NZ Corporate Governance Forum – Corporate Governance Guidelines

NZ Corporate Governance Forum – Corporate Governance Guidelines

Late last month, a new voice appeared in the corporate governance arena. A new ginger group called the NZ Corporate Governance Forum with an initial membership comprised of 16 of the largest names from the local institutional investor sector was launched.

The Forum’s stated aim is to promote global best practice in governance within NZ listed companies by:

• Developing and promoting Principles and Codes of good practice
• Lifting the quality of governance in the NZ market
• Engaging with public policy makers and regulators to promote & improve policy, rules and guidelines
• Identifying focus issues for engagement with policy makers and companies
• Producing case studies – good and poor practice examples

The Forum marked its public launch by publishing a set of Corporate Governance Guidelines which it described as having been compiled following extensive consultation and discussion.

Because the Forum’s membership is comprised of institutional investors – there is an apparent bias in some of the proposals – such as the emphasis on individual briefings and the suggestion that listed companies should not be able to materially dilute shareholders without approval (with the threshold being set at 5% of total shares on issue – when the NZX Listing Rules allow the Board to make placements of up to 20% without shareholder approval).

The Guidelines

A link to the Guidelines can be found here NZCGF Guidelines. They are described as being intended for use by both companies and institutional investors – as a contemporary governance reference for shareholders, chairpersons, directors and senior executives of listed companies.

The Guidelines are based on (and supplement) the recently updated FMA governance handbook that I commented on in February. The Forum says that in several areas, the Guidelines seek to expand on the FMA’s publication in order to provide more detailed guidance for companies and investors in the listed company environment. The additions are said to come from international principles and frameworks that institutional investors globally regard as best practice (including the International Corporate Governance Network, the Australian Council of Superannuation Investors and the UK’s Financial Reporting Council.

The Guidelines reinforce that boards and management teams are accountable to the owners. And whilst the Forum says that it recognises that each company is different and deviations from the Guidelines are sometimes appropriate – it underlines that transparency with owners is important (with the result that Boards should explain the reasons why a particular Guideline is not being followed). This, it says, will enable companies to enhance their communications with shareholders by referring to the Guidelines when presenting their annual corporate governance report.

Summary

A summary of the key points in the Guidelines (and the points of difference with the FMA publication is set out in the attached tableNZ Corporate Governance Forum July 2015).

Observations

Whilst the launch of the Forum and the publication of the Guidelines was met with supportive comments by the FMA, the NZX and the IoD, the addition of another checklist from yet another voice (no matter how well-qualified) into a small market risks both confusion and diluting the significance of the messages that they wish to convey. Is there now a risk that the Shareholders Association comes up with its own list to balance the needs of smaller shareholders?

By contrast, in a much larger market place, a number of interests groups in Australia have worked collectively under the umbrella of the ASX Corporate Governance Council, which since 2003, developed and released recommendations on the corporate governance practices to be adopted by ASX listed entities that are designed to promote investor confidence and to assist listed entities to meet stakeholder expectations. The third edition of the Council’s recommendations was released in March 2014.

In my view, what the much smaller New Zealand marketplace needs is a unified platform not further fragmentation. No matter how well-researched the Forum’s efforts, a further set of recommendations claiming the high ground as best practice risks devaluing the currency.

Further information

If you would like more information about any of the matters discussed in this note, please contact me.