New Commerce Minister Simon Power has several priorities for advancing corporate governance in New Zealand in 2009, centred on reforms he believes will increase New Zealand business’ opportunities to access capital.
A major focus will be the final report of the Capital Market Development Taskforce which is due in September. The taskforce is looking at the state of New Zealand’s capital markets, the international context, future risks and opportunities and key changes necessary to deliver the best possible capital markets for New Zealand. Power said he expects the taskforce to be “innovative in their thinking and bold in their proposals”.
A review of the Securities Act and Securities Markets Act formed part of the work on the effectiveness of the capital markets.
“Neither is working as effectively as it should be,” Power said. “I will be announcing changes in 2009 that will improve investor confidence, particularly for mum and dad investors, and ensure that financial markets regulators are equipped to carry out their roles effectively.”
Power said his second area of corporate governance priority relates to financial reporting and the role of auditors and auditor regulation in promoting market confidence.
He also expects to announce decisions in relation to auditor regulation oversight.
“I will give priority to dealing with the excessive financial reporting preparation requirements for small companies, the uncertainties for some reporting entities about their financial reporting obligations, and the inconsistencies across the financial reporting framework.” discussion document will be released on the issue this year.
Power says he will make decisions on auditor liability issues.
“The accounting profession has been telling me there are problems with joint and several liability. I want to hear both sides of the story before making decision,” he said, noting that there will be discussion document on this matter in 2009.
Power said any reforms would be advanced consistent with the development of the New Zealand-Australia Single Economic Market objective.
“We will not be rushing in with knee-jerk response to the global financial crisis. good appreciation of what happened is starting to be developed. But knowing the “what” is not enough. We need to know the “why” before we decide what changes, if any, are required. We will also be monitoring how other governments respond.”
This is how the minister sees the priorities. What do others think? The Director took sampling of expert opinions to find out.
GEOFF RICKETTS, chairman, Lion Nathan, QBE Chairman of the Year, Auckland
In my view, the corporate governance framework recommended by the NZX and other recipe books is more than adequate.
In the current recession, the focus should shift from conformance more to performance. While some regulation may be required in the finance sector, regulators need to be very careful about imposing additional costs on business.
In reality, it is businesses that pull the economy through. Business creates employment, pays the taxes to fund government and ultimately creates the nation’s wealth.
Accordingly, Government needs to be focused on the right policy settings to ensure business can thrive, its costs are reduced, and crown costs as percentage of GDP are reduced to be more in line with those of our major competitor nations.
Government needs to create an environment where the income gap between Australia and New Zealand can be narrowed and eventually closed. Otherwise, we will continue to lose our best and brightest across the Tasman.
New Zealand was one of the first countries to enter the recession in 2008 but this was probably more due to domestic factors such as policy failures of the previous government rather than the international financial crisis. However, now these negative global factors will result in weaker demand for exports, reduced commodity prices, higher cost of capital, reduced availability of credit and trend to increasing protectionism by some trading partners.
The new Government has very hard job. Clearly, the budget policy statement issued in December showed it is facing massive challenges. However, under John Key’s leadership, it better understands the needs of business and the key role it can play in working with the Government to return the economy to trend of stability and growth. New Zealand’s economic cycle however will closely follow the world and I believe it is unlikely we will see conditions improve until the last quarter of 2009 or early 2010.
It’s big challenge aggravated by the fact that the domestic economy was in significantly worse shape than envisaged at the time of the election.
In the short term, I think the challenge for business people is to batten down the hatches, manage their cash and focus on costs and organisational efficiency.
Once they are comfortable their business is stable, businesses can look for opportunities that will arise from consolidation and reduced asset prices, resulting from the deep economic slowdown.
JANE DIPLOCK, chairman, Securities Commission, Wellington
Good corporate governance underpins successful capital markets globally.
In our investigations of failed finance companies we have found that lack of good corporate governance is contributor to failure in many cases. Well-run companies are more likely to survive in downturn so it is more important than ever that they follow good governance principles.
The new Government is clearly galvanised by the downturn and its implications and will adjust policy settings accordingly. It has made it clear that restoring confidence in the capital market is more important than ever and I firmly agree. Both internationally and in New Zealand we need to be wary of knee-jerk response to the crisis.
Policymakers and regulators must explore appropriate interventions which not only protect the interests of investors, and ultimately all citizens, but also foster economic growth and innovation.
It is delicate balancing act.
NICKI CRAUFORD, chief executive, Institute of Directors, Wellington
Good governance is never more important than when company is facing difficult if not perilous times. On such occasions, an effective board adds the most value that it ever can. When trouble looms there is reduced latitude for error. Decision-making therefore needs to be informed by relevant, up-to-date information.
Directors need to be as familiar as possible with their company’s operations, industry trends and developments, the environment in which the company operates as well as general economic, political and social situations.
But, good governance is not situation-specific. It is required in both boom and bust times.
The global financial crisis has again focused attention on governance failures, primarily in the banking, finance and insurance sectors. Increased regulation and accountability is likely to result. This is not necessarily bad thing unless it compromises or diverts attention from performance.
Directors will need to be even more vigilant, strategic and skillful at identifying and pursuing growth opportunities.
MICHAEL O’CONNOR, head of investment banking, Parker O’Connor Trust, Dunedin
I think the key agenda items are the two faces of the same coin: risk and opportunity. The single biggest compliance obligation on directors is corporate solvency. To stay ahead of the game, and out of the courts, directors will need to ensure their companies have systems and processes in place that are capable of lighting up the early warning indicators of distress.
But, staying solvent is only half the story. In adversity lies opportunity, and directors would be doing their shareholders disservice if they did not actively look for and pursue these opportunities. The trick is knowing the difference between gold and copper pyrite.
I don’t think the question is so much how the global financial crisis will affect the