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2009 Annual Report

CORPORATE GOVERNANCE

The Commission encourages all entities impacting economically on New Zealand or variously accountable to the public to report on their corporate governance. To this end, the Commission published Corporate Governance in New Zealand - Principles and Guidelines in 2004. We report on how the Commission itself applied each of these principles in the 2008/09 year.

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
reporting breaches of the Code of Ethics.

The code sets out measures to deal with breaches and how to report them. Every Commission Member and staff member has been given a copy of the code, which is also published on the website. No breaches were identified during the year. The Commission has a conflicts of interest policy to ensure compliance with the Crown Entities Act, and it also complies with the State Services Commission Code of Conduct.

Principle 2: There should be a balance of independence, skills, knowledge, experience and perspectives among directors so the board works effectively.

The Securities Act 1978 sets out the skills and attributes required of a Member of the Commission. Commission Members are appointed by the Governor-General on the recommendation of the Minister of Commerce. When seeking new Members, the Ministry of Economic Development advertises widely to attract people with the skills the Act requires. Commission Members disclose any securities market interests, 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 Members' roles and responsibilities.

The Chairman has a full-time role equivalent to an executive chairman, in line with the governance of many overseas jurisdictions' securities regulators. The Chairman is responsible for fostering a constructive corporate governance culture among Members and staff. Much of the Commission's work is carried out by formal divisions of the Commission between regular monthly Commission meetings. Members are made aware before appointment of likely demands on their time, frequently at short notice. Commission Members' profiles appear here.

Each year we formally evaluate our performance against our strategic plan. The Commission also periodically evaluates itself as a board. Staff performance monitoring is carried out each year. The Commission has decided to comprehensively review its own effectiveness. The review is being carried out by an independent peer review panel comprising Michel Prada and Neil Walter, with KPMG providing secretariat services. The panel is expected to complete its final report in late 2009.

Principle 3: The board should use committees where this would enhance its effectiveness in key areas while retaining its responsibility.

The Securities Act provides for the appointment of Commission divisions with full Commission powers to carry out day-to-day work. This enables the Commission to function effectively and apply our conflicts of interest policy. The Commission has an Audit and Risk Review Committee, chaired by a chartered accountant. Its mandate is to oversee all aspects of the Commission's relationship with 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 funded by Parliamentary appropriation, the Commission is required to meet all obligations under the Securities Act 1978 and the Crown Entities Act 2004, including tabling our annual report in Parliament. After tabling, the annual report is made publicly available in hard copy and on our 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 our output agreement. The Crown Entities Act 2004 requires us to prepare a statement of intent (SOI). Our SOI for the three years from 2009 to 2012 was tabled in the House on 29 May 2009. The Commission will report against that document in our next annual report.

Principle 5: The remuneration of directors and executives should be transparent, fair and reasonable.

Commission Members' remuneration is set by the Remuneration Authority and disclosed in our annual report. Staff remuneration is set to attract and retain competent people, and is comparable with other public sector organisations. The financial statements disclose the number of staff in salary bands higher than $100,000 per annum.

Principle 6: The board should regularly verify that the entity has appropriate processes that identify and manage potential and relevant risks.

The Audit and Risk Review Committee provides governance of potential and relevant risks. The committee's risk review objective is to assist the Commission in independently assessing compliance with risk management, internal control, internal audit and legislative compliance 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 before and after the audit. Fees paid to Audit New Zealand are disclosed in the annual report. Audit New Zealand undertook no non-audit work 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. We are accountable to Parliament through the Minister of Commerce for this ownership interest. The Commission is funded by Parliamentary appropriation to carry out statutory functions and we have an annual output agreement with the Minister on the work we will do. Our SOI for the three years 2009 to 2012 is published on our website and will be reported against in next year's annual report. We report quarterly to the Minister, and formally report to Parliament annually on how we used public funds to deliver 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 stakeholders policy, published on the website, which identifies our stakeholders and describes how we relate to and communicate with them.

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