Corporate Governance in New Zealand
Consultation on Issues and Principles

Refer Background Reference Paper page 9

1.   There is a view that companies should have formal Codes of Ethics or Conduct to guide the actions of Board and Management, as well as other staff. To what extent do you agree with this?

2.   It is also said that such Codes of Ethics or Conduct should be published. What is your view?

3.   Codes of Ethics may address various issues, including issues of integrity the use of company assets, conflicts of interest and confidentiality. What issues do you think it is most important for such Codes to include?

4.   What do you consider the appropriate responses - both internal and external to the company - where such a Code has been breached?

5.   If you have any other comments on Ethical Conduct in relation to Corporate Governance, please include these below.

Refer Background Reference Paper page 10-11

1.   There is debate around the definition of an 'independent director'. Drawing on work undertaken in New Zealand and Australia, one definition is:

"Someone who is not an executive and who has no business or other relationship that could compromise - or could reasonably be seen to compromise - the ability to exercise their unfettered judgment. Such business or other relationships include being a substantial shareholder (or its representative), a material customer, supplier or professional advisor to the company"

a.   Do you believe the elements included in this definition are appropriate for the New Zealand environment?

b.   If not, are there any other elements that should be considered?

2.   Some commentators on Corporate Governance suggest independent directors should make up the majority of a Board. To what extent do you agree with this?

3.   In what situations (if any) do you believe that it might not be appropriate for a Board to include a majority of independent directors?

4.   There is a view that a Chair and CEO should not be the same person. To what extent do you agree with this view?

5.   What is your view on the suggestion that a CEO should not go on to become Chair?

6.   Do you agree or disagree with the proposition that a company's Chief Executive should automatically be a member of the Board?

7.   What factors do you believe should be considered in determining Board size and do you think it is feasible to define an optimal size?

8.   How regularly should Boards review their own performance?

9.   It has been suggested that Boards should also review the performance of individual directors. Do you agree or disagree?

10.   In general, do you believe current mechanisms which enable shareholders to assess the performance of Boards/directors are adequate? If not, how would you suggest these be improved?

11.   Some commentators suggest that certification or accreditation of directors should be encouraged. What is your view on this?

12.   What processes do you believe Boards should have in place to ensure:

a.   that suitable directors are recruited?

b.   that directors remain fit to perform the role for which they are appointed (through, for example, induction, training and other professional development)?

13.   If you have any other comments on Board Composition and Performance in relation to Corporate Governance, please include these below.

Refer Background Reference Paper page 12

1.   There is debate concerning whether by establishing board committees, and assigning responsibilities to them, Boards can function more effectively. What do you see as the benefits and/or drawbacks of Board committees in the New Zealand environment?

2.   In the United States, United Kingdom and Australia all public companies are required to establish board audit committees with formal responsibilities for appointing and overseeing external auditors. Would you consider this appropriate in the New Zealand context?

3.   In the US, UK and Australia, audit committees are required to include a majority of independent directors and an independent Chair. Again,would you consider this appropriate in the New Zealand context?

4.   It is often a requirement for audit committees to have at least one member with financial expertise. What (other) capabilities or credentials do you believe ought to be reflected within the membership of an audit committee?

5.   International opinion suggests that Boards above a certain size should delegate responsibility for director and executive remuneration to a board remuneration committee. To what extent would you consider this appropriate in New Zealand?

6.   International opinion also favours the establishment of appointment committees with delegated responsibility for recruitment and appointment of new directors and executives. To what extent would you consider this appropriate in New Zealand?

7.   Do you agree with the view that independent directors should make up the majority on remuneration and appointment committees?

8.   And, do you agree or disagree with the view that audit and remuneration committees should comprise of different people - i.e. that no director should sit on both?

9.   If you have any other comments in relation to Board Committees in relation to Corporate Governance, please include these below.

Refer Background Reference Paper page 13

1.   Continuous disclosure has been a requirement for publicly listed companies in New Zealand since December 2002. In relation to good Corporate Governance, are there any areas or matters on which you believe additional disclosure should be encouraged?

2.   In regard to unlisted companies, do you believe there is a need for greater emphasis on timely, accurate and complete disclosure?

3.   There has been debate in New Zealand around whether listed companies should report quarterly, as required on some US markets. What is your view?

4.   It is a requirement in some markets for the company CEO and CFO to publicly certify the accuracy and completeness of financial statements. Do you think this is appropriate in the New Zealand market?

5.   What other safeguards do you see for ensuring integrity in reporting practices and outcomes?

6.   What is your perspective on the proposition that companies should report on their performance against accepted principles of good Corporate Governance, or explain why they haven't?

7.   If you have any other comments on Reporting and Disclosure in relation to Corporate Governance, please include these below.

Refer Background Reference Paper page 14-15

1.   Internationally, there is a trend to explicitly link directors' remuneration with company performance. To what extent do you think this should be the case in New Zealand?

2.   Do you agree that, in New Zealand, non executive directors' remuneration is currently set at a level to attract and retain individuals who will make a significant contribution to company performance?

3.   Do you believe there are any circumstances in which it might be appropriate for nonexecutive directors to receive retirement payments?

4.   Do you agree with the view that at least part of a non executive director's remuneration should be 'at risk' on the basis of company performance?

5.   There is some debate around non executive and executive directors being paid in company shares.

a.   Do you believe it is appropriate for a proportion of directors' remuneration to be paid in shares or in options in the company's shares?

b. If so, should this be expensed against company earnings?

6.   Some commentators warn that linking executive and directors' remuneration to company performance over one or two years can create a "short-term" bias in thinking. To what extent do you think this is an issue in New Zealand today?

7.   There is an argument that the remuneration terms of a CEO's contract and those of senior management including any termination payments should be disclosed to shareholders. To what extent do you agree with this view?

8.   There is a view that executive remuneration should be directly subject to shareholder approval. Under what circumstances, if any,would you consider this appropriate in New Zealand?

9.   If you have any other comments on Remuneration in relation to Corporate Governance, please include these below.

Refer Background Reference Paper page 16

1.   Adequate identification and management of risk is considered to be integral to good Corporate Governance. To what extent do you believe New Zealand Boards are adequately addressing this issue today?

2.   It is suggested that companies should develop risk management policies and procedures.

a.   What would you consider appropriate for such risk management policies and procedures to encompass (for example, financial, market, operational, environmental risk, delegation of authorities and succession planning)?

b.   And do you believe that these risk management policies and procedures should be published?

3.   If you have any other comments on Risk Management in relation to Corporate Governance, please include these below.

Refer Background Reference Paper page 17

1.   There is international debate about whether audit firms should be rotated from time to time.

a.   To what extent do you consider rotation appropriate in the New Zealand context?

b.   If appropriate: How often should audit firms be rotated?

2.   There is also debate suggesting that audit partners should be rotated from time to time.

a.   To what extent do you consider this appropriate in the New Zealand context?

b.   If appropriate, how often should audit partners be rotated?

3.   There are concerns over audit firms also providing other services to client companies.

a.   In your view, what types of non-audit work should be of concern in the New Zealand context (e.g. valuation services, executive recruitment)?

b.   Do you think disclosure of fees paid to audit firms should differentiate between types of non-audit work?

c.   Do you think the total of non-audit work should be limited to some proportion of all fees paid to audit firms each year and, if so, what proportion?

4.   It has been argued that board and/or board audit committees should develop and disclose policies for handling complaints by auditors or internal "whistleblowers". Do you agree or disagree?

5.   In the U.S. and Australia, audit oversight bodies - independent of the profession - are required. There is debate around whether such a body is required in New Zealand. What are your views on this?

6.   If you have any other comments on Auditors in relation to Corporate Governance please include these below.

Refer Background Reference Paper page 18

1.   In your view, how well do companies in New Zealand encourage meaningful dialogue between the Board, management and shareholders?

2.   Auditors are required to attend Annual Meetings and some commentators suggest that companies should facilitate shareholder access to auditors. Do you agree or disagree?

3.   There is a view that relations with institutional shareholders are of particular importance and that these shareholders should always participate in voting on shareholder resolutions. Do you support this view?

4.   Do you agree that listed companies should publish a formal policy on their relations with shareholders?

5.   In your view, how well do you think listed companies in New Zealand provide shareholders with comprehensive and easily understood commentary on their financial performance?

6.   In your view, should other business entities - such as co-operatives, large trusts, and unlisted companies - provide more comprehensive public reporting on their performance?

7.   If you have any other comments on Shareholder Relations in relation to Corporate Governance, please include these below.

Refer Background Reference Paper page 19

1.   Some people argue that, while shareholders have the primary interest, there are other stakeholders with legitimate interests that should be considered in the context of Corporate Governance. To what extent do you agree with this view?

2.   It has been suggested that the interests of these other stakeholders should be actively considered by the Board.

a.   Do you think this is appropriate in the New Zealand context?

b.   If so, how should these interests be addressed?

3.   If you have any other comments on Stakeholder Interests in relation to Corporate Governance, please include these below.

1.   New Zealand opinion appears to favour a principles versus rules-based approach to Corporate Governance. Do you believe this is the most appropriate approach for New Zealand?

2.   Do you think the nine issue areas that have been identified in the Background Reference Paper and this Questionnaire are the core issues that should be included in the New Zealand principles for Corporate Governance?

3.   Are there any other issues you believe a set of principles for good Corporate Governance in New Zealand should address?

Your response to the following questions will help us to understand how the views gathered during this consultation process vary across business entities.

1.   Are you responding in a personal capacity or on behalf of an entity?

In a personal capacity

On behalf of an entity or organisation

2. If responding on behalf of an entity, please clarify:

a.   The name and/or type of entity on whose behalf you are responding (e.g. publicly listed company, unlisted company, State Owned Enterprise, cooperative, industry association, privately held company etc.).

b.   Your position within this entity (e.g. CEO, CFO, Chair, independent director, executive director, non-executive director etc.).

The contents of the questionnaires provided to the Securities Commission in response to the consultation process are subject to the provisions of the Official Information Act 1982 and the Privacy Act 1993. It is the Commission's policy to make responses to formal consultation available for public inspection. Please confirm below whether you consent to the release of your submission. Any requests for information will be dealt with in accordance with the Official Information Act 1982 and the Privacy Act 1993.

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