Without doubt New Zealand needs international investment to support our economic development. However, to attract foreign investment New Zealand needs credible regulatory regime within which investors can put their confidence and trust. New Zealand must be able to reassure international sellers and buyers that we offer market of integrity with fair and transparent rules that are adequately enforced.
This increasing focus on governance by international investors and regulators, as well as new compliance and disclosure requirements, was the theme at AIG New Zealand’s 3rd Annual Corporate Governance Seminar, held in Auckland in August.
Participants from corporate New Zealand agreed there is need to attract new foreign investment, as well as to retain domestic investors in this difficult economic climate. However, as the speakers and participants reflected, regulatory regime needs to be rigorous but not adversarial nor burdensome for New Zealand businesses.
Failure to implement regulatory regime reflecting international best practice has broad implications for New Zealand and has the potential to deepen the impact of the current economic downturn. Investors and sellers operating in number of international jurisdictions are likely to be deterred from operating in market where the regulatory requirements are significantly different from those imposed elsewhere. Investors are looking for the certainty brought by regulation.
Internationally we see examples of regulators being better funded and more rigorous but also becoming more adversarial when they perceive any wrongdoing. In the 2007/08 financial year, the Australian Securities and Investments Commission (ASIC) successfully prosecuted 462 company officers in relation to 894 summary contraventions of the Corporations Act. Fines and costs totalled in excess of A$1 million following complaints from the general public, industry and business community.
Throughout the presentations from the five guest speakers at the event – including the Institute of Directors, Bell Gully and AIG – four messages for New Zealand businesses came through loud and clear.
Understand the risks of non-compliance
There is an increasing need for businesses to understand the risks, requirements and consequences of non-compliance. New Zealand business has benefited historically from relatively benign litigation environment with small infractions often being swept under the carpet. With the ever-increasing scrutiny by investors and regulators, companies and their directors are under the spotlight and need to be aware that these infractions will no longer be tolerated and that the consequences can be severe.
Learn from international experience
New Zealand businesses need to learn from international experience and processes and voluntarily adopt more stringent corporate governance practices today, in order to ease their transition into more regulated environment. By implementing strategic and innovative board practices good board can avoid risks, better understand and meet the needs of its shareholders, more effectively manage its limited time together and critically evaluate its own performance. Furthermore, businesses must embrace the changing environment, self-regulating and adapting pro-actively rather than simply be driven by compliance.
Structure boards strategically
Businesses need to be more strategic in ensuring that board structure, membership, duties, obligations, objectives and evaluation processes are appropriately positioned to avoid litigation and investigation and to guide them safely in more regulated environment. board must be strategic in its size, structure and membership, including balance of skills and independent executive and non-executive directors. Furthermore, board must have real control over the CEO. Today’s board must be robust, effective social system demonstrating culture of open debate and independence of thought. An effective board needs to provide rigorous supervision of the management of company to ensure that business is carried out competently, with integrity and with due regard for the interests of all stakeholders.
Be prepared
New Zealand businesses need to know their obligations and rights and be prepared to answer the tough questions from increasingly empowered and better funded regulators. They should have clearly documented strategy in place to deal with any regulatory review or investigation and ensure it is understood and closely followed by all senior management.
Jeremy Scott-Mackenzie is financial lines manager at AIG New Zealand.
