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• Thank you for the opportunity to be here today. I am pleased to represent the Securities Commission - which regards good corporate governance as a key factor in ensuring that New Zealand's capital markets are fair and transparent, and attractive to investors.
• As the regulator of New Zealand's securities markets the Commission sees many breaches of securities laws. As well, we see many examples of activity that, while possibly not in breach of the law, falls short of the standard of conduct that will reflect well on New Zealand and on this country's markets.
• Too often, where we see this standard of conduct in a company, its source, directly or indirectly, is a corporate governance failure. The Commission does not hesitate to draw attention to such failures in reports of its inquiries.
• In 2003 the Minister of Commerce asked the Commission to take a lead in developing corporate governance principles for New Zealand. As a first step, the Commission undertook extensive public consultation.
• The public response showed significant support for a principles-based approach to corporate governance rather than a rules-based system. We agreed that this was a constructive way to achieve high standards of corporate governance, provided it was combined with effective reporting on corporate governance practices.
• The Commission published its Principles and Guidelines on Corporate Governance early in 2004. The aim was to help New Zealand directors and boards of all types of entities to achieve consistently high standards in carrying out their corporate governance duties and responsibilities.
• The Principles built on the Commission's consultation, as well as on other work done in New Zealand and overseas. They recognise that different types of entities can take different approaches to achieving high standards of corporate governance. Good governance practices should reflect the nature of each entity, and contribute to improved performance and accountability.
• Transparency through high standards of reporting and disclosure is of paramount importance because shareholders and others must be fully informed in order to properly evaluate an entity and its governance. Accordingly the Principles focus strongly on reporting and disclosure of corporate governance structures and processes, as well as on reporting of financial and other material matters.
• The Commission's Principles were well received. We continue to have high demand for the Corporate Governance Handbook for Directors ,Executives and Advisers published to help entities implement the Principles.
• The main focus of our work has been listed companies. This has also been the approach overseas. We monitor corporate governance reporting by listed companies by reviewing their annual reports. We assess whether each company reported on each of the Commission's Principles and, if so, whether it reported on the key governance aspects inherent in each principle.
• In our view, shareholders have the right to full disclosure of a company's governance to help them assess the company's performance. At the time of our first review, the Principles had not long been published. Only about half of the companies reviewed reported on corporate governance.
• We reviewed corporate governance reporting again in 2006 and almost all companies reported on some aspects of corporate governance. Relatively high numbers reported on the composition of the board, the use of committees to increase efficiency, and maintaining the quality and independence of external auditors.
• Of course, the review identified only reported corporate governance practices. Companies may have implemented the Principles, but not reported on their practices. The Commission's view is that implementing the Principles includes reporting on how they have been implemented. Issuers should tell shareholders and other stakeholders how they achieved each of the Principles.
• However, disclosure of corporate governance practices is of use only if that disclosure is read and acted upon. We encourage shareholders, in particular institutional shareholders, to make constructive use of companies' disclosure, or to demand better disclosure where this is lacking.
• If this is done, we expect to see a steady improvement in the quality of corporate governance disclosure.
• We think that the work of directors and their advisers in thinking about, and implementing, the Principles will help New Zealand entities to achieve consistently high standards of corporate governance, and more productive, competitive, and financially sustainable businesses.
• The Commission's work on corporate governance disclosure seeks to encourage companies to adopt practices that can be held up as good practice, when compared to the standards expected in similar markets overseas. This is appropriate as we aim to attract both domestic and international investors to our markets.
• Of course, the Commission's area of interest extends well beyond the listed market. We are responsible for disclosure practices of all companies that issue securities to the public - be these shares, debt securities, interests in contributory mortgages, or managed funds.
• We have found that a quite different challenge often faces us when we turn to corporate governance practices of unlisted issuers. For some of these companies, particularly new issuers, there is a struggle to come up to an even adequate standard of governance as the companies take on the responsibility of having public investors.
• It has been the Commission's experience that where we find misleading or confusing disclosure in prospectuses, or simply a slipshod approach to compliance with securities laws, too often the problem can be traced to inadequate corporate governance practices.
• We have seen companies that have taken the step of raising money from the public without introducing any real governance structure that can cope with the added responsibilities that come with this.
• Our inquiries in these cases have resulted in enforceable undertakings from issuers that go well beyond requiring companies to fix the superficial disclosure shortcomings, aim to fix the underlying governance and risk management problems.
• We have, for instance, accepted undertakings that require companies to appoint an independent director, where the company has no non-executive board members at all, or even just a single director.
• We have required companies to prepare and implement adequate risk management and compliance programmes, with outside assistance, to ensure that directors are properly informed of the company's situation and obligations.
• It is our view that strengthening governance in companies that issue to the public will help raise standards of disclosure for investors, and in turn encourage informed participation in all forms of investment by New Zealanders.
• For both the listed and unlisted markets, the question of what constitutes best practice in corporate governance is continually evolving. We have seen a number of approaches taken in various countries to improving governance practices. New Zealand market participants have shown a strong preference for a principles-based approach to corporate governance standards.
• Academic research and study has an important role to play to keep the market informed of evolving practices. It will also help to discover areas of focus or approaches to standards setting and compliance that are most likely to add real value for companies, their shareholders, and investors.
• This sort of work can help companies, and organisations such as the Commission, to focus developments in corporate governance practices on those areas that are most likely to achieve the common aim of making businesses more productive, more competitive, and more successful.
• The Commission congratulates AUT University's School of Business on setting up this Centre for Corporate Governance.
• We welcome it as an initiative that will contribute to improved corporate governance by New Zealand entities. This is particularly important as our capital markets must meet, and be seen to meet, international standards and best practice, if they are to attract investors.
• Your aims to encourage and support knowledge development through research, and to disseminate the resulting information, can only assist companies in this country, and help ensure that New Zealand is seen as a good place to do business.

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