New Zealand proposes changes to company governance principles

The New Zealand Financial Markets Authority (FMA) has proposed changes to its governance principles, unchanged since first published in 2004. The principles apply to a broader set of companies than the ASX Corporate Governance Council Principles, and include listed issuers, other issuers, state-owned enterprises, community trusts, public sector entities and other companies. While the focus is on issuers, the FMA principles are not legally binding. The only legally binding requirement is that listed issuers under NZX Listing Rule 10.4.5(h) requires annual reports to include “a statement of any corporate governance policies, practices and processes, adopted or followed by the Issuer”.


The principles are:


Principle 1: Ethical standards.

Directors should set high standards of ethical behaviour, model this behaviour and hold management accountable for delivering these standards throughout the organisation.

Principle 2: Board composition and performance.

To ensure an effective board, there should be a balance of independence, skills, knowledge, experience and perspectives among directors.

Principle 3: Board committees.

The board should use committees where this will enhance its effectiveness in key areas, while still retaining board responsibility.

Principle 4: Reporting and disclosure.

The board should demand integrity in financial reporting and in the timeliness and balance of corporate disclosures.

Principle 5: Remuneration.

The remuneration of directors and executives should be transparent, fair and reasonable.

Principle 6: Risk management.

Directors should have a sound understanding of the key risks faced by the business. The board should regularly verify that the entity has appropriate processes that identify and manage potential and relevant risks.

Principle 7: Auditors.

The board should ensure the quality and independence of the external audit process.


Principle 8: Shareholder relations.

The board should foster constructive relationships with shareholders that encourage them to engage with the entity.

Principle 9: Stakeholder relations.

The board should respect the interests of stakeholders within the context of the entity’s ownership type and its fundamental purpose.


The principles for corporate governance outlined in this revised version of the 2004 handbook are considered still relevant for boards. With this in mind, the FMA have made a number of minor changes to language and tone throughout the document, and refreshed the content in the following areas.


How to report against the principles


The FMA recognise the audience for annual reports is broad and the way people access and receive their information is changing rapidly. As per the ASX Corporate Governance Council (ASXCGC), the FMA have therefore referred to reporting against the principles both in annual reports and on company websites, or a combination of both.


Ethical standards


The FMA have included some additional points on ethical standards for boards to consider, in line with the recently revised ASXCGC principles for corporate governance.


Composition and diversity


The FMA included additional factors for the board to consider. Board skill matrices make an appearance, whereby the board should consider using a board skills matrix and capability matrix to identify current and future skills, capability and diversity needs of the entity. In addition, boards should report on an annual basis, and in a clear and measurable way, the assessment of its composition and the impact it expects that composition to have on its future success and sustainability.

There is an emphasis on diversity, with the reporting of performance against diversity policies to shareholders and stakeholders. While the FMA have not singled out gender diversity, they expect this to be included in the board’s broader discussions on diversity of skills and capability. Unlike the ASXCGC there is no requirement to set and report against specific objectives.

Boards are encouraged to seek input for an independent external review of performance undertaken on a periodic basis – for example if an annual review is performed, then this could be an external review every third year.

Board committees


The FMA have highlighted the important role of audit committees and included commentary on other committees that boards, depending on their size, and particular needs, may wish to consider complementing their governance structures. The FMA have encouraged publishing of all committee charters on company websites.




This section has been updated to reflect changes in audit and accounting standards and terminology. The FMA have also updated the continuous disclosure commentary for listed issuers.




While the FMA have only made minor changes to this section, the changes made are intended to increase boards’ focus on ensuring transparent remuneration arrangements, such as providing greater transparency on incentive payments. However, on the whole, the disclosure obligations remain governed by the NZ Companies Act 1993, and will remain among the weakest of OECD countries, and opaque by Australian and regional (e.g. Singapore and Hong Kong) standards.


Risk management


This section remains largely unchanged with a more explicit description of what should be included in reports relating to risk prepared by management for boards.




FMA updates in this section reflect changes to practices and legislation since 2004, whilst retaining the focus on audit quality and independence.


The Guide will be finalised in 2015 after the OECD Corporate Governance Committee has finalised their review of their principles during 2015. However, submissions to the FMA’s draft are required by 1 December.


The FMA’s draft can be seen HERE.

© Guerdon Associates 2024
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