Chapman Tripp's annual Corporate Governance – trends and insights publication, asks whether the "shareholder primacy" model, which has prevailed in New Zealand and in like jurisdictions for decades, may now be under serious challenge.
Two recent developments which support this view are:
- a significant expansion in the UK Companies Act of the matters to which directors must have regard in their decision-making, and
- the speech by Financial Markets Authority (FMA) CEO Rob Everett suggesting that the "Milton Friedman model", where the responsibilities of a listed company board were primarily aimed at the returns to shareholders, is broken and was never valid or sustainable in the first place.
Several of the currents we think will shape 2019 reflect a widening of the expectations of, and on, directors. But as of now, the strict legal obligation is still relatively narrow – to act "in what they believe is the best interests of the company" which "will often, but not necessarily, be what is in the best interests of the existing shareholders".
Key governance trends we expect to occupy boardrooms this year include:
- A continuing strong focus on culture from the ripple effects of, and the New Zealand Government’s legislative response to, the Hayne Royal Commission and its New Zealand offspring – the FMA/Reserve Bank of New Zealand (RBNZ) reviews into the finance and insurance sectors.
- Closer scrutiny of directors from shareholders, stakeholders and regulators.
- More comprehensive disclosure requirements, arising from the new New Zealand Stock Exchange (NZX) rules and an increasing shareholder interest in sustainability practices.
- Increased importance for directors of good Director and Officer (D&O) insurance cover, and of boards being able to rely on manageable information flows, including in response to slightly more active litigation funders.
- Continued development of an iwi strand in Aotearoa’s governance culture.