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NZX wants best practice in the boardroom with new governance code

Wednesday 10th May 2017

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NZX says it wants international best practice in the boardrooms of publicly listed companies with the release of a new corporate governance code set to come into effect from October. 

In the first substantial overhaul of governance rules since 2003, the Wellington-based stock market operator today released the code spanning eight principals that are meant to protect the interests of and build long-term value for shareholders, NZX said in a statement. Those principles encompass ethics, board make-up, board committees, reporting and disclosure, remuneration, risk management, auditors and shareholder rights, with each carrying a number of recommendations for firms to meet. 

"The NZX Code wasn't designed to be too novel or outrageous - the recommendations are recognised as best practices for a reason and a number of top New Zealand companies are already adopting them," NZX head of policy Hamish Macdonald told BusinesDesk. "The NZX Code seeks to promote good corporate governance practices and ensure greater transparency for investors about these practices, with the aim of driving increased confidence and participation in our markets."

The new code has been in the works for more than a year, with two papers attracting more than 80 submissions over that period and will bridge some of that gaps between regimes such as on the Australian Securities Exchange, the favoured secondary listing for New Zealand firms of a certain size. 

The Financial Markets Authority has also kept tabs on the NZX code, which it will have to ratify as the market regulator, and today said it lined up with the principles of its own governance guidelines. The FMA said it will review its handbook to make sure everything is consistent. 

"It’s critical to ensure New Zealand’s listed companies are in line with international standards of corporate governance," FMA director of strategy and risk Simone Robbers said in a statement. "We support the objective of increasing consistency between different corporate governance reporting regimes."

Among the more controversial recommendations in the code is a requirement for chief executive remuneration be disclosed, including the criteria for bonuses to be paid out. The code has also recommended firms should provide non-financial information such as environmental and social disclosures at least once a year, and report on health and safety risks, which are often cited by ethical investors as giving indicators on long-term value creation. 

Institute of Directors governance leadership centre manager Felicity Caird said the non-financial reporting and health and safety disclosure went beyond the draft code, and that the final document puts New Zealand in line with international trends, which "is really important in the global environment".

Listed companies will be expected to report against the new code for the period ending Dec. 31, 2017, and NZX said it encouraged firms to adopt the recommendations early. 

The code uses a 'comply or explain' regime in that firms are encouraged to meet the recommendations, but if they don't agree it must say why not, which could be that the rule wasn't appropriate for the individual firm's circumstances. 



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