NZ consults on its governance code
Updates to the NZX Corporate Governance Code have been issued for consultation – the first substantive revisions since it was introduced in 2003. NZX issued a discussion paper at the end of 2015 on disclosure requirements and their alignment with those of other governance codes, and that consultation has shaped the current proposals. The consultation paper notes that there are fragmented reporting requirements for issuers at present, and one of the aims of the updated code is to ensure that the NZX code is the primary source of corporate governance guidelines for NZX Main Board issuers.
The key changes cover diversity, ESG reporting, health and safety reporting and remuneration reporting. All new recommendations sit within the current ‘comply or explain’ framework.
On diversity, the paper proposes a new recommendation that companies have a published policy on diversity that extends beyond gender diversity. Similar to the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations, the recommendation does not seek to prescribe what should be in a diversity policy but instead leaves it to issuers to determine appropriate metrics and targets to report and seek to meet.
On the ESG front, the consultation paper notes that NZX intends to develop specific guidance for NZX Main Board issuers based on the model guidance provided by the Sustainable Stock Exchange Initiative, to make direct comparison with different overseas issuers easier. It proposes that an alternative is that issuers report against the Global Reporting Initiative so that the information they report is comparable to other issuers.
With regards to health and safety, the consultation paper clarifies that it is important that the NZX Code supports recent changes introduced in the Health and Safety at Work Act 2015. This has led to a proposed recommendation regarding risk management, with specific focus on health and safety information being reported to the board.
The consultation paper notes that in relation to remuneration, ‘New Zealand is generally acknowledged as being behind other comparable jurisdictions in this area’. Proposals include a recommendation for issuers to publish a remuneration policy in relation to director and senior executives describing the general policy for remuneration of these individuals, and for the actual amounts of CEO remuneration to be disclosed, that is the amounts of base salary, short-term incentives and long-term incentives.
The principle on ‘Stakeholder interests’ has been merged with those on ‘Reporting and disclosure’ and ‘Shareholder rights and relations’, given that a significant aspect of the principle on ‘Stakeholder interests’ focused on issuers measuring and reporting their social, ethical and environmental impact.
As happened in Australia in the 2nd edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations, the term ‘best practice’ has been dropped (‘commentary’ used to be called ‘best practice commentary’), on the basis that it was seen to indicate a scale of merit (that is, ‘good’, ‘better’ and ‘best’) rather than as a general explanation and guidance.
Interestingly, while submissions to the discussion paper recommended that NZX consider forming an NZX corporate governance council, to ensure there is a process in place for updating the revised NZ governance code, NZX proposes instead to consider convene a panel of industry participants to consult in respect of reviewing the operation of the commentary to the NZX Code following its implementation.