NZX has now published its final NZX Corporate Governance Code (the NZX Code), after a consultation period on the discussion draft published in August 2016.
We have created a high-level summary of the recommendations of the NZX Code, which is designed to be a helpful reference for issuers. You can access it here.
The NZX Code (together with the NZX Listing Rules), the FMA’s Corporate Governance Framework, the Institute of Directors’ Four Pillars of Governance Best Practice and the New Zealand Corporate Governance Forum’s Guidelines provide a somewhat overlapping framework of guidance for corporate governance best practice in New Zealand (with the NZX Code applying only to listed entities).
All listed issuers on the NZX Main Board (other than dual listed issuers and overseas listed issuers) are required to report against the NZX Code. This reporting is on a ‘comply or explain’ basis (‘if not, why not’) - issuers are not strictly required to adopt the recommendations in the NZX Code, but if an issuer does not adopt a recommendation, it must explain why it has not and explain any alternative arrangements it has in place. This statement is required to be reasonably detailed and informative, to ensure the market understands why the issuer has chosen not to follow the recommendation.
Issuers will be permitted to report against the recommendations in their annual report, on their website, or a combination of both.
Importantly, the reporting requirements only relate to the recommendations in the NZX Code. The principles themselves and the commentary about the principles do not form part of the recommendations and therefore do not trigger any disclosure requirements under the NZX Listing Rules.
The key recommendations that impose new standards and are therefore likely to be of interest to issuers are:
- Written Agreement: All new directors should enter into a written agreement establishing the terms of their appointment (this recommendation is not intended to apply retrospectively to existing directors).
- CEO Remuneration: Issuers should disclose the remuneration arrangements in place for the CEO in their annual report. This should include disclosure of the base salary, short term incentives and long term incentives and the performance criteria used to determine performance based payment.
- Diversity Policy: Issuers should have a written diversity policy which includes requirements for the board or a relevant committee of the board to set measurable objectives for achieving diversity (which, at a minimum, should address gender diversity) and to assess annually both the objectives and the entity’s progress in achieving them.
- Non-Financial Reporting: Issuers should provide non-financial disclosure at least annually, including a consideration of material exposure to environmental, economic and social sustainability risks and other key risks. Issuers should also explain how they plan to manage those risks and how operational or non-financial targets are measured.
- Health and Safety: Issuers should disclose how they manage their health and safety risks and should report on their health and safety risks, performance and management.
- Code of Ethics: An issuer should have in place a code of ethics (which can be contained in single or multiple policy documents) that directors and employees are expected to adhere.
- Remuneration Committee: At least a majority of the remuneration committee should be independent directors.
- Poll voting: Although only commentary on the "one vote per share" recommendation, NZX suggests that all voting should be undertaken by way of poll (rather than, for example, a show of hands).
The NZX Code will take effect from 1 October 2017 and must be reported against for the 31 December 2017 year-end period. NZX is, however, encouraging issuers to adopt the recommendations earlier if they wish.
This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.