By Peter V O'Brien
Friday 3rd October 2003
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Commission chairman Jane Diplock included a "message" in a background reference paper about the consultation process.
She said Commerce Minister Leanne Dalziel had asked the commission to take the lead in developing an agreed set of corporate governance principles.
The project's focus was not law reform, nor was it a place to revisit existing law.
"This exercise in itself is not aimed at reducing the rate of corporate failure, nor will it necessarily result in an increase in ethical behaviour. However, a set of principles that New Zealand business supports will, in our view, contribute to better corporate governance."
Ms Diplock indirectly identified a problem when people tried to establish a consensus about anything. She said the commission recognised that not everyone would agree on everything.
"In fact, there are some areas where there is likely to be considerable disagreement. Nonetheless, from this consultation we expect to develop a set of principles that most can embrace and which is appropriate for New Zealand."
The commission might have access to miracle workers but it is difficult to see how a consensus could be reached in "some areas where there is likely to be considerable disagreement."
A comment in the reference paper said the project was designed for qualitative rather than quantitative analysis.
"This means responses will be neither analysed nor tabulated in percentage terms but considered in relation to the level of agreement around the key issues or themes that the findings suggest."
A set of principles would be drafted, based on the response to a questionnaire accompanying the reference paper.
The commission identified nine "issue areas" as platforms for good governance.
They are ethical conduct, including the use of codes of ethics board compensation and performance; board committees and their composition; reporting and disclosure, including quarterly reporting and certification of financial statements; remuneration of executives and directors; risk management, including disclosure levels; auditors, including rotation and oversight; shareholder relations, including institutional shareholders; public reporting; and stakeholder interests and addressing them.
The reference paper was neutral in its approach to the issues, merely outlining various approaches, often with reference to overseas practice and/or recommended action.
New Zealand references were included, particularly the NZX corporate governance best practice code and proposed listing rule revisions.
The questionnaire related questions to each of the nine issues areas and comprised 65 questions, although there was an all-embracing washup question on each section.
A combination of a neutral backgrounder, a detailed questionnaire and a commitment to achieving consensus when formulating the draft principles seemed a variation, or extension, of the self-regulatory approach of controls over business activity in New Zealand.
Asking interested people, companies and other organisations for their views and using the latter as a base for draft principles relies heavily on business input in an area that could have an impact of business conduct.
Some of the questions in the section of remuneration showed the commission's approach. That section was interesting, because executive and director remuneration has been the cause of much unhappiness about corporate governance in the US, the UK, Australia and here.
The questionnaire said there was an international trend to link directors' remuneration explicitly to company performance and asked to what extent should that happen here.
After asking whether people agreed that non-executive directors' remuneration in New Zealand is set at a level to attract and retain individuals who would make a significant contribution to company performance, the commission produced a question where disagreements are likely to be seen. "Do you believe there are any circumstances in which it might be appropriate for non-executive directors to receive retirement payments?"
The commission's backgrounder noted the "Australian Principles" took the view that non-executive directors should not receive retirement benefits other than statutory superannuation.
The commission will report to the minister by December 7 and the minister will then apparently make some decisions.
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