NZ corporate governance a work in progress
The NZ Financial Markets Authority (FMA) has released the results of its review of corporate governance disclosures by listed and unlisted companies, noting that 'there is work to be done to ensure that investors can find information to help them assess the companies they are considering investing with, and make informed investment decisions'. The review addresses the extent to which the companies disclose against the nine NZ corporate governance principles.
The FMA reviewed the disclosures of 45 companies, both listed and unlisted. In general, companies listed on the NZX published substantially more corporate governance information than unlisted companies. The listed companies in the sample publicly disclosed 67 per cent of the corporate governance information as recommended in the FMA’s handbook Corporate Governance in New Zealand, Principles and Guidelines. The handbook sets out high-level principles of good corporate governance, together with more detailed guidelines and commentary which provide examples of the types of structures and processes that help businesses to comply with each principle. On average unlisted companies provided only 24 per cent of the recommended governance information.
Of the nine principles outlined in the handbook, stakeholder interests had the lowest reporting (19 per cent), followed by reporting on remuneration (37 per cent). And although companies reported that they make disclosures of codes of ethics, committee charters, and remuneration and/or risk management policies, only 30 per cent of companies did disclose this information publicly. Over three times as many listed companies as unlisted companies communicated or published the code of ethics, which may be because NZX’s Corporate Governance Best Practice Code requires companies listed on the main board and debt market to have a code of ethics.
While 81 per cent of companies disclosed they had a chief executive who was separate from the chair of the board, only 50 per cent clearly demonstrated that their chair was independent. Again, listed companies were much more forthcoming with providing governance information, with 92 per cent disclosing that they had a suitable test for board independence, and 96 per cent disclosing that their chief executive was separate from their chair.
Only 41 per cent of companies disclosed that they had a remuneration policy, with only one in five companies publishing their policy. Listed companies, however, again provided a greater level of information.
The FMA also recently surveyed institutional investors to assess their confidence in the current standards of corporate governance in New Zealand. Respondents were mostly investment or asset managers. They were generally confident with the quality of corporate governance in New Zealand, with around 46 per cent of respondents agreeing that the standard is high. Most agreed, however, that there is still room to improve. There was some concern that smaller companies were less aware of good corporate governance practice and think that it only applies to larger businesses. When asked about their major areas of concern on implementation of the principles outlined in the handbook, the three most cited concerns were: board composition and performance, reporting and disclosure, and remuneration.