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Corporate Governance in New Zealand

Principles and Guidelines

Report on Findings from the Consultation Process

Contents

THE CONSULTATION PROCESS

Promoting the process
The response from participants
Analysing the responses
Areas of broad agreement
Views by type of entity

THE FINDINGS FROM RESPONDENTS

Issue One: Ethical Conduct
Issue Two: Board Composition and Performance
Issue Three: Board Committees
Issue Four: Reporting and Disclosure
Issue Five: Remuneration
Issue Six: Risk Management
Issue Seven: Auditors
Issue Eight: Shareholder Relations
Issue Nine: Stakeholder Interests

THE CONSULTATION PROCESS

The Securities Commission researched and drew together thinking on corporate governance from international and New Zealand research and practices. This work was published as Corporate Governance in New Zealand - Consultation on Issues and Principles - Background Reference. This document identified nine issues relating to corporate governance that are important for New Zealand. The accompanying Questionnaire was prepared by a specialist questionnaire design company to gather people's thinking on the issues identified in the Background Reference. Both documents were approved by the Commission. The documents were made available to the public from 8 September 2003 until 7 November 2003. The few completed questionnaires returned after 7 November 2003 were included in the analysis.

Promoting the process

Direct invitation by mail out
Invitations to participate, together with the Background Reference and Questionnaire, were addressed to the chairperson and directors of 261 listed and unlisted companies, the mayor and councillors of 86 local authorities, the chairperson and members of 21 district health boards and the chief executive or equivalent of 53 advisory firms, government agencies and associations and agencies.

News media
Chairperson Jane Diplock announced the documents would be available on 8 September 2003, and drew attention to the Commission's website. This was widely reported in the financial media.

Website
The consultation documents were published on the Commission's website on 8 September 2003. Some 900 people received a personal email linking them directly to the documents.

Public awareness
An advertising campaign during the last two weeks of September 2003 raised awareness of the process. The advertisements invited people to take part and advised them how to obtain the consultation documents. The campaign ran in The New Zealand Herald, The Dominion Post, The Press (Christchurch), the Otago Daily Times, The National Business Review and The Independent.

Professional associations
Briefings on the process were held with New Zealand Exchange Limited, the Institute of Directors in New Zealand Inc, and the Institute of Chartered Accountants of New Zealand. We approached editors of a range of professional associations' newsletters and various business publications to report the process. A good level of coverage was achieved.

Discussion groups
Discussion groups chaired by Commission Members were held in Christchurch, Wellington, Hamilton and Auckland during October and early November 2003. Personal invitations were sent to 211 people on boards and councils and senior positions in entities including listed and unlisted companies, local authorities, district health boards, Māori organisations, funds' managers and co-operative companies. In total, 71 people attended these 2-hour meetings and, with their permission, their opinions were recorded on the Questionnaire.

Speeches
Commission Members spoke on the consultation process at a number of forums, including meetings of the Institute of Directors in New Zealand Inc and seminars at Victoria University of Wellington.

The response from participants

We were pleased with the level and quality of response to the discussion documents. Most questionnaires were completed by individuals but in other cases groups of people worked together to complete one questionnaire.

How people took part

160 written responses were received. 71 people participated in 9 discussion groups which generated a further 9 written responses.

How people answered?

The questionnaire asked people about the capacity in which they were responding.

Participation by type of entity

Most of those who took part in the consultation indicated the type of entity that they were responding on behalf of, or with which they were associated. This showed participation across a range of business entities.

Participation by role

Many participants identified their role within an entity.

Analysing the responses

The consultation process was a qualitative rather than quantitative exercise. Questions were open-ended and invited comment rather than asking respondents to choose one or more of a number of pre-determined options. It is not appropriate to tally responses, to apply percentages to particular points of view, or to assume that results necessarily represent the views of the entire business community. However, respondents identified with a good range of entities, and roles within entities.

Responses and respondents' details were recorded. Responses were entered into templates by Securities Commission staff and reviewed by external consultants. The submissions and feedback received were analysed on the basis of themes, trends and weight of opinion, rather than percentages or cross-tabulations. The Appendix (Report on findings from the consultation process) was subject to internal and external review.

While the conclusions reached may not reflect the specific views of individuals, every endeavour has been made to reflect the balance of opinion on the issues tested through the consultation process. We have included direct quotes from completed questionnaires in this Appendix as examples of the responses received on a particular question.

Areas of broad agreement

Principles-based approach
Participants were asked whether a principles-based approach to corporate governance is most appropriate for New Zealand. Some jurisdictions have chosen a rules-based approach, while others (including Australia) have favoured a principles-based approach. In New Zealand there is strong support for a principles-based approach with a great majority of respondents favouring this.

"... a principles-based approach is much preferable to a rules-based approach. Apart from providing flexibility for adopting arrangements that suit the circumstances of the individual enterprise, companies must demonstrate that they have adhered to the spirit of what is espoused - whereas rules can be "got around" ... principles can be achieved at less cost due to the flexibility in methods used to measure or attain them."

There were calls to avoid a prescriptive approach to applying the principles. Of the people who offered conditional support or disagreed with the proposition, some said a combination of a principles-based and rules-based approach might be needed.

Core principles
Respondents were asked whether the nine issues identified in the Background Reference are the core issues that should be included in New Zealand principles for corporate governance. They are:

Ethical Conduct
Board Composition and Performance
Board Committees
Reporting and Disclosure
Remuneration
Risk Management
Auditors
Shareholder Relations
Stakeholder Interests

A great majority agreed that the nine issues captured the core governance areas. Of those who gave conditional support or disagreed, some said communication and the integrity of directors are key to many of the issues.

Common themes
Some common themes emerged from the responses:

• Certain principles might be more relevant to some types of entities than others.
• Principles will need to be tailored to apply to New Zealand entities, especially smaller businesses.
• Company law determines many behaviours and there needs to be clarity around the role of the principles in guiding behaviour.

Views by type of entity

Responses were analysed by type of entity to establish underlying trends. On the whole there are no clear "constituencies" of either agreement or disagreement by entity in relation to the issues raised in the questionnaire. There are some positions that professional firms and associations are more inclined to support, and some that companies are more inclined to support. However, given the qualitative nature of the research it would be inappropriate to infer too much from the conclusions in relation to type of entity. Any apparent trends or patterns are noted in the next section on consultation findings.