The newly-created New Zealand Corporate Governance Forum – an organisation comprising institutional investors with a substantial investment in the New Zealand share market – has marked its debut by issuing detailed guidance on the role and responsibilities of the listed company director.
The Forum guidelines, available here, build on and supplement the recently updated FMA governance handbook. They seek to incorporate best practice internationally, including the International Corporate Governance Network, the UK Combined Code and the Australian Council for Superannuation Investors.
Key points include:
the audit committee should review arrangements by which staff may raise in confidence concerns about possible improprieties (i.e. whistle blowing)
the board should have a policy on political engagement, including lobbying, and should disclose political donations
the board should develop clear rules regarding any trading in the company’s securities by directors and employees
the board should disclose its policy and process for managing related-party transactions
directors should ensure they are independently familiar with the company’s operations and do not rely exclusively on information provided by the senior management or external advisers
a board should have a majority of independent non-executive directors (with a detailed explanation of factors that may compromise independence, such as employment within the previous three years either by the company or by a significant professional adviser to the company)
explanation should be provided to shareholders about the presence of any executives other than the CEO on the board
non-executive directors should be subject to re-election at least every three years and, after nine years’ service, every year
companies should report the company’s policy on diversity, with measurable objectives
share-based remuneration schemes should be implemented only after shareholder approval
termination payments should not exceed 12 months’ fixed pay and should not be paid when an executive exits for poor performance
shareholder approval should be sought for share issuances above 5% of total shares or any employee issues, and
the board should state in the annual report the steps that members have taken, in particular non-executive directors, to develop an understanding of the views of shareholders – e.g. through direct face to face contact, analysts’ or brokers’ briefings and surveys of shareholder opinion.
The institutional investor bias to the forum membership means some recommendations may be controversial – notably that share issues above 5% should have shareholder approval. NZX rules allow a board to issue up to 20% without shareholder approval.
Chapman Tripp comments
The guidelines have been welcomed by the FMA, the NZX and the Institute of Directors and will support the FMA’s objective – expressed in both its Strategic Risk Outlook for this year and its Statement of Intent 2015-2019 - to improve the quality of governance culture in New Zealand.
They fill an existing gap in recognising that there are specific responsibilities attached to being on the board of a listed company. On the flip side, they add to the fragmentation in an already crowded marketplace of governance advice and recommendations.
This is in sharp contrast to Australia where all of the relevant industry and sector organisations came together in 2002 to form the ASX Corporate Governance Council, which was tasked with developing and maintaining a single, all-encompassing governance code and set of principles. See our commentary – The Australian governance challenge – our old Hilux vs their new Volvo.
The Forum’s contribution fills a need and will be very useful so – to use the car analogy – upgrades us from a Hilux. But we’re still saving up for the Volvo.
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