092657202/4617497.1 SUBMISSIONS ON CORPORATE GOVERNANCE REPORTING REQUIREMENTS WITHIN NZX MAIN BOARD LISTING RULES 26 FEBRUARY 2016 PAGE 1 CHAPMAN TRIPP SUBMISSIONS ON CORPORATE GOVERNANCE REPORTING REQUIREMENTS WITHIN NZX MAIN BOARD LISTING RULES 1 NZX has sought initial feedback on its proposed changes to the corporate governance reporting requirements within the NZX Main Board Listing Rules. 2 We have prepared our submissions following a discussion with a range of listed issuers and are aware that a number of parties have drawn on our submissions. 3 Please contact us should you wish to discuss our submissions and the reasoning behind them. PAGE 2 Question Submission/Comments Objectives and proposed framework 1. Do you agree with the above objectives for NZX’s current review? Yes. We think the key point, as noted by NZX, is that reporting requirements need to strike an appropriate balance between effective disclosure and the cost to issuers. There is nothing stopping issuers from reporting additional information if they wish to do so. We believe the NZX Corporate Governance Code should clearly articulate what the minimum reporting obligations of issuers are and how such reporting should be made (see our comments below about the suggested format for reporting). Some of the issues raised by NZX are difficult to advance without also looking at the substantive rules, which NZX has indicated will be reviewed later in 2016. For example, some of the recommendations about the use of board committees apply equally to audit committee requirements, which do not fall within the scope of the current review. PAGE 3 Question Submission/Comments 2. Do you agree that NZX should adopt the FMA principles as the basis for an updated reporting regime? Yes. However, one key difference is that we believe the ASX Principle 6 (“A listed entity should respect the rights of its security holders by providing them with appropriate information and facilities to allow them to exercise those rights effectively”) better expresses the principles, in a listed issuer context, that FMA Principle 8 (“The board should foster constructive relationships with shareholders that encourage them to engage with the entity”) and FMA Principle 9 (“The board should respect the interests of stakeholders, taking into account the entity’s ownership type and its fundamental purpose”) seek to address. One change that we believe would make ASX Principle 6 even clearer would be to use the word “opportunities” instead of “facilities”. This is because ASX Principle 6 provides a more meaningful statement of how issuers can respect security holders’ rights – in particular, by providing them with information and by allowing them the opportunity to readily exercise their rights. In contrast, FMA Principle 9 does not itself illustrate what it means to “respect the interests of stakeholders”. We believe that, in the listed issuer context, it is more appropriate for the NZX Corporate Governance Code to focus on security holders, rather than “stakeholders”. The concept of “stakeholders” is more relevant for public sector entities that do not have security holders with an ownership interest, and that have additional statutory duties in this respect (see, for example, section 50 of the Crown Entities Act 2004 which requires statutory entities to perform their functions in a manner consistent with the spirit of service to the public). Security holders should be seen as the key interested parties for the purposes of any corporate governance recommendations for a listed issuer as they are most directly invested in the success of the listed issuer. In addition, matters relating to certain other stakeholders, such as employees and customers (the two that are identified by the FMA), will generally be covered in other parts of the annual reporting and corporate governance regime. In particular, matters relating to the way in which the issuer treats employees will be disclosed in the remuneration policy and code of ethics, and matters relating to way in which the issuer deals with customers will be disclosed in the parts of the annual report which report on the business of the issuer. Accordingly, we believe that FMA Principle 8 should be replaced with ASX Principle 6 (as amended above) and FMA Principle 9 should not be adopted. PAGE 4 Question Submission/Comments 2. Do you agree that NZX should adopt the FMA principles as the basis for an updated reporting regime? (cont) This extends to the recommendations under ASX Principle 6 as well. We believe that these should be included as recommendations, rather than commentary, as all issuers should be doing these things (or explaining why they do not believe it is appropriate for them to do so). The commentary can provide guidance on how issuers should achieve these recommendations – in this respect, ASX Principle 6 provides a useful starting point of the types of matters that would be useful to include in commentary. We note that the commentary should emphasise that the scale and nature of any investor relations program, and policies and procedures to encourage participation at meetings of shareholders should be fit for purpose, depending on the size and spread of the shareholder base, as the ASX Corporate Governance Council commentary in this area does (see, for example, the introductory words to the commentary under Recommendation 6.2 that “A listed entity’s investor relations program should be tailored to the individual circumstances of the entity”). PAGE 5 Question Submission/Comments 3. Do you agree with a tiered approach to a reporting regime? We believe the NZX corporate governance regime, including the NZX Corporate Governance Code and the NZX Listing Rules, should be structured as follows. 1. Principles, which set out at a high level the key corporate governance principles and ideals, but which issuers do not need to specifically report against. 2. Recommendations, which issuers are asked to follow and report against on a ‘comply or explain’ basis, organised by reference to the principles. 3. Commentary, which provides additional colour and guidance to issuers as to how they should comply with the recommendations, but which issuers are not asked to follow or report against. 4. Mandatory Requirements, which issuers are required to follow to the extent they apply, but which issuers are not asked to report against. This largely reflects NZX’s proposal. The key point of distinction is that we believe there should not be any suggestion that issuers should report against or comply with the commentary. We also believe the words “best practice” should not be used. The commentary should be designed to help issuers determine how to apply the corporate governance principles and recommendations in a way that is most appropriate for the size and nature of the business of the issuer. If the words “best practice” are included, then we believe it is likely to lead to issuers feeling pressured to follow and report against every piece of commentary, regardless of whether that is the most useful information for investors in that issuer, given its size and nature. Labelling this “best practice” is also likely to prove problematic for company secretaries that would have to explain to their boards why they do not comply with the published best practice commentary. We also believe, as more fully explained below, that an NZX Corporate Governance Council should be established as the body that is responsible for the commentary, rather than NZX alone. PAGE 6 Question Submission/Comments 4. Do you agree that recommendations should be reported against on the basis of an approach of “comply or explain”? Yes. We do not support the recommendations being mandatory – that is the role of the mandatory requirements in the Listing Rules. However, we believe it is appropriate that, if issuers are not complying with the recommendations, they explain why not as this will enable investors to assess whether they believe these reasons are compelling and appropriate. We also believe this will encourage issuers to think more carefully before choosing not to comply with a recommendation as they will need to have a reason for non-compliance. 5. Do you have any other suggestions in relation to the proposed structure of NZX’s updated reporting regime (i.e. feedback on the proposed output of the current review process)? While it is not perfect, we consider that the ASX Appendix 4G form is useful and NZX should introduce a standard template which issuers must complete on an annual basis addressing each of the recommendations and the mandatory requirements. This should be placed on an issuer’s website, along with other corporate governance materials, rather than being required to be included in the annual report. In general, we think it would be helpful for both issuers and investors if issuers are able to put more information on their website rather than in the annual report, noting that it would remain open to issuers to choose to disclose corporate governance matters in their annual reports should they wish. To effect this, we suggest that the requirements of NZX Listing Rules 10.4.5(j) and (k) should be moved to recommendations under the NZX Corporate Governance Code (and see our notes below about further suggested changes to the diversity reporting regime). In addition, NZX Listing Rules 10.4.5(h) and (i) should be removed and replaced with a rule that has a similar concept to ASX Listing Rule 4.10.3 – this requires that the annual report either include the corporate governance statement (in which case it need not be separately supplied to ASX) or a URL to the page on the issuer’s website where the corporate governance statement can be found (in which case the statement must be supplied to ASX with the annual report). We suggest NZX takes the same approach with the standard template for annual governance disclosures, by requiring it either be included in the annual report, or placed on a website and referred to in the annual report. A standard template for annual governance disclosures would aid investors in making comparisons as to corporate governance practices between different issuers. Such a template would also act as a useful checklist for issuers. PAGE 7 Question Submission/Comments 6. Should any other steps be taken by NZX to address the fragmentation of corporate governance guidelines and expectations applying to issuers in New Zealand? We strongly support the establishment of a New Zealand equivalent to the ASX Corporate Governance Council. This could comprise NZX, the Financial Markets Authority and other interested parties, such as the Listed Companies Association, the Institutional Investor Corporate Governance Forum, the Institute of Directors and the New Zealand Shareholders’ Association. As noted above, we see the role of such an NZX Corporate Governance Council as being primarily to publish commentary as to how issuers can comply with the recommendations under the NZX Corporate Governance Code. We acknowledge that there are likely to be a wide range of views as to how issuers should best comply with the recommendations. Accordingly, we believe the better approach is to have well established principles and recommendations that remain relatively unchanged, but use commentary that can be regularly reviewed and updated by the NZX Corporate Governance Council to reflect and guide market practice. We believe this role is more appropriate to be undertaken by such a council, rather than NZX alone. We also consider that providing a forum for the various stakeholders to discuss their views will assist in developing one single code for NZX issuers to comply with rather than the various stakeholders publishing their own views as has already occurred with the Corporate Governance Forum and which we understand the New Zealand Shareholders’ Association is also considering. For smaller issuers, it can be challenging to find the resourcing to keep track of multiple views, particularly where the recommendations do not align. Of course, those organisations and individuals with an interest in corporate governance will continue to have their own views and may continue to publish their own guidance, but we believe establishing a formal council and providing those persons with the ability to provide direct input on the commentary under the NZX Corporate Governance Code may assist in reducing the amount of other guidance published. PAGE 8 Question Submission/Comments 6. Should any other steps be taken by NZX to address the fragmentation of corporate governance guidelines and expectations applying to issuers in New Zealand? (cont) We believe that the NZX Corporate Governance Code and the mandatory requirements in the Listing Rules should be the sole set of corporate governance requirements with which NZX listed issuers must comply. This can be achieved through a number of ways. One key step would be to establish an NZX Corporate Governance Council to seek consensus on the implementation of the NZX Corporate Governance Code. Another useful step would be for the FMA principles and guidelines to focus on non-listed issuers and to include an express statement in the FMA guidance that so long as NZX listed issuers comply with the NZX Corporate Governance Code, they have also met the FMA’s expectations in relation to corporate governance. The FMA could also, through its participation in the NZX Corporate Governance Council, ensure that any changes to the FMA principles and guidelines are reflected in the NZX Corporate Governance Code and vice versa, as appropriate. 7. Should the other corporate governance reporting requirements currently covered in section 10.4.5 of the Listing Rules be incorporated into an updated NZX Code? Yes. The NZX Corporate Governance Code should be the single source of corporate governance reporting obligations for issuers. PAGE 9 Question Submission/Comments Principle 1: Ethical Standards 8. Should NZX include additional recommendations within its NZX Code: a. Explicitly stating that application of a code of ethics extends beyond just the board to senior managers and employees (this is probably implied already) b. For disclosure of a code of ethics and reporting of compliance with a code of ethics Yes. We think it is sensible to explicitly state that some form of code of ethics should extend beyond the board to employees as well. However, we suggest building in the flexibility to enable issuers to split these sorts of matters across multiple codes or documents, as some of the concepts under a code of ethics will only be applicable to directors, some will be applicable to directors and senior managers, whilst some points will be relevant to directors, senior managers and all employees. Issuers should have the flexibility to implement ethical standards in a way that will be most appropriate for their business. In particular, for larger organisations, it may be appropriate to have a short, simple document that can be readily understood by all employees, as well as a more fulsome code of ethics for senior managers and/or directors. Some of these matters that are particularly relevant for directors may also be sensibly dealt with in the board charter rather than in a standalone code of ethics. The recommendations/commentary should be flexible enough to accommodate a substance over form approach. In terms of disclosure, we suggest that the recommendation should be to disclose the code or codes of ethics, as well as annually reporting any material non-compliance with that code or those codes, except where doing so could prejudice employment relations or would be contrary to law (i.e. if there is an ongoing investigation into allegedly fraudulent activity it may be inappropriate to disclose such an investigation before it is completed). PAGE 10 Question Submission/Comments 9. In addition to the matters outlined in section 1.3 of the NZX Code which NZX currently suggests should be considered for inclusion in a code of ethics, NZX considers it appropriate to suggest that a code of ethics cover procedures for dealing with whistle blowing. What additional matters, if any, should NZX suggest (through best practice commentary) be included within a code of ethics? We agree that including whistleblowing in a code of ethics is appropriate. The commentary should include a reference to the Protected Disclosures Act 2000 and how this relates to a whistleblowing procedure for issuers’ ease of reference and to remind issuers that this legislation is likely to apply. There are no additional matters that we believe should be covered. PAGE 11 Question Submission/Comments 10. Should NZX address anything else in this area, including within best practice commentary? We believe this is the appropriate principle under which a staff share dealing policy should be recommended. We suggest including some level of prescription for such policies, as per the NXT Market Rules and the ASX Listing Rules. We believe the ASX Listing Rules strike the right balance by requiring the policy to address: 1. the entity’s closed periods; 2. any restrictions on trading that apply to the entity’s key management personnel; 3. any trading which is not subject to the entity’s trading policy; 4. any exceptional circumstances in which the entity’s key management personnel may trade during a prohibited period with prior written clearance; and 5. the procedures for obtaining such prior written clearance for trading. This can be contrasted with the NXT Market Rules, which actually set out the periods within which trading is permitted, as well as requiring approval before all trades. Among other things, the NXT Market Rules also require breaches to be notified to NZX Regulation. We do not support this additional level of prescription for Main Board listed issuers, as we believe that issuers should have the ability to set a trading policy that they consider appropriate for the size and nature of the business. Reporting obligations in relation to an issuer’s share trading policy should be limited to an obligation to disclose the policy and to explain where that policy does not comply with the recommended content. PAGE 12 Question Submission/Comments Principle 2: Composition and Performance 11. Should NZX introduce additional recommendations or best practice commentary covering the matters outlined in paragraphs i - iv above? Yes. However, conducting appropriate checks prior to appointment for directors should be clearly limited to where the director is being appointed or proposed for election by the board, rather than shareholders. Any recommendations or commentary should also make clear what the expectations are for re-election (i.e. whether the checks need to be repeated each time on re-election or whether the issuer can rely on the original checks undertaken). We believe that the NZX Corporate Governance Code should recommend that issuers have a diversity policy with measurable objectives and report against those objectives in the annual report. This is consistent with the ASX position. We suggest including commentary or guidance to the effect that issuers should carefully consider disclosing broader diversity matters, but that no further reporting obligations should be imposed in the recommendations. NZX is proposing that reporting about each director should include a profile of experience, length of service, independence and ownership interests. One additional matter that we suggest recommending is that issuers have and disclose a collective skills matrix for the board. This recommendation could be in the same form as recommendation 2.2 of the ASX Corporate Governance Council’s principles and recommendations. We understand from some issuers that this has proven to be a useful tool in identifying areas where the board could use more experience and skills, and then finding directors who meet those criteria. We also believe this provides useful information for investors, who can better understand the board dynamics and potential areas of risk and opportunity that can be influenced by the board. If a board has directors with particularly strong skills in one area, it may signal that the issuer is particularly well-placed to develop in that area, and equally if a board lacks skills in an area that is seen as critical to the business, it may be a sign that the issuer may face higher levels of risk. PAGE 13 Question Submission/Comments 12. Should NZX consider introducing a recommendation in future that boards contain a majority of independent directors and/or an independent chairperson? No. Given the small size of the director pool within New Zealand, a recommendation to have a majority of independent directors is likely to hinder smaller issuers in particular. We think the FMA principles are more appropriate here, which recommend a majority of non-executive directors (rather than independent directors) and an independent chairperson. 13. Do you consider the current definitions within the Listing Rules of “Independent Director”, “Disqualifying Relationship” and “Associated Person” are appropriate? If not, what amendments should NZX consider in future? We suggest the definition of disqualifying relationship be amended to place more focus on the general test, rather than the specific revenue tests. Additional commentary around the factors that are likely to make someone non-independent (e.g. length of time on the board and other relationships with the issuer, board or providers of professional services to the issuer) could then be included in the commentary to bolster the general test under the definition of disqualifying relationship. We note that, given the small size of the director pool within New Zealand, we do not support a change to any of these definitions that could result in a director of a listed issuer being deemed to be non-independent as a result of being a director of another listed issuer that supplies services to the first listed issuer. 14. Should NZX address anything else in this area, including within best practice commentary? No. Principle 3: Board Committees 15. Should NZX introduce additional recommendations or best practice commentary in relation to publication of committee charters, committee membership and meeting attendances? Yes – we believe the NZX Corporate Governance Code should include recommendations that issuers disclose: 1. all board committee charters; 2. the members of each board committee; and 3. the number of times each committee and the board met during the year, and the individual attendances of each of the members at those meetings. We believe this is useful information for investors, particularly as it relates to meeting attendances. PAGE 14 Question Submission/Comments 16. Should the existing recommendations within NZX’s Code in relation to nomination and remuneration committees continue to be subject to the “unless constrained by size” exception? a. Should NZX continue to recommend issuers have a remuneration committee? Yes. Given the minimum size of the board of an issuer required by the NZX Listing Rules is three directors, there are situations in which it would be appropriate for the board to undertake this role as a whole, rather than issuers having to establish committees that include all of the directors. In terms of the mandatory requirement in NZX Listing Rule 3.6.2(b) for the audit committee to have a minimum of three members, we also suggest reducing this to two where the board only consists of three or four directors. This would enable directors to set up a more appropriate committee structure, rather than having the whole board (or almost the whole board) act as a committee. We believe it is useful to continue to recommend issuers have a remuneration committee, particularly if the current position under the NZX Corporate Governance Code is carried forward to enable the remuneration committee and the nominations committee to be combined (as some issuers may consider that this is more appropriate for their board size and structure). 17. Should NZX address anything else in this area, including within best practice commentary? No. PAGE 15 Question Submission/Comments Principle 4: Reporting and disclosure 18. Should NZX introduce additional recommendations or best practice commentary that: a. Issuers should have a written policy for complying with their continuous disclosure obligations. If so, should issuers be required to publish these policies? b. All boards should maintain an effective system for internal control for reliable financial reporting and accounting records Yes. We believe having a written policy for complying with continuous disclosure and disclosing the policy is a useful discipline for listed issuers. We do not believe it is necessary to impose any recommendations in relation to financial reporting and accounting records, as issuers are already subject to these obligations under Part 7 of the Financial Markets Conduct Act and the Companies Act. In addition, as a practical matter, the auditors will require these systems to be in place in order to be able to give an appropriate audit report. Accordingly, this should be limited to forming part of the commentary or guidance, rather than a specific recommendation. We also note that matters like specific delegated financial authorities should be left as internal matters for the issuer to decide and manage itself within an appropriate risk management framework, rather than there being any suggestion that these should be externally disclosed. PAGE 16 Question Submission/Comments 19. Should NZX introduce any additional recommendations or best practice commentary in relation to non financial reporting matters, including ESG disclosures? a. If so, which issues (and metrics) should be reported? No. At most, NZX should include some commentary or guidance that issuers should consider reporting on non-financial matters that are relevant to their business, but we do not support including anything more prescriptive than that. To be useful, reporting on these non-financial matters needs to be relevant to the business, taking into account its nature and size. Accordingly, we believe including specific recommendations as to the metrics or matters that should be reported on would be counter-productive and may not provide the most useful information for investors. Investors can make their own decisions about the importance of ESG matters and choose not to invest in issuers that do not satisfy the standard, or provide the level of disclosure on such matters, that an investor considers appropriate. There is an everincreasing range of “responsible investment” style funds available so retail investors can choose to invest in those funds or avoid particular issuers or sectors if they feel strongly about this. Further, given the low threshold for shareholder activism in New Zealand (a single shareholder can raise a proposal under the Companies Act no matter how many shares it holds) and the statutory requirement for an annual meeting to provide an opportunity for shareholders to discuss the management of a company, we believe there are alternatives for those investors who wish to promote a greater level of ESG reporting than having it imposed through the NZX Corporate Governance Code. 20. Should NZX include anything else in this area, including within best practice commentary? No. PAGE 17 Question Submission/Comments Principle 5: Remuneration 21. Should NZX introduce recommendations as follows: a. Issuers must publish a remuneration policy dealing with remuneration of directors and senior executives? b. Senior executive remuneration (including CEO remuneration) should include an element that is dependent on entity and individual performance? We also agree that recommending a remuneration policy is a good idea, although we note that these do tend to present information at a fairly high level. This is why, as noted below, we support including an additional recommendation to provide more detailed and useful annual information for investors. We agree that it would be useful to include commentary that senior executive remuneration should include an element that is dependent on entity and individual performance. This may not be appropriate for all issuers, so we do not believe it should be a formal recommendation. PAGE 18 Question Submission/Comments 22. Should NZX introduce additional recommendations or best practice commentary for reporting of CEO and senior executive remuneration? If so, what should be introduced? The ASX Corporate Governance Council does not provide any recommendations on this, as the Corporations Act includes a highly detailed regime for remuneration reporting. We do not believe the NZX Corporate Governance Code should impose the same level of detail as the Corporations Act but we believe that more useful information should be provided to investors than the table required under the Companies Act for employees who are paid more than $100,000 with the number of employees in bands of $10,000. One particular disclosure which we believe would be useful for investors is the proportion of remuneration for senior executives and directors that is performance based. Accordingly, we suggest the NZX Corporate Governance Code includes a recommendation that issuers disclose the proportion of remuneration for directors and senior managers (as a group, not on an individual basis) that is base remuneration and the proportion that is performance based or otherwise at risk (whether in the form of bonuses, short term incentive schemes or long term incentive schemes). We understand there is likely to be some commercial sensitivity about disclosing this on an individual basis, but we believe issuers could report this as an average or a range (i.e. a disclosure to the effect that “The Company’s senior managers received between 20% to 40% of their total remuneration through performance based incentive schemes”). 23. NZX seeks feedback on whether remuneration consultants are widely used in New Zealand. If so, should NZX recommend or suggest via best practice commentary that such consultants be approved by, and report directly to, the board or remuneration committee? Generally, we understand issuers review benchmark industry data when setting directors’ fees or assessing employee remuneration. However, we understand that the provision of factual information of this nature would not trigger the remuneration consultant regime under the Corporations Act. Accordingly, we are not aware of a meaningful number of issuers actually setting remuneration based upon a “recommendation” from a remuneration consultant. In our view, boards are savvy enough to insist upon consultants being approved by, and reporting directly to, the board or remuneration committee if they wish and, therefore, these matters do not need to be addressed by way of the NZX Corporate Governance Code. PAGE 19 Question Submission/Comments 24. Should NZX address anything else in this area, including within best practice commentary? No. Principle 6: Risk Management 25. Should NZX introduce recommendations or best practice commentary covering the following matters: a. Issuers should have appropriate policies and procedures in place to identify and mange the key risks facing their businesses. b. Issuers should disclose details of their internal audit function, where applicable, or to provide explanation of the alternative measures in place. c. Issuers should have a staff share dealing policy and disclose details of this We agree with paragraphs a and b, although note that these recommendations should include an express recognition that these matters will be dependent on the nature and size of the business. For example, many smaller issuers will not have an internal audit function or may have only relatively simple risk management procedures given the nature of the business. On paragraph c, we agree that there should be a recommendation regarding a staff share dealing policy. As noted earlier, in our view, it sits more appropriately under “ethical standards” than “risk management”, so we suggest that it is included under this principle instead. We also suggest including some level of prescription as per the NXT Market Rules and the ASX Listing Rules. PAGE 20 Question Submission/Comments 26. Should NZX include specific recommendations or best practice commentary in relation to managing (and reporting of) health and safety risks? If so, which metrics should be reported? See our earlier comments regarding non-financial reporting. We believe they ring equally true here and only support there being commentary, at most, in relation to these matters. 27. Should NZX recommend/suggest that issuers specifically report on economic, environmental and social sustainability (or ESG) risks? See our earlier comments regarding non-financial reporting. We believe they ring equally true here and only support there being commentary, at most, in relation to these matters. 28. Should NZX address anything else in this area, including within best practice commentary? No. PAGE 21 Question Submission/Comments Principle 7: Auditors 29. Should NZX include recommendations or best practice commentary that: a. The external auditor should attend the AGM to answer questions from shareholders in relation to the audit b. Issuers should report to shareholders annually in relation to audit and non audit fees paid to the audit firm We agree with paragraph a, noting that this will be more likely to be relevant once the revised “key audit matters” audit report regime applies for accounting periods ending from December 2016 onwards. We note that paragraph b. is already covered by the Companies Act and FRS-44 New Zealand Additional Disclosures and therefore should not be repeated in the NZX Corporate Governance Code. 30. Should NZX consider amending its current auditor rotation requirements in future? We do not perceive the five year lead audit partner rotation requirement as generally being problematic, but our view is that NZX should not make any recommendations regarding audit firm rotation. We believe any such move would be unduly disruptive to issuers and, given the concentration of auditors in the New Zealand market, would lead to potential conflicts of interest and issues in relation to sector expertise. This is exacerbated by the restrictions on non-audit work, which means the pool of available audit firms will shrink even further for most issuers. 31. Should NZX address anything else in this area, including within best practice commentary? No. PAGE 22 Question Submission/Comments Principle 8: Shareholder relations 32. Do you agree with the proposed best practice commentary in these areas? As noted above, we recommend the adoption of the ASX Principle 6 (with one minor amendment), instead of FMA Principle 8. Also as noted above, this extends to the recommendations under ASX Principle 6 as well. We believe that these should be included as recommendations, rather than commentary, as all issuers should be doing these things (or explaining why they do not believe it is appropriate for them to do so). The commentary can provide guidance on how issuers should achieve these recommendations – in this respect, ASX Principle 6 provides a useful starting point of the types of matters that would be useful to include in commentary. As noted earlier, the commentary should emphasise that the scale and nature of any investor relations program, and policies and procedures to encourage participation at meetings of shareholders should be fit for purpose, depending on the size and spread of the shareholder base, as the ASX Corporate Governance Council commentary in this area does (see, for example, the introductory words to the commentary under Recommendation 6.2 that “A listed entity’s investor relations program should be tailored to the individual circumstances of the entity”). It is also worth noting that under the Companies Act, issuers that are companies are already required to utilise electronic communications where the shareholder requests that they do so. Instead, we suggest that issuers be recommended to actively encourage the use of electronic communications. 33. Should NZX address anything else in this area, including within best practice commentary? No. Principle 9: Stakeholder interests 34. Do you consider it appropriate to adopt FMA’s principle 9 (potentially amended)? As noted above, we do not consider it is appropriate to adopt FMA’s Principle 9. Instead, we believe the better approach is to adopt the ASX Principle 6 (and the recommendations thereunder), as a replacement of Principle 8 under the FMA principles and guidelines. PAGE 23 Question Submission/Comments 35. What best practice commentary is appropriate for listed issuers in this area? We suggest introducing commentary under Principle 8 (as amended per our suggestions above) suggesting disclosure, at a high level, of any protocols in place between the issuer and any significant shareholders such as in relation to participation in capital raisings or disclosure of information. This could be included in the types of information to be provided to investors about an issuer and its governance via the issuer’s website. We understand some issuers may be reluctant to disclose these matters if they are commercially sensitive, but it may be useful for investors to understand the context in which significant or major decisions are made about the issuer.