Corporate governance principles welcomed
The Commission's report Corporate Governance in New Zealand - Principles and Guidelines has been well received. In particular the principles-based, rather than a rules-based, approach to corporate governance has been welcomed by commentators.
The report, delivered to the Minister of Commerce on 16 February 2004, followed wide consultation with market participants, particularly those directly involved in the corporate governance of a range of entity types.
'We believe the principles and the accompanying guidelines are appropriate for the New Zealand environment, and they are in line with international best practice," Commission Chairman Jane Diplock said. "They should help New Zealand directors and boards of all types of entities to achieve consistently high standards in carrying out their governance responsibilities."
The principles support existing laws and regulations, and they do not impose any new legal obligations.
Different types of entity can take different approaches to achieving consistently high standards of corporate governance. The Commission believes that good governance practices should reflect the nature of each entity, and contribute to improved performance and accountability for that entity.
The principles and investors
Disclosure is important because it makes entities more accountable to their shareholders and other stakeholders. However, there are two sides to this and the users of this disclosure have a significant role to play. For disclosure to be effective, shareholders, investors, and other stakeholders need to evaluate the information they are given and, on this basis, to responsibly call directors and executives to account when that is called for.
The Commission expects issuers to tell investors how they have achieved each principle. Shareholders and other investors should give due weight to the entity's reporting of how it has achieved the relevant principle, and take a common sense approach to deciding whether or not they accept it.
The principles and listed issuers
"The Commission's principles should not increase the disclosure requirements for the many listed issuers whose governance practices and reporting are already of a high standard," Jane Diplock said.
These issuers probably already address all the matters covered by the principles by adopting certain practices and by reporting on them. They report on these under NZX Listing Rule 10.5.3(h) which requires annual reports to include a statement of any corporate governance policies, practices and processes, adopted or followed by the Issuer.
Handbook for directors, executives and advisers
An abbreviated version of the Commission's report Corporate Governance in New Zealand - Principles and Guidelines is now available. This is intended as a useful reference for those who are applying the principles to their entities. Copies are available directly from the Commission (phone 64 4 472 9830, or email karen.barnes@seccom.govt.nz).
I take this opportunity as the new Minister of Commerce to introduce myself to those with an interest in the country's securities regulation.