MR No. 2016 – 23
4 August 2016
New Zealand listed companies publicly disclose about two-thirds of the corporate governance information that the FMA believes would be useful to investors. However, on average, unlisted companies provided only 24% of the recommended governance information.
The FMA has completed a review of corporate governance disclosures by 45 companies, listed and unlisted. Good corporate governance is one of the FMA’s strategic priorities because it is an important contributor to transparency and efficiency in capital markets. In 2014 the FMA published a Corporate Governance Handbook comprising nine corporate governance principles.
The FMA has reviewed information provided in public disclosures by companies about how they address the principles. The resulting report, released today, is not an assessment of the quality of corporate governance in New Zealand companies - rather, it reports the extent to which New Zealand companies are providing information about their approach to corporate governance; which is a good indicator of how seriously companies are taking the corporate governance principles.
The review shows that while it is possible to find commentary in the annual report or on company websites about governance principles such as a code of ethics, the remuneration policy, or risk management policies, few companies are publically disclosing the actual code or policies.
Of the nine principles in the governance handbook, information was provided least often by companies about stakeholder interests (19%), and reporting on remuneration (37%).
Improving the quality of reporting on corporate governance supports another of the FMA’s key priorities in its Strategic Risk Outlook, investor decision-making. The FMA wants to promote high standards of corporate governance, and ultimately improve confidence in New Zealand’s capital markets.
Simone Robbers, Director of Strategy and Risk at the FMA, said, “We are sharing our findings so companies can reflect on their governance practices and disclosures. While the results overall are encouraging there is work to be done to ensure that investors can find information to help them assess the companies they are considering investing with, and make informed investment decisions.
“We also encourage unlisted companies to think about paying more attention to their corporate governance disclosures, in particular how they can start raising the bar in providing useful information to their shareholders and customers.”
“We will also continue to work closely with the NZX on its review of corporate governance reporting requirements for listed companies. We are keen to ensure alignment, as far as possible, across the different corporate governance requirements for New Zealand companies,” Ms Robbers said.
The FMA also recently asked institutional investors how they rate the current corporate governance standards in New Zealand. Together these investors manage about $100 billion of funds, and just under half, 46%, of them agreed that corporate governance standards were high. Most said, however, there is still room for improvement. There was concern that smaller companies were less aware of good corporate governance practice and think that it only applies to larger businesses.
Chief areas of concern for institutional investors were board composition and performance, reporting and disclosure, and remuneration. The fact that professional investors with capital at risk are also focussed on reporting and disclosure supports the FMA’s view that other investors would also find the information useful for their decision-making.
The FMA will continue to engage with other parties and stakeholders in corporate governance in New Zealand including the New Zealand Shareholders’ Association, the Institute of Directors, and The New Zealand Corporate Governance Forum, to encourage consistency and high standards of corporate governance.
FMA’s review of corporate governance disclosure here
FMA’s handbook on the nine core principles of corporate governance here
The FMA’s review of this particular form of disclosure is not about the quality of governance itself among the companies, or their actual behaviour. The review compares the annual report and website disclosures of 45 selected companies, against a set of recommendations in the FMA’s handbook. The FMA chose these forms of communications for the review as they are the most readily available for the public and a good indicator of whether companies are focused on the corporate governance principles.
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