New Zealand Corporate Governance Principles and Guidelines – Overview and Summary of Requirements

  • By: Staff Editor
  • Date: March 01, 2013
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The New Zealand Securities Commission published “Corporate Governance in New Zealand Principles and Guidelines” in February 2004. The aim of these principles is to make sure that companies in the country are run in an ethical and compliant manner. This article provides a summary of the requirements included in this document.
The principles apply to entities that have an economic impact on New Zealand but also are accountable in various ways to the public. This includes listed issuers, other issuers, state-owned enterprises, community trusts, and public sector entities.
Ethical Standards
Directors are expected to observe and foster the highest ethical standards.
The Board of Directors should:
  • Adopt a written code of ethics that addresses:
    • Conflicts of interest
    • Information security
    • Preventing insider trading
    • Fair dealing with all stakeholders
    • Anti corruption mechanisms
    • Regulatory compliance
Reporting of unethical behavior and decision making (whistle-blowing)
  • The Board should periodically review the code of ethics
  • The code of ethics should be communicated to employees and training provided
  • The Board should monitor adherence to the code
  • There should be consequences for breach of the code
  •  Annual reports should include information about steps taken to implement and monitor the code of ethics
Board Composition and Performance
In order for the board to work in an effective manner, there should be a balance of independent thinking, skills, knowledge, experience of working and perspectives among the directors of the company.
  • The board should have the appropriate mix of both executive and non-executive directors
  • The process for selecting directors to the board should be formalized and be rigorous
  • A charter that establishes the roles and responsibilities of the board and its members should be formally
  • Chairpersons of publicly owned companies should be independent
  • The board should put in writing its specific expectations of non-executive directors – including independent directors
  • The board should allot the members suitable time to apprise themselves with the nuances of the business so that they can carry on their responsibilities.
  • Annual reports of the company should include information about directors – clearly mentioning those who are independent – and the board’s processes.
Board Committees
In order to improve effectiveness of the board, committees should be formed to look after key areas of corporate governance and operations.
  • Committee charters should be published and in the case of public companies, made available to investors.
  • The charter should include information on the role and responsibilities of the members of the committee.
  • Committee proceedings must be reported back to the board in order to allow scrutiny
  • Public companies should appoint audit committee who in turn can appoint external auditors, oversee all aspects of the entity-audit firm relationship and maintain the company’s financial integrity.
Reporting and Disclosure
It is the board’s duty to ensure that financial reporting is compliant with current regulations and that all relevant disclosures about company affairs are made when required.
  • Annual reports, in addition to regulatory requirements, include meaningful information that is of use to stakeholders
  • The internal controls for financial reporting within a company must be robust and effective
  • There should be strong, thorough processes to ensure compliant and continuous disclosure of information required by law
  • Documents relevant to corporate governance processes and controls – code of ethics, charters and other standing documents should be made available to investors and stakeholders
  • Annual reports of progress in adopting, implementing and maintaining the corporate governance principles must be made available to investors
The principles state that the remuneration to be given to directors and executives has to transparent, fair and reasonable.
  • The board should have a clear executive remuneration policy
  • Publicly owned companies have to disclose their remuneration policies in their annual reports
  • Executive remuneration has to be different from non-executive remuneration. Executive remuneration has to be linked to company and individual performance.
  • Non-executive directors should not be given retirement payouts unless this was agreed by shareholders and publicly disclosed during term of service.
Risk Management
It is the board’s responsibility to ensure that the company has the right processes and controls to monitor and mitigate risks.
  • The board has to receive regular reports on the performances of these risk management controls and processes
  • Annual reports about the performance of these controls and processes should be provided to investors and other stakeholders
The board has to ensure the quality and independence of the external auditors.
  • Auditors should be selected for their quality and professional merit
  • Auditors should not have any relationship with the company or any related person that could compromise their independence. The board should only hire the auditors once it’s satisfied that this key requirement has been fulfilled.
  • An issuing company should not have the same audit partner for more than five years
  • Boards of issuing companies should report the amount of fees paid to auditors on an annual basis to shareholders and other stakeholders
  • Boards of issuing companies have to explain the types of non-audit work that the auditor might have undertaken in the annual report. They should also explain why this kind of work did not compromise the independence of the auditor
Shareholder Relations
A vital process in the smooth and ethical operation of a company is the relationship between the shareholders and the board. It is the board’s responsibility to ensure that this relationship is constructive and transparent.
  • Public companies must have clear, published policies regarding shareholder relations. These must be regularly reviewed.
  • Public companies should have an up-to-date website that provides:
    • Comprehensive description of its business and structure
    • Goals, strategies and performance
    • The critical corporate governance documents
    • In the case of listed companies, all information released to the stock exchange, including reports to shareholders
  • Location of annual and special meeting should be disclosed to shareholders
  • The board should allow shareholders to question the external auditors
Stakeholder Interests
The interest of the stakeholders should be protected keeping in mind the type of the ownership and the purpose of the business.
  • The board should draw up and maintain clear policies regarding the relationships with all significant stakeholders
  • These policies should take into account the public, private and crown ownership of companies
  • The board should ensure that these policies are followed and complied with
  • The board should make sure that the company’s conduct towards stakeholders is in keeping with the code of ethics and law
  • Public sector companies should apprise the stakeholders of their activities on an annual basis, including how the stakeholders’ interests were served


Additional Resources

Read the New Zealand Corporate Governance Principles and Guidelines in full here.


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