NZX Corporate Governance Code review

Submissions are due by 28 January.

The response will inform a second consultation paper, containing recommendations and supported by an exposure draft of Code changes, to be published in March 2022. NZX wants any amendments to be in place in September 2022.

There have been three reporting cycles since the Code was last amended in 2018.

A closer look at the changes NZX has in mind

‘Comply or explain’ regime

The NZX wants feedback on the quality of current ‘comply or explain’ disclosure practices in the New Zealand market, in order to determine whether additional guidance should be given – in particular in relation to how to explain non-compliance with a Code recommendation.

It notes regulator’ concerns in other jurisdictions that issuers may be too formulaic in their approach on this matter.

Director independence

NZX is interested in whether further guidance may be required on:

• on the importance of assessing a director’s holistic interests and relationships in order to determine his or her independence rather than treating the factors contained in the Code as bright-line criteria, and
• the extent to which tenure should be regarded as a fetter on directorial independence.

The document also compares the independence criteria in the ASX and NZX Codes, ASX having updated its Code in 2019.

Remuneration

NZX is taking a fairly open-ended stance on this issue, simply asking whether any changes should be made or additional matters included, with evidence to support your submission. It points the reader to recent remuneration recommendations in Australia, Singapore and the United Kingdom and to the additional disclosures the New Zealand Shareholders’ Association is pushing in respect of executive remuneration.

Shareholder meetings

The main area identified for potential change here is whether the Code should promote hybrid in preference to physical meetings, and whether more guidance should be provided on how to conduct a hybrid meeting.

Shareholder participation in capital raisings 

NZX is not contemplating changes to the capital raising requirements or thresholds for shareholder approval in the Listing Rules.

But it is exploring whether there is a case for amending 8.4 of the Code relating to how capital raisings are structured. In particular, it asks whether New Zealand should align with Australia for cost efficiency and investment opportunity purposes.

It notes that “issuers have adopted differing practices in relation to the extent to which they have explained why a non pro-rata mechanism has been preferred”.

Views are also being sought on the quality of issuers’ disclosures as to why they have not followed 8.4 and whether these are sufficient to provide meaningful information to investors and other stakeholders.

Environmental, social and governance (ESG) reporting

NZX is interested in how ESG information can be best provided to stakeholders, including whether the Code should encourage that it is displayed on an issuer’s website.

Other questions are whether the Code provides sufficient guidance on ESG reporting, whether it should be updated to reflect the new legislative requirements for TCFD reporting and whether it should be better aligned to the ASX Code in relation to ESG.

Diversity practices

NZX is considering whether the current settings for diversity reporting remain appropriate and, if not, what changes should be made. It asks whether NZX should follow the ASX and specify thresholds for gender diversity on boards.

NZX Corporate Governance Institute

NZX is considering creating a NZX Corporate Governance Institute to provide feedback in relation to the Code’s settings and any proposed amendments.

This Institute would be broad-based comprising representatives of: the NZX Board; the NZ RegCo Board; the New Zealand Shareholders’ Association; institutional investor groups such as the NZ Corporate Governance Forum; private equity investors; issuers; the Listed Companies’ Association; issuer candidates; NZX Participants; New Zealand Universities; the Australasian Investor Relations Association; the Institute of Internal Auditors – New Zealand; Chartered Accountants Australia and New Zealand; and the ASX Corporate Governance Council.

Chapman Tripp submission

Chapman Tripp will be submitting on both stages of the consultation. We are happy to discuss the consultation process or specific aspects of the review.

Our thanks to Liam Stoneley for writing this update.