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New Zealand Securities Commission |
Last Updated: 8 November 2014
Corporate
Governance
in New Zealand
Consultation on
Issues and Principles
To be read in conjunction with the
Background Reference
Paper
Securities Commission
September 2003
Background
2
The Securities Commission has been charged with leading a process through
which consensus can be gauged for a set of principles for
Corporate Governance
in New Zealand.
The Commission has initiated the development of a background paper that
builds on the work that has been undertaken in this area,
both within New
Zealand and internationally. The paper has been distributed as a companion
document to this questionnaire.
The Consultation Process
The consultation process has been developed to enable the Securities
Commission to identify the level of consensus within New Zealand
around:
1. What a set of governance principles should encompass
2. The range of issues that need to be reflected in the principles
3. The range of entities to which the governance principles should
apply.
The Commission has used external advisers to develop the Background Reference
Paper and the Questionnaire that underpin the consultation
process. Both the
Questionnaire and Background Reference Paper have been subject to rigorous peer
review.
1. The Principles
Based on the review of local and international perspectives and practices,
nine core issue areas have been identified (see page four).
Using the feedback obtained through this consultation practices, overarching
principles will be crafted in relation to each of the
nine issue areas –
eg Ethical Conduct, Board Committees, Shareholder Relations etc.
For the principles to be relevant to the range of entities that operate
within the New Zealand business environment and effective
in guiding decision
making processes and behaviours, it is important to identify the range of issues
that each principle might encompass,
what people think about these issues and
the extent to which they might apply to different entities.
2. The Issues
While there is consensus in some areas about the issues that the governance
principles should address, there are also a number of
issues around which
opinion is divided.
Based on the review of local and international material, a series of
propositions have been developed to enable the Securities Commission
to gauge
the depth and range of opinion around governance practices to establish the
norms of behaviour that the principles should
inform.
If the propositions appear to suggest a rules based approach, this is neither
the intention of the Commission nor the mandate that
the Commission has been
given.
The Securities Commission is interested in assessing the extent to which
there is consensus around specific issues to inform the development
of a set of
principles.
3. Range of Entities
The focus overseas has been primarily on the governance of publicly listed
companies. In this consultation process, views are being
sought about the extent
to which governance principles should apply to a wider range of entities
including:
- subsidiaries of overseas companies
- supplier or purchaser owned cooperatives 3
- widely held unlisted companies
- government and local authority owned entities
- closely held or family owned companies
- large trusts
4. The Outcomes
The consultation process has been develop to enable the Commission to present
the Minister of Commerce with a set of Corporate Governance
Principles, around
which there is broad based consensus in New Zealand. If there are areas where
there is a clear lack of consensus,
then these will be acknowledged.
The Securities Commission, in undertaking this exercise, has not been
mandated to develop rules or regulations or recommend legislative
change or
remedies with respect to these Corporate Governance Principles.
The Commission is concerned to ensure that the report of findings resulting
from this exercise that is presented to the Minister builds
on the considerable
body of work that has already been undertaken in New Zealand and that the
Principles are broadly aligned with
both international and local developments in
this area.
The Commission has undertaken to report to the Minister before the end of
December.
5. The Next Steps
The consultation process is open to all interested parties.
To enable the Securities Commission to present the findings of this process
to the Minister by the end of December, the Commission
has set a deadline for
submissions of 5pm Friday November 7.
Submissions should be made using the questionnaire – an electronic version of which is
available on the Securities Commission website (see below). This may be more
useful if the replies require more space than provided
in the printed version of
the questionnaire.
The project has been designed for qualitative rather than quantitative
analysis. This means that responses will neither be analysed
nor tabulated in
percentage terms, but considered in relation to the level of agreement around
the key issues or themes that the
findings suggest.
Please note that the comments provided in the questionnaire will not be
attributed to individuals or organisations.
A set of principles will be drafted based on the response to the
questionnaire. If you are interested in being kept informed about
the process,
please tick the appropriate box in the questionnaire and make sure that you
provide your email and/or postal details.
Additional copies of the Background Reference Paper and Questionnaire are available on the
Securities Commission website – www.sec-com.govt.nz
Thank you for your assistance.
The Issues
Nine main issue areas have been defined:
1. Ethical Conduct – including the use of codes of ethics
2. Board Composition and Performance – including the role and
definition of independent directors and the issues of
certification/accreditation
3. Board Committees – including composition of committees
4. Reporting and Disclosure – including quarterly reporting and the
certification of financial statements
5. Remuneration – of executives and directors
6. Risk Management – including levels of disclosure
7. Auditors – including rotation and oversight
8. Shareholder Relations – including institutional shareholders, public
reporting
4 9. Stakeholder Interests – addressing the interests of stakeholders
Completing the Questionnaire
For each issue area a series of propositions have been developed to elicit
where and why there is agreement/disagreement in relation
to core
issues.
We are seeking your perspective on the opinions/advice/practices posed in
each area, and your rationale for agreement or disagreement
with the
propositions.
Space has been provided at the end of each section to enable you to raise any
additional issues that you consider to be relevant to
the debate.
An electronic version of this questionnaire is available on www.sec-com.govt.nz which will
enable more extensive responses.
Issue One: Ethical Conduct
Refer Background Reference Paper page 9
1. There is a view that companies should have formal Codes of Ethics or
Conduct to guide the actions of Board and Management, as well
as other staff. To
what extent do you agree with this?
2. It is also said that such Codes of Ethics or Conduct should be published.
What is your view?
5
3. Codes of Ethics may address various issues, including issues of integrity
the use of company assets, conflicts of interest and
confidentiality. What
issues do you think it is most important for such Codes to
include?
4. What do you consider the appropriate responses – both internal and external to the company –
where such a Code has been
breached?
5. If you have any other comments on Ethical Conduct in relation to Corporate
Governance, please include these below.
Issue Two: Board Composition and Performance
Refer Background Reference Paper page 10-11
1. There is debate around the definition of an ‘independent
director’. Drawing on work undertaken in New Zealand and
Australia, one
definition is:
“Someone who is not an executive and who has no business or other
relationship that could compromise – or could reasonably
be seen to
compromise – the ability to exercise their unfettered judgment. Such
business or other relationships include being
a substantial shareholder (or its
representative), a material customer, supplier or professional advisor to the
company”
a. Do you believe the elements included in this definition are appropriate for the
New Zealand environment?
b. If not, are there any other elements that should be considered?
6
2. Some commentators on Corporate Governance suggest independent directors
should make up the majority of a Board. To what extent
do you agree with
this?
3. In what situations (if any) do you believe that it might not be
appropriate for a Board to include a majority of independent
directors?
4. There is a view that a Chair and CEO should not be the same person. To
what extent do you agree with this view?
5. What is your view on the suggestion that a CEO should not go on to become
Chair?
6. Do you agree or disagree with the proposition that a company’s
Chief Executive should automatically be a member of the
Board?
7. What factors do you believe should be considered in determining Board
size and do you think it is feasible to define an optimal
size?
7
8.How regularly should Boards review their own
performance?
9. It has been suggested that Boards should also review the performance of
individual directors. Do you agree or
disagree?
10. In general, do you believe current mechanisms which enable shareholders
to assess the performance of Boards/directors are adequate?
If not, how would
you suggest these be improved?
11. Some commentators suggest that certification or accreditation of directors should be
encouraged. What is your view on
this?
12. What processes do you believe Boards should have in place to
ensure:
a. that suitable directors are
recruited?
13. If you have any other comments on Board Composition and Performance in relation to
Corporate Governance, please include these below.
1. There is debate concerning whether by establishing board committees, and
assigning responsibilities to them, Boards can function
more effectively. What
do you see as the benefits and/or drawbacks of Board committees in the New
Zealand environment?
2. In the United States, United Kingdom and Australia all public companies
are required to establish board audit committees with
formal responsibilities
for appointing and overseeing external auditors. Would you consider this
appropriate in the New Zealand context?
9
3. In the US, UK and Australia, audit committees are required to include a
majority of independent directors and an independent
Chair. Again, would you
consider this appropriate in the New Zealand
context?
4. It is often a requirement for audit committees to have at least one
member with financial expertise. What (other) capabilities
or credentials do you
believe ought to be reflected within the membership of an audit
committee?
5. International opinion suggests that Boards above a certain size should
delegate responsibility for director and executive remuneration
to a board
remuneration committee. To what extent would you consider this appropriate in
New Zealand?
6. International opinion also favours the establishment of appointment committees with delegated responsibility for recruitment and appointment of new directors and executives. To
what extent would you consider this appropriate in New
Zealand?
7. Do you agree with the view that independent directors should make up the majority on
remuneration and appointment
committees?
8. And, do you agree or disagree with the view that audit and remuneration committees should
comprise of different people – i.e. that no director should sit on
both?
10
9. If you have any other comments in relation to Board Committees in relation to Corporate
Governance, please include these below.
1. Continuous disclosure has been a requirement for publicly listed companies in New Zealand
since December 2002. In relation to good Corporate Governance, are there any
areas or matters on which you believe additional disclosure
should be
encouraged?
2. In regard to unlisted companies, do you believe there is a need for greater emphasis on
timely, accurate and complete
disclosure?
11
3. There has been debate in New Zealand around whether listed companies should report
quarterly, as required on some US markets. What is your
view?
4. It is a requirement in some markets for the company CEO and CFO to publicly certify the accuracy and completeness of financial statements. Do you think this is appropriate in the
New Zealand market?
5. What other safeguards do you see for ensuring integrity in reporting
practices and outcomes?
6. What is your perspective on the proposition that companies should report on their performance against accepted principles of good Corporate Governance, or explain why they
haven’t?
7. If you have any other comments on Reporting and Disclosure in relation to Corporate
Governance, please include these
below.
12
Refer Background Reference Paper page 14-15
1. Internationally, there is a trend to explicitly link directors’ remuneration with company
performance. To what extent do you think this should be the case in New Zealand?
2. Do you agree that, in New Zealand, non executive directors’ remuneration is currently set at a level to attract and retain individuals who will make a significant contribution to company
performance?
3. Do you believe there are any circumstances in which it might be appropriate for non- 13
executive directors to receive retirement
payments?
4. Do you agree with the view that at least part of a non executive director’s remuneration
should be ‘at risk’ on the basis of company
performance?
5. There is some debate around non executive and executive directors being
paid in company shares.
a. Do you believe it is appropriate for a proportion of directors’
remuneration to be paid in shares or in options in the company’s
shares?
b. If so, should this be expensed against company
earnings?
6. Some commentators warn that linking executive and directors’ remuneration to company performance over one or two years can create a “short-term” bias in thinking. To what extent
do you think this is an issue in New Zealand
today?
7. There is an argument that the remuneration terms of a CEO’s contract and those of senior management including any termination payments should be disclosed to shareholders. To
what extent do you agree with this view?
14
8. There is a view that executive remuneration should be directly subject to shareholder approval. Under what circumstances, if any, would you consider this appropriate in
New Zealand?
9. If you have any other comments on Remuneration in relation to Corporate
Governance, please include these below.
Issue Six: Risk Management
Refer Background Reference Paper page 16
1. Adequate identification and management of risk is considered to be integral to good
Corporate Governance. To what extent do you believe New Zealand Boards are
adequately addressing this issue today?
2. It is suggested that companies should develop risk management policies
and procedures.
a. What would you consider appropriate for such risk management policies and
procedures to encompass (for example, financial, market, operational,
environmental risk, delegation of authorities and succession
planning)?
15
b.And do you believe that these risk management policies and procedures should be
published?
3. If you have any other comments on Risk Management in relation to
Corporate Governance, please include these below.
1. There is international debate about whether audit firms should be
rotated from time to time.
a. To what extent do you consider rotation appropriate in the New Zealand
context?
b.If appropriate: How often should audit firms be
rotated?
2. There is also debate suggesting that audit partners should be rotated
from time to time.
16 a. To what extent do you consider this appropriate in the New Zealand
context?
b.If appropriate, how often should audit partners be
rotated?
3. There are concerns over audit firms also providing other services to
client companies.
a. In your view, what types of non-audit work should be of concern in the
New Zealand context (e.g. valuation services, executive
recruitment)?
b.Do you think disclosure of fees paid to audit firms should differentiate between types of
non-audit work?
c. Do you think the total of non-audit work should be limited to some proportion of all fees
paid to audit firms each year and, if so, what
proportion?
4. It has been argued that board and/or board audit committees should develop and disclose policies for handling complaints by auditors or internal “whistleblowers”. Do you
agree or disagree? 17
5. In the U.S. and Australia, audit oversight bodies – independent of the profession – are required. There is debate around whether such a body is required in New Zealand. What are
your views on this?
6. If you have any other comments on Auditors in relation to Corporate
Governance please include these below.
1. In your view, how well do companies in New Zealand encourage meaningful dialogue
between the Board, management and
shareholders?
2. Auditors are required to attend Annual Meetings and some commentators suggest that
companies should facilitate shareholder access to auditors. Do you agree
or disagree?
you support this
view?
4. Do you agree that listed companies should publish a formal policy on their relations with
shareholders?
5. In your view, how well do you think listed companies in New Zealand
provide shareholders with comprehensive and easily understood
commentary on
their financial performance?
6. In your view, should other business entities – such as co-operatives, large trusts, and unlisted
companies – provide more comprehensive public reporting on their
performance?
7. If you have any other comments on Shareholder Relations in relation to Corporate
Governance, please include these
below.
19
1. Some people argue that, while shareholders have the primary interest, there are other stakeholders with legitimate interests that should be considered in the context of Corporate
Governance. To what extent do you agree with this
view?
2. It has been suggested that the interests of these other stakeholders
should be actively considered by the Board.
a. Do you think this is appropriate in the New Zealand
context?
20
b.If so, how should these interests be
addressed?
3. If you have any other comments on Stakeholder Interests in relation to Corporate
Governance, please include these below.
Other Issues
1. New Zealand opinion appears to favour a principles versus rules-based
approach to Corporate Governance. Do you believe this
is the most appropriate
approach for New Zealand?
2. Do you think the nine issue areas that have been identified in the Background Reference
Paper and this Questionnaire are the core issues that should be included in
the New Zealand principles for Corporate
Governance?
21
3. Are there any other issues you believe a set of principles for good Corporate Governance in
New Zealand should address?
About You
Optional
Your response to the following questions will help us to understand how the
views gathered during this consultation process vary
across business
entities.
1. Are you responding in a personal capacity or on behalf of an entity? In a personal capacity
On behalf of an entity or organisation
2. If responding on behalf of an entity, please clarify:
a. The name and/or type of entity on whose behalf you are responding (e.g.
publicly listed company, unlisted company, State Owned
Enterprise, cooperative,
industry association, privately held company
etc.).
Official Information Act and Privacy Act Requirements
The contents of the questionnaires provided to the Securities Commission in
response to the consultation process are subject to the
provisions of the
Official Information Act 1982 and the Privacy Act 1993. It is the Commission's
policy to make responses to formal
consultation available for public
inspection. Please confirm below whether you consent to the release of your
submission. Any
requests for information will be dealt with in accordance
with the Official Information Act 1982 and the Privacy Act 1993.
Yes No
In case we need to contact you for further clarification on points raised in
your response, please include your contact details below.
NAME:
BUSINESS PH:
BUSINESS EMAIL:
Would you like to be kept informed about the process? Yes No
23
Please return completed questionnaire by 5pm November 7 to: Postal: Securities Commission
Corporate Governance Project
PO Box 1179
Wellington
email: Julie.Myers@sec-com.govt.nz
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