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FMA consults again on Corporate Governance

by Stephen on November 15th, 2017

Yesterday the FMA released a draft of an updated version of its Corporate Governance handbook and announced that it was seeking feedback on the handbook’s intent, content and presentation.

The revised version updates the 2014 edition of the handbook and includes developments in corporate governance since then – including non-financial reporting, director and executive remuneration, and auditors.

The press statement that launched the new round of consultation noted that the NZX had recently published an updated corporate governance code (NZX Code) for listed companies – which is based closely on the principles of the FMA’s 2014 handbook 2014, and that the FMA sees the NZX Code as the primary guidance on corporate governance practices for NZX-listed companies.

As a result, the FMA says that the focus in the revised handbook shifts away from listed companies, but remains a practical guide for directors and executives of New Zealand-based companies and entities of various types and size, to help them apply corporate governance principles effectively.

Key changes

The FMA has updated the following subject matter under the principles from the 2014 guide:

• Principle 3 (Board Committees): External audit firms and association with the chairperson.

• Principle 4 (Reporting and disclosure): Non-financial reporting.

• Principle 5 (Remuneration): Transparency of long and short-term incentives.

• Principle 6 (Risk Management): Risk management and environmental, social and governance (ESG) matters.

• Principle 7 (Auditors): Standards of best practice for appointing auditors, non-audit work and independence.

• Principle 9 (Stakeholder interests): To maintain alignment with the NZX Code, the FMA has removed Principle 9 (Stakeholder interests). Stakeholder considerations are important, so they have been incorporated into all 8 principles (in particular Principle 4 on reporting and disclosure, and Principle 8 on shareholder relations). The commentary has also been updated.

The FMA is seeking feedback on whether the updated handbook helps directors, executives and advisers to think about how to apply corporate governance principles. Specifically, the consultation process seeks feedback on 6 questions:

1. Do you agree with the overall approach to move their focus away from listed issuers?

2. Is more guidance needed for companies seeking to grow and possibly raise capital and/or list in the future – if yes, in what areas would guidance be useful (giving examples of the additional guidance that should be added)?
3. Do you have any feedback on the structure or presentation of the document? Is there anything the FMA could improve about the way it has been written, or communicated, to better assist directors and executives to apply the corporate governance principles?

4. In most areas the FMA has made very few changes to the substantive guidance. Are there any specific areas where the FMA should include more guidance or commentary?

5. Are there any areas where the FMA is out of step with guidelines that your company/Board follows, or any other areas of ambiguity in the handbook?

6. Are there any cost implications or other barriers to adopting the revised guidelines?


The FMA’s thoughts on corporate governance add to the publications on this topic by NZX, the IoD and the NZ Corporate Governance Forum. There are points of overlap and some points of difference between each of the publications.

As other commentators have noted, good governance practice expects a level of compliance (and reporting) that goes beyond a checklist approach. Consequently, Boards should carefully consider issues such as relevance to their company.

Ultimately, the FMA’s thoughts are guidance and do not create new legal obligations. However, for those who come within the FMA’s regulatory umbrella, the benchmarks established by the FMA are likely to be highly relevant. It is also highly likely that the Courts will have regard to the FMA’s thoughts.

In an economy with a very high proportion of output generated by SMEs, across a range of industries and representing an often very diverse range of interests, the shift in the FMA’s focus away from the big end of town (whilst much-needed) is likely to present a few challenges.

My personal experience indicates that the FMA still has some way to go to understand the challenges (particularly for non-executive directors) faced by many SMEs. Equally, a range of those involved at a governance level find the exercise of putting theory into practice a challenge. As a result, the latest round of consultation provides lessons and opportunities for both the FMA and its target audience/s.

Deadline for feedback

Feedback is sought by Friday, 8 December 2017.

Further information

A link to the FMA consultation paper is attached.

If you would like more information about the FMA’s revised handbook, please contact me.

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