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2007 Annual Report

Corporate Governance

The Commission encourages all entities that have economic impact in New Zealand or are accountable, in various ways, to the public to report on their corporate governance. To assist with this the Commission published Corporate Governance in New Zealand - Principles and Guidelines in 2004. We report on how the Commission achieved each of these corporate governance principles in the year to 30 June 2007.

Principle 1

Directors should observe and foster high ethical standards.

The Commission’s Code of Ethics sets out our 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 measures to deal with breaches of the Code and how they can be reported. Every Commission Member and staff member has been given a copy of the Code which is also published on the website. No breaches of the Code were identified during the year. The Commission has a Conflicts of Interest Policy to ensure compliance with the Crown Entities Act 2004.

Principle 2

There should be a balance of independence, skills, knowledge, experience, and perspectives among directors so that the board works effectively.

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 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 overseas 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 on page 4 of this report.

Principle 3

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 policy. The Commission has an Audit and Risk Review 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 risk management and for preparing the Commission’s quarterly reports to the Minister of Commerce. The Audit and Risk Review Committee convenes quarterly.

Principle 4

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 the website. The Commission’s financial statements are signed by the Chairman of the Commission and the Chairman of the Audit and Risk Review Committee. The Commission also reports quarterly to the Minister of Commerce in accordance with its Output Agreement with the Minister. The Commission is required by the Crown Entities Act 2004 to prepare a Statement of Intent. The Statement of Intent for the three years from 2007 to 2010 was tabled in the House in July 2007. The Commission will report against that document in the annual report next year.

Principle 5

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.

Principle 6

The board should regularly verify that the entity has appropriate processes that identify and manage potential and relevant risks.

Governance of potential and relevant risks is provided by the Audit and Risk Review Committee. The committee’s risk review objective is to assist the Commission in independently assessing compliance with risk management and internal control practices. It has examined, accepted and assumed its monitoring role of the Commission’s organisational risks. Its audit task is to assist the Commission to ensure the soundness and integrity of the financial statements.

Principle 7

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 and Risk Review 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. No non-audit work was undertaken by Audit New Zealand for the Commission this year.

Principle 8

The board should foster constructive relationships with shareholders that encourage them to engage with the entity.

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. The Commission is funded by Parliamentary appropriation to carry out its statutory functions and has an annual Output Agreement with the Minister on the work it will do. Its Statement of Intent for the three years 2007- 2010 will be published on the website and reported against in the annual report next 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.

Principle 9

The board should respect the interests of stakeholders within the context of the entity’s ownership type and its fundamental purpose.

The Commission has a Policy on Stakeholders, published on the website, which identifies the Commission’s stakeholders and describes how it relates to and communicates with them.

The Commission published its first Statement of Intent (SOI) under the Crown Entities Act in June 2006. This set out the broad parameters of work for the three years 2006 to 2009 and a detailed plan for the 2006-2007 financial year.

Objectives set in the SOI for the 2006-2007 financial year are reported against below. The Statement of Service Performance on page 44 reports details of activities under each output for the 2006-2007 year.

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