NZX confirms amendments to the NZX Corporate Governance Code 2023
NZX confirmed amendments to the NZX Corporate Governance Code, Listing Rules and ESG Guidance Note, taking effect from 1 April 2023.
A proper framework will allow companies to present a professional face to the regulator around board operations and governance.
The significant increase in regulatory focus and compliance requirements, as well as liability risks for directors, have been highlighted once more – in the spring edition of Boardroom.
One statement in particular stood out – that NZ RegCo is seeing “issues arising where companies do not have the mature processes and escalation arrangements that you would expect to see in relation to compliance”.
A read through some of NZ RegCo’s recent decisions echoes this further and reinforces the importance of a properly embedded governance framework for listed companies. Many of NZ RegCo’s decisions relate to the thorny question of continuous disclosure – something that boards continue to grapple with in a range of situations.
These rules around disclosure have also been beefed up in recent years with the introduction of the constructive knowledge concept. This means that listed companies must disclose price-sensitive information – not just that which they are aware of, but also which they ought to be aware of.
With this overlaid by the requirement to disclose ‘promptly and without delay’, listed companies need a process in place that actively and regularly imports a range of information and metrics that can then be filtered to establish whether any disclosure sensitivities exist; critical for management consideration and potentially even escalation to the board or a committee.
It also means that listed companies need to be prepared beyond a set-and-forget policy, or relying on a last-minute call to the lawyers to get disclosure advice when situations arise. What they need to do is give their disclosure policy life and make it understood and actively managed by senior management and the board. By doing so, when an unusual or sensitive situation arises, a well understood process can be confidently followed to ensure that decisions are reached and disclosed in a compliant way.
We see that the regulators are much more interested in these things, with Boardroom also noting in an article headed “Regulators who come knocking” that “(boards) would be wise to also take note of the shift in mood – from consumers, policymakers and regulators. Regulators who come knocking are the new black.”
Are you in a position to demonstrate full and proper deliberation and consideration of the relevant information should you be so required? Have you recorded these and your decisions in a way that can demonstrate this in proper minutes and actions?
In other words, can you present a professional face to the regulator around board operations and governance, in terms of awareness of the rules and regulations, systems and process that reflect this and a record of doing so?
A proper governance framework allows your board to put a structure in place to manage not only disclosure matters, but also the other things that a properly functioning board should be looking at. This would include an annual reporting cycle covering all things required by the regulations, internal policies and charters – ensuring that requirements are properly scheduled, and that items requiring advance work or warning are planned for – rather than dealt with on a stream of consciousness or reactive basis.
“It also means that listed companies need to be prepared beyond a set-and-forget policy, or relying on a last-minute call to the lawyers to get disclosure advice when situations arise.”
Such a framework provides confidence that the statutory records and registers are all in place, allowing the management and board to focus on strategy and execution; secure in the knowledge that if the regulator comes calling, they will see an orderly organisation with the right building blocks in place for a properly governed listed entity.
And the incentive in this space should not be based just around regulatory scrutiny. Market expectations from sophisticated investors – the debt and equity sides – are such that missteps in the governance space are not well-received, potentially raising the cost of capital where a company is marked down for governance slip-ups that could have been avoided.
With the D&O insurance market hardening in recent years in the form of availability, terms and carve-outs and cost, these participants also are increasingly expectant of high-functioning board administration.
Developing standard reporting formats and templates, collating papers and distributing these well in advance with clear agendas, interlinked with a thought-out subcommittee calendar are also things that can assist boards to operate smoothly and with confidence.
The development of affordable board portal technology is part of a movement being seen increasingly in the governance space internationally to outsource support in the board administration space. The increased demands of directors and expectations of regulators is likely to see this increase, with professional, high-functioning board administration and support becoming a more important part of the toolkit.
Charles Bolt is Head of Governance Services NZ, Computershare Investor Services Limited.