The quality of disclosure is improving in response to regulatory signals but has a way to go yet despite a recent high profile reminder from mining giant Rio Tinto about the costs of getting it wrong, says Chapman Tripp partner Roger Wallis.
Wallis was commenting on the release today of the annual Chapman Tripp publication, New Zealand Corporate Governance – trends and insights.
“The firm’s analysis of the annual reports of the Top 75 NZX Main Board issuers by market valuation shows that all had adopted diversity policies with measurable objectives and had disclosed their CEO’s base pay and the basis for determining short and long term performance incentives.
“But the level of detail around executive remuneration varied significantly, and only 11 companies had reported on Environmental, Social and Governance (ESG) matters”, Wallis said.
There had also been a significant variation in the level and particularity of Key Audit Matters (KAM) reporting and – perhaps as a result of this – a mixed response from investors about the usefulness of KAM disclosure.
Rio Tinto had recently copped a fine of more than £27 million in the UK, and still had live proceedings against it on the same issue in the US and Australia. This showed the high price which could be paid for defective disclosure, and New Zealand law would deliver much the same result on the same set of facts.
“There will always be room for improvement but there is also a lot to be positive about in the governance sphere.
“In contrast to 2016, which delivered several high profile examples of shareholder activism, we saw a move last year toward a more constructive ‘behind the scenes’ engagement which we think will continue into this year,” Wallis said.
“Also encouraging is the growing participation in the Future Directors programme and the fact that more issuers are bringing their shareholders meetings closer to their reporting dates – although it would be good if they coordinated among themselves to avoid pile-ups. This year, 17 of the Top 75 held their AGM on the same day.
“In addition, there is the push for more boardroom independence in the new NZX Listing Rules (the exposure draft of which is now open for consultation) and the updated NZX Corporate Governance Code, requiring companies to have a majority of independent directors, or explain why not.
“These are important developments which empower shareholdersand should increase public confidence in the share market,” Wallis said.
The firm’s governance data series has been extended this year to include 47 Crown commercial entities and the comparison shows greater gender and geographical diversity in the public than in the private sector.