Points of Principle

Article excerpt

It took seven months, the consideration of 160 written submissions and the arguments of 71 people in discussion groups but, the Securities Commission last month produced nine guiding principles for good corporate governance.

The Commission steered clear of delivering a prescriptive approach which seemed the more likely outcome when, last year, then Commerce Minister Lianne Dalziel suggested its findings might result in law changes.

Most directors will welcome the non-regulatory approach. Institutional investors, however, are likely to keep calling for more "rules" for corporates, preferably emulating the US law reforms.

The principles are, according to most commentators, sensible and predictable. They embrace the key issues on which good governance rests.

The principles are:

1. Directors should observe and foster high ethical standards.

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

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

4. The board should demand integrity both in financial reporting and in the timeliness and balance of disclosures on entity affairs.

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

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

7. The board should ensure the quality and independence of the external audit process.

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