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Corporate Governance in New Zealand

A Handbook for Directors, Executives, and Advisers

Principles for Corporate Governance

1. Directors should observe and foster high ethical standards.
2. There should be a balance of independence, skills, knowledge, experience, and perspectives among directors so that the board works effectively.
3. The board should use committees where this would enhance its effectiveness in key areas while retaining board responsibility.
4. The board should demand integrity both in financial reporting and in the timeliness and balance of disclosures on entity affairs.
5. The remuneration of directors and executives should be transparent, fair, and reasonable.
6. The board should regularly verify that the entity has appropriate processes that identify and manage potential and relevant risks.
7. The board should ensure the quality and independence of the external audit process.
8. The board should foster constructive relationships with shareholders that encourage them to engage with the entity.
9. The board should respect the interests of stakeholders within the context of the entity's ownership type and its fundamental purpose.

Introduction

The Securities Commission published a report Corporate Governance in New Zealand Principles and Guidelines in February 2004. The report sets out nine Principles of corporate governance for application within a broad range of entities.

The Principles are intended to contribute to high standards of corporate governance in New Zealand entities. This will be achieved when directors and boards implement the Principles through their structures, processes, and actions, and demonstrate this in their public reporting and disclosure.

The report also sets out guidelines on the types of corporate governance structures and processes that will help entities achieve each Principle. It explains the Commission's view on each area covered and includes detailed information on the extensive consultation carried out prior to publication. The report is available from www.seccom.govt.nz or in hard copy from the Securities Commission on telephone 04 472 9830.

This Handbook is a shortened version of the report Corporate Governance in New Zealand Principles and Guidelines. It is intended as a reference for directors, executives and advisers, as they decide how best to apply the Principles to their particular entity. The nine Principles and their accompanying guidelines are included together with the Commission's view on the particular area of corporate governance.

Copies of this Handbook are also available from the Securities Commission by telephoning 04 472 9830.

Who the Principles Apply to

The Principles can be generally applied to the governance of entities that have economic impact in New Zealand or are accountable, in various ways, to the public. This includes listed issuers, other issuers, state-owned enterprises, community trusts, and public sector entities.

Not all of the Principles will apply entirely to all entities. Public sector organisations, for instance, do not have shareholders in the traditional sense, and are subject to specific board appointment processes. They nonetheless have an owner and are accountable to that owner, and to other stakeholders and the public. These entities should observe the Principles to the fullest extent that they reasonably can and depart only where they are subject to competing statutory or public policy requirements.

The Commission's primary focus is on issuers of securities. The Principles do not impose any new legal obligations on issuers. However, they set out standards of corporate governance that the Commission expects boards of all issuers to observe and to report on to their investors and other stakeholders.

Issuers who are publicly owned entities have particular corporate governance responsibilities to their shareholders. The term "publicly owned entity" is used in this Handbook to describe public companies and other entities, such as collective investment schemes, which have investors with similar ownership interests to company shareholders, and similar rights to vote on matters affecting the entity. The term "shareholders" includes these investors.

We consider the Principles can be applied by investment trusts and participatory schemes as well as by other corporate issuers. They should also be useful to trustees and statutory supervisors who supervise schemes and scheme managers.

The Principles recognise that different types of entities can take different approaches to achieving good corporate governance. Good governance practices should reflect the nature of each entity, its ownership structure, and the range and interests of stakeholders.

Most of the Commission's published reports on market behaviour reveal shortcomings that can be attributed to corporate governance failures. The Commission will continue to focus strongly on corporate governance in its enforcement work. We will comment or take other action where we find examples of poor governance. Any serious case may be referred to the Registrar of Companies to consider prosecution or prohibition from acting as a director.