The reform directions indicated in the consultation paper on the review of the NZX Corporate Governance Code represent a significant step forward with further progress to come, says Chapman Tripp Partner Geof Shirtcliffe.
These will be the first substantive updates to the Code since 2003 and catch up a lot of ground with Australia and other comparable jurisdictions. We welcome this as it is our view that New Zealand has been slipping behind in the governance area.
Chapman Tripp has been for some time encouraging agreement on a single governance framework. The NZX has not delivered on this at this stage.
But it does recognise that the current fragmentation is not helpful and has sought to better align the Code with other reporting frameworks and to improve comparability and consistency between the various reporting practices among issuers listed on the Main Board.
Some commentators may be disappointed that the NZX is not currently proposing that boards should have a majority of independent directors. We have long maintained that would be difficult given the small New Zealand market but note that the NZX has marked this as an issue to be addressed as part of a broader review later this year of the Listing Rules.
The review contemplates stronger remuneration reporting requirements – including the relative weightings of remuneration components for directors and senior executives and the specific remuneration arrangements for the CEO (base salary, incentives and performance criteria).
It also gives a push to board diversity, requiring that issuers have a published policy to be met on a ‘comply or explain’ basis which must, at a minimum, address gender diversity and which should consider gender pay equality.
Other forward looking moves are in the risk management area – specifically environmental, social and governance (ESG) reporting and health and safety reporting. The NZX will encourage rather than require ESG reporting and will develop specific guidance based on the benchmark Sustainable Stock Exchange Initiative.
The timeline from here is that submissions are due by 14 October with final decisions before the end of this year for implementation next year. We urge issuers to engage in the process as it is important that New Zealand have a forward-looking contemporary and internationally competitive governance culture.