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NZX Corporate Governance Code – updated

by Stephen on May 11th, 2017

NZX Corporate Governance Code – updated

This week the NZX has published an updated version of its Corporate Governance Code.

The NZX Code will replace the existing Best Practice Code (applicable to the NZX Listing Rules for the main board and debt market) – to take effect from 1 October 2017 so that it must be reported against for reporting periods ending 31 December 2017 and beyond.

The release of the NZX Code was greeted by statement from the FMA that the NZX Code is “well aligned” to the principles in the FMA’s Corporate Governance Handbook – and helps to ensure New Zealand’s listed companies are in line with international standards of corporate governance.

It should also be noted that NZX intends to do further work in this area, including looking at the proportion of independent directors required for listed companies, during their broader review of the Listing Rules.

The NZX Code covers eight principles, which are intended to protect the interests of and provide long term value to shareholders while also seeking to reduce the cost of capital for issuers. Each principle contains specific recommendations and explanatory commentary that NZX listed issuers are encouraged to adopt.

Comply or explain (aka if not, why not)

The NZX Listing Rules encourage issuers to adopt the NZX Code but do not force them to do so.  If the Board considers that a recommendation is not appropriate because it does not fit the issuer’s circumstances, it is entitled not to adopt it – but it must explain why not.


NZX has provided a useful diagram to illustrate the hierarchy of the ‘comply or explain’ regime and how each (Main Board / Debt) issuer should interpret the principles, recommendations and commentary.

Reporting against the NZX Code


The disclosure of an issuer’s compliance with the NZX Code is intended to be flexible so that disclosure can either be:

  • in its annual report – NZX recommends that any statement and any related disclosures appear in a clearly labelled corporate governance section; or
  • on its website – in which case disclosures should be clearly presented and centrally located / accessible (in a category such as ‘About Us’ or ‘Investor Centre’); or
  • a combination of both.

Disclosing that a recommendation is not followed

If the issuer has not followed a recommendation for any part of the reporting period, its statement must separately identify that recommendation and what (if any) corporate governance arrangements it has adopted in lieu.

An issuer’s corporate governance statement must specify the date at which it is current (i.e. balance date or a later date specified by the issuer and approved by the Board).

A ‘why not’ statement should:

  • be reasonably detailed and informative;
  • disclose the alternative practices (if any) used in lieu – and explain why they are more appropriate; and
  • avoid being short / uninformative, without analysis and unhelpful to investors.

Eight principles

A brief summary of the eight principles and highlights of the key points in the NZX Code is set out below.

  1. Code of ethical behaviour: Directors should set high standards of ethical behaviour, model this behaviour and hold management accountable for these standards being followed throughout the organisation.
  1. Board composition and performance: To ensure an effective board, there should be a balance of independence, skills, knowledge, experience and perspectives. Of particular note is the recommendation that:

An issuer should have a written diversity policy which includes requirements for the board or a relevant committee of the board to set measurable objectives for achieving diversity (which, at a minimum, should address gender diversity) and to assess annually both the objectives and the entity’s progress in achieving them. The issuer should disclose the policy or a summary of it.

  1. Board committees: The Board should use committees where this will enhance its effectiveness in key areas, while still retaining board responsibility.
  1. Reporting and disclosure: The Board should demand integrity in financial and non-financial reporting and in the timeliness and balance of corporate disclosures.  The recommendations include:
  • The Board should have a written continuous disclosure policy.
  • Non-financial disclosure should be provided at least annually, including considering material exposure to environmental, economic and social sustainability risks and other key risks (including how the issuer plans to manage those risks and how operational or non-financial targets are measured).
  1. Remuneration: The remuneration of directors and executives should be transparent, fair and reasonable.  Here, the recommendations include:
  • Actual director remuneration should be clearly disclosed in the annual report.
  • CEO remuneration arrangements should be disclosed in the annual report – including disclosure of the base salary, short term incentives and long term incentives and the performance criteria used to determine performance based payments.
  1. Risk management: Directors should have a sound understanding of the material risks faced by the issuer and how to manage them.  The Board should regularly verify that the issuer has appropriate processes that identify and manage potential and material risks.  The recommendations include that:

An issuer should disclose how it manages its health and safety risks and should report on their health and safety risks, performance and management.

  1. Auditors: The Board should ensure the quality and independence of the external audit process.
  1. Shareholder rights and relations: The Board should respect the rights of shareholders and foster relationships with shareholders that encourage them to engage with the issuer.  The recommendations include:
  • Each person who invests money in a company should have one vote per share of the company they own equally with other shareholders. There are one or two examples of NZX listed issuers with some tranches of unlisted, non-voting, shares but they are not common.
  • The board should ensure that the annual shareholders notice of meeting is posted on the issuer’s website as soon as possible and at least 28 days prior to the meeting (c.f. the 10 working day notice period).

Next steps –Listing Rule review

The NZX regulatory agenda published in February indicates that a wider review of the Listing Rules has commenced.  And the NZX Code notes that the topic of independent directors is included in that review.

Further information

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


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