NZX seeks feedback on adopting broader FMA guidelines on governance, whistle blowing

Tuesday 3rd November 2015

NZX, the stock market operator, is seeking feedback on a proposal to broaden corporate governance rules for main board-listed companies including a more specific code of ethics for senior managers, a charter setting out responsibilities of directors and rules to cover whistle blowers.

The review covers reporting requirements under listing rules but doesn't at this stage extend to 'mandatory' requirements which will be included in a broader review of listing rules in 2016, NZX said in a statement. The deadline for feedback on its discussion document is Jan. 29.

Alongside mandatory requirements in relation to board composition, independence and rotation, NZX currently requires issuers to disclose a statement on corporate governance policies and whether they differ materially from the NZX's best practice code, a quantitative breakdown of gender composition for both directors and managers, a statement on the company's diversity policy, and a statement about independent and aligned directors.

NZX wants to update those requirements to bring them into line with best practice, and is looking at a Financial Markets Authority corporate governance principles and guidelines handbook published in December last year and those that apply to ASX listed companies. It favours adopting the FMA's principles "so that a single set of high level principles is in operation in the New Zealand context," NZX said in the discussion document.

On ethical standards, NZX currently requires directors of an issuer to develop a code of ethics with compliance standards and rules for handling conflicts of interest and mechanisms for reporting unethical behaviour. The FMA's handbook extends that, saying a code of ethics should apply to senior managers and employees, and publish a report on how the company has fared against the code. NZX also suggests thought be given to procedures for dealing with so-called whistle blowers.

NZX sets out minimum requirements for the proportion of independent directors on a board and a requirement for at least a third of them to offer to retire from office at each annual meeting. It also recommends a director not be chief executive and chair at the same time, that board appointments be transparent and that directors receive training and are regularly assessed. Issuers must also give details of gender breakdown and diversity for their board and executives.

The FMA handbook says board roles and responsibilities should be set out in a charter and directors should be appointed "through rigorous, formal processes", that the chair should be independent, that the majority should be non-executive, that performance reviews should be extended to specific roles such as the audit committee and the chair. NZX says it wants feedback on changes including a requirement for issuers to enter written agreements with each senior executive and board member.

On reporting and disclosure, the NZX currently has a broad rule requiring continuous disclosure of material information but the FMA handbook uses stronger language, that boards should have "a rigorous process for ensuring the quality and integrity of financial statements and should provide financial reporting which is clear, concise and effective". It also calls for effective internal controls, an explanation of directors' responsibilities in preparing the annual report and a written internal process at board level covering continuous disclosure.

NZX is also seeking feedback on remuneration, including whether issuers should be required to publish their policy for paying directors and senior executives. It also wants feedback on risk management, noting that it doesn't currently cover that in the NZX code, while the FMA guideline calls for "rigorous processes for risk management and internal controls," reported at least annually to investors.

On auditors, NZX asks whether the external auditor should be required to attend annual meetings and answer questions from shareholders. The final topic is stakeholder interests, which is also not currently covered by the code, whereas the FMA calls for "clear policies for the entity's relationship with significant stakeholders."

BusinessDesk.co.nz

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