The Financial Markets Authority's (FMA) survey of corporate governance disclosure shows room for improvement – particularly in relation to listed companies’ remuneration policies. It is also a useful tool for achieving that improvement.
The FMA sampling of recent governance reporting, released last week, shows that a significant number of companies are not disclosing information to anywhere near the extent recommended by the FMA’s corporate governance principles – particularly in relation to matters such as codes of ethics, remuneration policies and stakeholder interests.
The survey samples both listed and non-listed entities’ disclosures. Unsurprisingly, it shows much greater adherence to the FMA’s guidelines by listed companies. But even they were far from perfect: while unlisted entities disclosed less than a quarter of the information the FMA believes useful to investors, even the listed companies surveyed disclosed only two thirds of it.
Lowest disclosure was in relation to stakeholder interests (19%) and remuneration policies (37%).
The first of these is not surprising and, in our view, no great cause for concern. Principle 9 is something of an orphan which, in our experience, is not as important to investors as others. (In our submissions for the NZX’s current review of corporate governance principles, we suggested that it be combined with principle 8, relating to shareholder relations.)
More significant is the low level of disclosure on remuneration policies. Listed company disclosure on remuneration overall only contained half of the information the FMA recommends, and that dropped to less than a third for disclosure of remuneration policies.
Greater transparency of remuneration policy and practice by listed companies is one of the key things which investors, including the New Zealand Corporate Governance Forum, have called for. We agree.
Part of the reason for the low level of disclosure may be the fragmentation of corporate governance standards in New Zealand, with guidelines from the FMA, NZX, the New Zealand Corporate Governance Forum, ASX and the Institute of Directors (amongst others) all jostling for attention. (See, for example, the comparison table jointly published by us and the IoD last month.)
NZX’s current corporate governance review, and the FMA’s intention to then review its guidelines (confirmed in the recent report), should see increasing convergence, which will make it easier for companies to prepare their disclosures and compare them with others.
The survey does not purport to be comprehensive – including, for example, only six NZX50 companies. But that does not mean it is of no value.
In our experience, listed companies are keen to get good marks for their disclosure. The report is a prompt to keep trying. It also provides a useful tool to assist in those efforts – both updates of website disclosures and preparation of annual reports – by:
setting out specific questions for each of the nine corporate government principles, and
providing an example, for each principle, of a company that has done something well.
For all these reasons, the report is a helpful document, which we welcome.
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