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2004 Annual Report

Corporate Governance

The Commission published Corporate Governance in New Zealand - Principles and Guidelines in February 2004. We urged entities of all types to apply the principles and to report each year on how they have achieved them. We report how we achieved each principle in the year to 30 June 2004.

Directors should observe and foster high ethical standards.
The Commission adopted a Code of Ethics which sets out the Commission's values and procedures for:
- conflicts of interest;
- confidential information;
- Commission property;
- compliance with other ethical codes;
- compliance with the law;
- conduct;
- compliance with the Code of Ethics; and
- reporting breaches of the Code of Ethics.
The Code sets out how suspected breaches can be reported and measures to deal with breaches of the Code. Every Commission Member and staff member has a copy of the Code which is also published on the website. The Commission will review the Code of Ethics each year and will monitor performance against the Code to identify and deal with any breaches.
Board composition and performance.
The skills and attributes required to be a Member of the Commission are set out in the Securities Act 1978. Commission Members are appointed by the Governor-General on the recommendation of the Minister of Commerce. When seeking new Commission Members the Ministry of Economic Development advertises widely to attract people with the skills required by the Act. Commission Members disclose their interests in the securities markets, and must comply with the Commission's formal conflicts of interest policy. The functions and powers of the Commission set out in the Securities Act establish the responsibilities and roles of the Members. The Chairman has a full-time role equivalent to an executive chairman. This is in line with the governance of securities regulators in many jurisdictions. The Chairman is responsible for fostering a constructive corporate governance culture among Members and staff. Much of the Commission's work is carried out between the regular monthly Commission meetings by formal divisions of the Commission. Members are made aware before they are appointed of the likely demands on their time, frequently at short notice. The Commission formally evaluates its performance against its strategic plan each year and evaluates itself as a board. Performance monitoring of staff is carried out each year. Profiles of Commission Members are published at page 6 of this report.
The board should use committees where this would enhance its effectiveness in key areas while retaining board responsibility.
The Securities Act provides for the appointment of divisions of the Commission, with the full powers of the Commission, to carry out the day-to-day work. This enables the Commission to function effectively and to apply its conflicts of interest procedure. The Commission has an Audit Committee, chaired by a chartered accountant. This committee has a mandate to oversee all aspects of the Commission's relationship with its external auditors. It is also responsible to the Commission for preparing the Commission's quarterly reports to the Minister of Commerce. The Audit Committee meets quarterly.
The board should demand integrity both in financial reporting and in the timeliness and balance of disclosures on entity affairs.
As a body corporate which receives funding by Parliamentary appropriation the Commission is required to meet all its obligations under the Securities Act 1978 and section 44A of the Public Finance Act 1989 including tabling its Annual Report in the House of Representatives. After it is tabled the Annual Report is available to the public in hard copy and on our website. The Commission also reports quarterly to the Minister of Commerce.
The remuneration of directors and executives should be transparent, fair, and reasonable.
The remuneration of Commission Members is set by the Remuneration Authority. Members' remuneration is disclosed in the Annual Report. Remuneration for staff is set at levels which aim to attract and retain competent people, and is comparable with other organisations in the public sector. The number of staff with salary bands higher than $100,000 per annum is disclosed in the financial statements.
6. The board should regularly verify that the entity has appropriate processes that identify and manage potential and relevant risks.
The Commission has been given new powers and assumed new responsibilities in recent years. As a result the organisation has grown rapidly. The Commission has identified potential additional risks arising from these changes. It is reviewing its risk management and has engaged Deloitte to assess its procedures and make recommendations. These will be considered and implemented as soon as possible.
The board should ensure the quality and independence of the external audit process.
As a body corporate, funded by Parliament, the Commission's financial statements and statement of service performance are audited by Audit New Zealand on behalf of the Auditor- General, which has a formal process for rotating audit staff. The Audit Committee and staff communicate with Audit New Zealand prior to, and following, the audit. Fees paid to Audit New Zealand are disclosed in the Annual Report. Audit New Zealand carried out an assurance-related assignment for the Commission relating to tendering. This work was compatible with the independence requirements of the Auditor-General which incorporate the independence requirements of the Institute of Chartered Accountants of New Zealand. No other non-audit work was undertaken by Audit New Zealand for the Commission.
& 9. The board should foster constructive relationships with shareholders that encourage them to engage with the entity, and the board should respect the interests of stakeholders within the context of the entity's ownership type and its fundamental purpose.
The Commission is a statutory body, and its assets form part of the Crown's assets. It is accountable to Parliament, through the Minister of Commerce, for this ownership interest. As a Crown Entity the Commission has two main stakeholder groups. The first is the general public because it is largely publicly funded. The second group is participants in the securities markets with whom we are in contact in the course of our work. As part of its strategic plan the Commission identifies its objectives in building relationships with these groups and sets performance targets which are reported against each year. The Commission reports to the Minister quarterly and formally reports to Parliament each year on how it has used public funds and delivered the services agreed with the Minister of Commerce. The Commission has a function to promote public understanding of the law and practice of securities and it does this by its website, publications, speeches and articles, news releases, responses to public inquiries, and by its educational work.

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