham
September 21, 2025

David Gonski is on the mark. In yesterday’s New York Times they dealt with this issue. There is no supporting evidence that independent directors add to shareholder value. Most if not all do not understand the business they are responsible for. No wonder the decline in listed companies. Why list?

The article in the NYTimes pointed out that there are companies that advise institutions on governance that have 200 criteria.

Look at the Santos disaster. Would it occurred as a private company in which shareholder value was paramount?

Dimitri Burshtein
September 22, 2025

Glen

Can you please provide either the title or link to this NY Times article. Thanks.

AccentOnYouenglish dot com
September 25, 2025

Hello Dimitri there was this article in the Opinion section of NYT but not 'yesterday'? https://www.nytimes.com/2025/09/15/opinion/stock-market-corporate-governance-ipo.html

Angus
September 21, 2025

"The corporate governance industrial complex". You should trademark it. Well written.

Bruce Bennett
September 19, 2025

My takeaway from this excellent article is to consider carefully when investing in companies with large boards where few directors understand the business or have substantial skin in the game.
I also note that even profitable, well managed companies have their remuneration reports voted down only because they don’t have any independent directors (I.e. directors who hold no shares and don’t understand the business).
A recent Firstlinks article also highlighted the benefits of investing in founder led companies.

david edwards
September 19, 2025

One antidote to opportunistic takeovers is shareholders waking up !! Don't forget Mr David Gonski was Chairman of Sydney Airports when it was taken over while in a temporary price lull. Many good companies in a seasonal price slump get gobbled up by Private Equity or overseas interests, leaving Aussie shareholders with a shrinking pool or solid longterm companies to invest in: Capilano Honey, Wotif, Greencross, CSR, Bradken, Invocare, Sydney Airports. APA, Woodside and Santos went perilously close to foreign takeovers, too. Whenever shareholders hear "the Board unanimously recommends in favour of " this-or-that takeover...BEWARE! You are almost certainly going to be sold out of long-held stocks on the verge of an uptick in price.

Nick G
September 18, 2025

Independence should not mean "remaining ignorant"; one of the main functions of the independent director is to scrutinise what the non-independent director's take for granted. It reminds me of Enron going bust when none of the directors had an understanding of how the company actually derived its revenue.

John
September 18, 2025

Entirely agree with DavidJ, Steve and PeterG. Right on guys.
Spoiler alert James Gruber. Is there any facility to incorporate a "like" to attach to those comments that are favoured?

Martin
September 22, 2025

A 'like' feature would be good. Even better would be an alert when someone replies to your comment. This would keep the conversation going and encourage more reader engagement.

DavidJ
September 18, 2025

A well-written, thoughtful and pertinent article.

Has the ASX Chairman had an opportunity to respond?

This has big implications for super funds going forward.

Steve
September 18, 2025

This should surprise no-one. Corporate leadership in Australia has been woeful for decades. BHP's many failed projects, the big banks failures every time they tried to go offshore, the inept Masters rollout by Woolworths, even the juggernaut that is Bunnings couldn't make it in the UK. And they're our biggest and "best" companies. Add the apparent love-in for all things trendy like the Yes vote, every footnote having a message about what lands they operate from, Diversity & Inclusion (read: exclusion to better qualified candidates) and the rest of the non-business oriented stuff and you have to wonder what happens in these board meetings. So the stunning line that the no. 1 thing for directors is to understand their businesses is unfortunately too true. How embarrassing. Just what are our business schools teaching? Oh I forgot, they're part of the broken University system in the country. Say no more.

Peter G
September 18, 2025

Agree with most if not all of this. However on the subject of "skin in the game" it peeves me that Directors and Executive Office Holders are so often awarded options and other future equity rewards at nil cost, not even a nominal future modest x% say on realisation. In effect 100% upside and no downside risk at point of creation. As a shareholder, existing or future, who has to outlay an initial investment my upside is not guaranteed and there is a very real downside in the case of failure. In this case as a shareholder I feel my "skin" is real while that of the office holder is largely absent.

 

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