Steering clear of storms: Hard lessons for New Zealand boards

When well-known corporates suffer significant share price collapses, investors and analysts often blame macroeconomic factors – shifts that are often unforeseeable. But deeper scrutiny of recent corporate travails in New Zealand suggests boards might be missing crucial early warnings or, worse, inadvertently fuelling crises through deficient governance. 

Forsyth Barr’s review of governance practices in prominent NZX-listed firms – specifically Fletcher Building, Ryman Healthcare, Sky City, the Warehouse Group and Synlait Milk – provides timely lessons for directors grappling with today’s volatile environment. The findings, derived from detailed case studies, resonate closely with the Institute of Directors’ Four Pillars of Governance Best Practice and the NZX Corporate Governance Code, underscoring areas boards routinely underestimate. 

The most striking finding is perhaps that good governance is far more nuanced than ticking off ‘best-practice’ checklists. Despite commendable compliance with structural norms such as board independence and CEO-chair separation, firms frequently falter in subtler areas like capital allocation and anticipating structural economic shifts. The IoD’s Four Pillars generally reflect this level of nuance. 

Forsyth Barr reports that cash discipline was notably weak across all reviewed companies, manifesting in imprudent dividend payouts, excessive borrowing and questionable investment choices. One of the case studies considered that Fletcher Building’s ambitious growth plans, launched at the peak of an economic cycle, starkly illustrate how poor capital discipline can rapidly erode shareholder value. 

Another major red flag the report highlights is the slow board response to evolving economic realities. SkyCity’s compliance breaches highlight a troubling inertia – boards must not only ensure compliance but actively anticipate and manage regulatory risks. Similarly, the Forsyth Barr analysis suggests Synlait Milk’s misguided expansion into the North Island is an example of the dangers of growth strategies based on overly optimistic demand projections and inadequate market assessment. 

Forsyth Barr also calls attention to the importance of regular, rigorous board evaluations. Three reviewed companies – Fletcher Building, Ryman Healthcare and Synlait Milk – lacked annual self-assessments, impairing their ability to identify and rectify governance gaps. Transparency in board evaluation practices reinforces accountability and boosts investor confidence. 

Additionally, lengthy auditor tenures emerged as a concern – for three of the five case study firms this tenure was more than 19 years. While long-standing relationships offer valuable institutional memory, they may diminish critical external scrutiny over time, as the analysis reports was seen at Ryman Healthcare.

Boards must judiciously weigh the benefits of institutional continuity against the imperative of maintaining stringent auditor independence and scrutiny. Account also needs to be taken of the availability of auditors with the relevant industry knowledge and expertise. 

These insights deliver clear and actionable guidance for New Zealand directors. Boards must enhance their vigilance in capital decisions, cultivate proactive risk awareness, institute regular governance reviews and rigorously assess auditor relationships. 

With New Zealand’s market volatility showing little sign of abating, directors cannot afford governance complacency. By embedding these lessons into their governance frameworks, boards can significantly bolster corporate resilience – ensuring smoother sailing, even as economic seas are still turbulent. 

The key lessons for directors and boards are: 

Vigilance in financial discipline and capital allocation 

Boards must rigorously challenge capital deployment strategies, ensuring alignment with cyclical economic realities and long-term strategic resilience, preventing value erosion from over-leverage or unjustified expansions. The ‘Return on capital’ top 5 issue for directors in 2025 also provides further guidance and advice on this. 

Active anticipation and swift response to structural changes 

Directors must maintain a strategic foresight capability, proactively responding to evolving regulatory landscapes, technological advancements and demographic shifts to mitigate substantial operational and financial risks. 

Importance of regular, transparent board reviews 

Routine and rigorous board evaluations, incorporating independent assessments, enhance governance effectiveness, accountability and stakeholder confidence. The IoD has a range of tools to help boards easily and effectively undertake board reviews. These can be found here.  

Strengthening auditor independence and scrutiny 

Boards should periodically reassess auditor relationships, balancing the benefits of institutional knowledge against the risks of diminished independence through prolonged engagements, and considering regular auditor rotations to preserve robust financial oversight. 

As a final thought, the Financial Markets Authority (FMA) released its 2025 Financial Conduct Report on 25 June 2025. This document outlines the focus for the FMA’s enforcement activities in 2025 and is aligned with the recommendation in the Forsyth Barr analysis. 

The report strongly reinforces the critical governance elements identified by Forsyth Barr, particularly in terms of financial discipline, proactive risk management, regular and rigorous governance evaluations and transparency and oversight.

Both documents collectively underline that sound governance practice is proactive, robust, anticipatory and transparent, essential for preserving stakeholder trust and ensuring sustainable organisational resilience and success.  

The FMA’s focus is yet another reason for board to pay attention to these key issues.