What code comparisons mean for directors

15 November 2019

Chapman Tripp recently released the third edition of its Corporate Governance Codes comparison table. Developed as a resource for experienced directors, the table brings five corporate governance codes into one place and summarises their similarities and differences.

Chapman Tripp lawyers Roger Wallis and Liam Stoneley outline the key changes made to the respective codes since the last update in 2017.

In the past year, board conduct and culture, and non-financial risk assessments, have been at the forefront of corporate governance code revisions, discussed in:

  • the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry
  • the New Zealand FMA/RBNZ Bank Conduct and Culture reviews
  • ASIC’s recent report on director and officer oversight of non-financial risk, and
  • Aotearoa Circle’s interim report on sustainable finance.

Rightly, these are reflected in the ASX and NZX’s upgraded corporate governance codes.

In Australia, the debate has now settled on the inclusion of a ‘social licence to operate’ principle in a significantly diluted form. NZX strengthened its reporting recommendation to include an expectation that non-financial reporting be “informative, including forward-looking assessments”. To complement these changes, the FMA has also tidied up its code.

Codes compared

Chapman Tripp first published the corporate governance codes comparison table in 2016 and updated it in 2017 when NZX significantly upgraded its code. The third edition continues to compare the following five codes:

  • NZX Corporate Governance Code 2019 (NZX Code): Following NZX’s 2018 Listing Rules review, the updated NZX code took effect from 1 January 2019. Since 1 July 2019, all listed equity issuers are expected to report on how they comply or explain why they haven’t.
  • ASX Corporate Governance Principles and Recommendations 2019 (ASX Code): The ASX Corporate Governance Council recently published its fourth edition, which takes effect for financial years starting on or after 1 January 2020. Early adoption by ASX fully listed issuers is encouraged.
  • Financial Markets Authority Corporate Governance in New Zealand: Principles and Guidelines 2018 (FMA Code): The previous FMA handbook has been re-directed towards public-sector organisations and private companies, ensuring the NZX code is the primary source of requirements for listed companies.
  • New Zealand Corporate Governance Forum Guidelines (2015): These expand on the previous 2014 FMA principles and guidelines, and are for listed issuers’ and institutional investors’ use.
  • IoD Code of Practice for Directors 2014 (IoD Code): The Institute of Directors’ (IoD) code, for all IoD members, should be read in conjunction with IoD’s Four Pillars of Governance Best Practice (2018).

Framework and reporting

The FMA has refocused the principles and guidelines towards non-listed companies and entities.

Directors are also encouraged to consider their performance, and that of their entity, against each principle before information is prepared. Although reporting against the principles is voluntary, the FMA warns against boards delegating reporting to management as a tick-box exercise.

The FMA has also merged Principle 9 (stakeholder interests) with Principle 8 (shareholder relations) for greater consistency with the ASX and NZX codes.

Ethical Standards

As foreshadowed throughout the 2018 consultation period, the finalised ASX code includes significant changes to Principle 3, now being to ‘instil a culture of acting lawfully, ethically and responsibly’.

The timing of the new ASX code closely follows the February 2019 release of the final report of the Banking Royal Commission, which made several critical findings on conduct and culture.

Principle 3 recommends the following additions:

  • issuers should articulate and disclose its values, and
  • issuers should have a code of conduct, whistleblower policy, and an anti-bribery and corruption policy.

ASX recommends the board or relevant committee is advised of any material incidents reported under those documents and that all policies should be disclosed in full, rather than providing summaries.

These changes are consistent with the Royal Commission findings, which emphasise the importance of the link between board effectiveness and receipt of the right information.

Following consultation on an initial draft, ASX decided against including a widely-framed concept of a ‘social licence to operate’.

Many submitters had expressed concern about the workability of the concept, particularly the inherent subjectivity of defining ‘socially responsible manner’. Although this concept has not had as much exposure in New Zealand, through either the new NZX code or the FMA code, it is unlikely to be the last we will hear of the discussion.


The upgraded ASX code has expanded its diversity policy recommendation to include that boards set measurable gender diversity objectives for the composition of their senior executives and workforce generally.

Further, it recommends entities in the S&P/ASX300 Index set a target of having not less than 30% of their directors of each gender. ASX issuers must comply with this target or explain why not.

It now suggests boards consider ‘other facets of diversity’ in addition to gender when considering the board composition, including age, ethnicities and backgrounds. This brings the ASX code more in-line with the NZX code, where this has been a requirement since the last edition.


The NZX code now requires a majority of the board to be independent, making it harder for any individual or small group of individuals to dominate decision-making.

This has been a staple of the ASX code for years and generally is good corporate governance practice.

But NZX issuers may explain why it may not suit them – for example, if a majority shareholder wants to have a majority of board representatives. Concentration of ownership is less acute in Australia and the United Kingdom where a majority of independent directors has been a feature of their codes for some time.

Further, NZX provides a list of seven factors, which closely track the ASX third edition, for boards to take into account when determining independence.

The new FMA code also deals with independence by recommending a board should comprise a majority of non-executive directors and a minimum of two independent directors, or one-third for larger boards.

Lastly, the updated NZX Listing Rules simplify director rotation provisions, stipulating that "directors must not hold office past the third AGM without re-election, or for three years, whichever is longer", mirroring the ASX rule.

Audit committee

The FMA code has gone one step further than both the ASX and NZX codes by saying the audit committee chair should not have a longstanding association with the external audit firm, either as a current or retired audit partner or senior manager at the firm.

The FMA has criticised a couple of New Zealand issuers that have not met this standard. It considers audit committee chairs previously employed by the external audit firm would be perceived to be influenced for at least three years, and often longer, after leaving the firm.

Shareholder relations and stakeholder interests

ASX code recommendations on shareholder relations are likely to be broader than those in both the NZX and FMA codes.

ASX commentary on shareholders’ communication and participation in shareholder meetings is more comprehensive than any New Zealand code. The commentary goes into greater detail on technology use, ensuring shareholders can access information and exercise their rights.

The FMA code has re-aligned its combined final Principle to bring it into line with the NZX code.

In conclusion, we have generally seen NZX issuers embrace the opportunity to explain the manner in which they have implemented the recommendations in the new NZX code. Although there is variation in the approaches issuers have taken, there is a relatively high degree of compliance.

In our 2019 New Zealand Corporate Governance – trends and insights publication, we unkindly characterised the 2002 NZX Corporate Governance Best Practice code as a ‘Hilux’, compared to the ASX’s ‘Volvo’.

The new NZX code ‘Hilux’ has morphed into a sleek Tesla while the ASX Corporate Governance Council has moved backwards with its ‘Volvo’, adding some clunky features which have compromised its aerodynamics and the elegance of its design.

If you want to hear more about this topic, we have traversed it further in our Sound Counsel podcast series. Listen in to the second of the six-part series podcast, which covers corporate code comparisons.

This article was published as below in Issue 41 of LawNews on 15 November 2019.

Related insights

See all insights