Magazine article New Zealand Management

Hazard Warning: Tougher Times Ahead for Directors: Company Directors Must Tread Carefully through an Increasingly Treacherous Landscape. the Minefield of Regulatory Compliance Is Growing and So Too Are the Expectations of a Raft of Stakeholders. Here's What to Look out For

Magazine article New Zealand Management

Hazard Warning: Tougher Times Ahead for Directors: Company Directors Must Tread Carefully through an Increasingly Treacherous Landscape. the Minefield of Regulatory Compliance Is Growing and So Too Are the Expectations of a Raft of Stakeholders. Here's What to Look out For

Article excerpt

Expect the world for directors of New Zealand companies to become a much more difficult place. There was no mistaking the message at AIG New Zealand's inaugural Corporate Governance Conference in Auckland recently as a strong line-up of legal experts pressed home the importance of good corporate governance.

The warning note chimes with findings from a 2006 Institutional Shareholder Service (ISS) Global Institutional Investor Study (see box "Asset rich and concerned") which concluded that corporate governance has shifted from a compliance obligation to a business imperative.

The ISS survey determined that investors are now seeing corporate governance in a new light, and recognised that it is not just an externally imposed obligation, but an ownership responsibility or "the right thing to do".

Here in New Zealand, our government is trying to encourage the growth and appeal of our capital markets to local and offshore investors. Good corporate governance, such as timely and accurate disclosures to the market, goes hand in hand with this ideal. As Securities Commission member and company director David Jackson put it at the conference, "in considering market integrity and efficiency, issues of corporate governance are never far away".

As a business imperative, then, what are the current corporate governance issues for our directors and officers? Certainly the impending changes to our securities and insolvency laws, as highlighted by Adam Ross from Chapman Tripp, should be of concern. New Zealand's insider trading regime is undergoing a wholesale re-write, he notes, with securities laws being significantly amended. Liability for civil and criminal penalties is rising. The changes to insolvency laws around voluntary administration, phoenix companies and creditor priorities are also likely to produce an increase in litigation against directors and officers personally.

Keep a weather eye out, too, for more changes ahead as New Zealand and Australia plug on with trans-Tasman harmonisation of business laws and standards. With the coordination and mutual recognition of laws relating to food safety, competition and banking supervision already in place, and the imminent adoption of International Financial Reporting Standards, Bell Gully's Brynn Gilbertson and Garry Downs advise directors to keep tabs on the impact that harmonisation could have, and is already having, on our laws.

Worldwide, the practice of appointing non-executive directors to boards is encouraged: as much for the fresh ideas they can bring to the business as for their independence from any particular management group. According to Sarah Kerr from Hesketh Henry, the days of the sleeping non-executive director are now well and truly over: replaced by a healthy regard for the duties of a non-executive director and their obligation to understand the business, resolve conflict, and question management and executive directors.

Warning notes are also being sounded over the additional liabilities imposed by the courts on the role of the chairperson and those non-executive directors with specialist expertise.

Minter Ellison's Cathy Quinn alerts directors to the types of behavioural and structural practices that risk managers could, and indeed should, implement into a corporate governance framework forming part of a risk management programme. Boards, she said, must increasingly own the corporate governance framework. The success or otherwise of good governance ultimately lies with directors.

Corporate governance is not solely restricted to directing and controlling a company's activities. …

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