Our Positive Impact on the NZX Corporate Governance Review

01 June 2023

It is heartening to report that several proposals that Money Matters was involved in making to the NZX Corporate Governance Code Review have been accepted and reflected in the revised Code that took effect on 1 April 2023.

First and foremost, I was keen to see Principle 1, previously named ‘Code of Ethical Behaviour’, changed to ‘Ethical Standards’. The NZX accepted this recommendation. I discussed the need for this change in my blog Ethical Ambition and the NZX. The original Securities Commission report on Corporate Governance in New Zealand Principles and Guidelines (2004) that I was involved in creating stated Principle 1 as ‘Ethical Standards’ as does the Financial Markets Authority Corporate Governance Handbook (2008). In contrast, stating this as a Code may have led issuers to consider that a Code fulfils their need for ethical standards.

The revised commentary for Principle 1 recommends that the code of ethics “explain why ethical behaviour is important to an issuer’s purpose”. This change may encourage more reflection on ethical purpose. I discussed this concept in depth in my blog A Question of Purpose. There I highlighted that the way a company defines its purpose is integral to how it is governed. I cited recent research from the UK Institute of Directors that recommended “Companies should define a ‘purpose’ for their organisation which aligns their objectives with the interests of wider society. The business purpose should not be purely concerned with the generation of financial returns. It should provide a clear statement of how the company intends to deliver a positive social and environmental impact.” This focus on purpose is an important element of my Four P’s (Purpose, Principles, Practices and Performance Measurement) approach based on my PhD research in the 1990’s.

Another encouraging development is that the importance of regular employee training against an issuer’s code of ethics is also newly defined as three-yearly or in the year after a code is materially amended.  The revised NZX corporate governance code now invites a company to explain how it sets a tone from the top that is consistent with its code of ethics if training is provided less frequently than the specified three years.

Unfortunately, the NZX did not accept all our recommendations. For example, our call for even greater focus on performance measurement and more robust ethical metrics was a step too far.

While we know that there is a lot more that needs to be done, we’re excited to have made a difference through our engagement with the NZX. Money Matters will continue to undertake engagement and education to encourage more positive change through our various activities.

Special thanks to Jane Arnott from The Ethics Conversation who led this submission. Thanks also to fellow contributors Barry Coates from Mindful Money and Professor Karin Lasthuizen, Victoria University of Wellington. Professor Chellie Spiller was also a key contributor, as we framed the opportunity for the NZX to be a Wayfinding Leader.