New Zealand Corporate Governance - Trends & Insights MAY 2022 - Chapman Tripp
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MAY 2022 New Zealand Corporate Governance Trends & Insights
Tracking and analysing trends in the corporate governance arrangements of our largest listed entities Method of analysis Chapman Tripp analysed the board composition of the NZX Main Board Top 75, as recorded in the public register maintained by the New Zealand Companies Office at 31 March 2022. We also reviewed the NZX portals for the Top 75 and certain NZX announcements made by them. Our sample comprises the Top 75 entities by market capitalisation at the close of trading on 31 March 2022. For the purposes of preparing the data set, we have excluded overseas companies and listed funds. Every effort has been made to ensure the accuracy of this publication but the information is necessarily generalised and readers are urged to seek specific advice rather than relying solely on the text.
Contents
Introduction 2
Director independence:
3
a nuanced question
Director Duties Bill –
5
a road to nowhere
Choosing the best share
7
issue structure
NZSA independent advice to
the board and other policy 7
developments
The Top 75 – board analysis 8
Developments in shareholder
12
engagement
Modern slavery rules coming 14
Climate change posing ever
15
larger legal risks to boards
Our team of experts 17
Time for directors to bring
their best game to the board
Any director who thought that, once the world entered post-pandemic mode,
things would settle down and life would be easier will be well and truly
disabused of that notion by now.
Rampant inflation after decades of relative price stability, But we hope that the select committee will recommend
reform across almost every institution of government, new Dr Webb’s bill not proceed, as it will achieve nothing
reporting requirements in prospect for both climate change useful and, if passed in its current form, could cause
risk and modern slavery, the list goes on….. unnecessary confusion.
All will demand attention at board level, requiring boards There is useful work going on, in particular the review
to continue to play their best game rather than take some by NZX of aspects of its Corporate Governance Code,
much needed down time after the stresses of managing focusing on the extent to which tenure should be
their organisations through the disruption created by regarded as a fetter on directorial independence, and the
COVID-19. importance of assessing a director’s holistic interests in
order to determine independence, rather than treating the
factors contained in the Code as bright-line criteria.
The intensity of change experienced over the
last few years has underlined the need for the Chapman Tripp considers that there is definite room for
law governing directors’ duties – sections 131 to improvement in both areas.
138 of the Companies Act 1993 – to be reviewed, Our data series tracks developments in the board
ideally by the Law Commission. composition of the NZX Main Board Top 75, and has been
running since we started our data set.
The need for reform has been long understood among the
legal profession but has been made painfully evident by the See our analysis of the Top 75 boards on pages 8-11
Debut Homes and Mainzeal litigation.
Commerce Minister David Clark has not kiboshed the The main movements thrown up by our analysis have been
idea but is inclined to await the outcome of the Mainzeal a trend toward more gender balance and toward shorter
proceedings in the Supreme Court. Chapman Tripp has average tenure. There is minimal evidence, so far, of
been trying to persuade him to start sooner. broader social and ethnic diversity since we started our
data set.
A private members’ bill which would amend section 131
has been drawn from the ballot and, as it is sponsored
by Labour MP Dr Duncan Webb, is likely to make some
progress, given Labour’s clear majority in the House.
View the Companies (Directors Duties)
Amendment Bill online here
Roger Wallis Josh Blackmore Fiona Bennett
Partner, Auckland Partner, Wellington Partner, Christchurch
2 Chapman Tripp
Director independence:
a nuanced question
Too often boards look to apply a simple formulaic approach to whether a
director can be designated “independent” under the NZX Listing Rules but a
much more contextualised assessment is required, taking into account the
issuer’s overall relationships and corporate structure.
The NZX test The NZX Corporate Governance The NZX is reviewing the Code, last
Code deliberately does not seek to updated in 2018, with a focus on:
The Listing Rules define an
apply a prescriptive test, instead
“Independent Director” as a person • the extent to which tenure
recommending a range of factors for a
that is not an employee and who has should be regarded as a fetter on
board to consider, including whether
no “Disqualifying Relationship”. directorial independence, and
the director:
A disqualifying relationship is defined
in Recommendation 2.4 as: • is currently or has, within the last • the importance of assessing a
three years, been employed in an director’s holistic interests and
Any direct or indirect interest, relationships in order to determine
executive role by the issuer or had
position, association or relationship independence rather than treating
a material business relationship or
that could reasonably influence, the factors contained in the Code
material contractual relationship
or could reasonably be perceived as bright-line criteria. (This was an
with the issuer
to influence, in a material way, the objective of the 2018 changes but
Director’s capacity to: • has, or has had within the last 12 NZX considers that, in too many
months, a senior role in a material cases, they have not produced the
• bring an independent view to
professional services provider to desired effect).
decisions in relation to the issuer
the issuer
• act in the best interests of the
• is a substantial product holder
issuer, and
of the issuer or has close family
• represent the interests of the ties with anyone in the categories
issuer’s Financial Product above, or
holders generally, having regard
• has been a director of the issuer
to the factors described in the
for a length of time (no time period
NZX Corporate Governance
is indicated) that may compromise
Code that may impact
independence.
director independence.
New Zealand Corporate Governance – Trends & Insights 2022 3
Submissions closed on the The Forum also recommends a number Our view – context is everything
initial consultation round on of amendments to better align the NZX
A determination by a board on a
Rules with the ASX, specifically:
28 January this year. Further director’s independence should take
rounds of consultation will • providing guidance for when into account the full nexus of that
be undertaken before final extended tenure may lead to a individual’s relationships and whether
loss of independence (the Forum they might compromise their ability
decisions on any changes
proposes 10 years, which is the ASX to bring an independent perspective
are made. to conflicts should they arise. The
guidance). Importantly, reaching
this number would not mean evaluation should include tenure but
We broadly agree with the automatic loss of independent not in a mechanistic sense.
submission of the New Zealand status but “enhanced reporting” to
Corporate Governance Forum, in For example, a director who has
justify the board’s decision
particular; updating the definition held office for 15 years will have a
of “Disqualifying Relationship” in • broadening the tenure wording depth of experience and institutional
the Listing Rules to record that the to pick up that independence knowledge, so should not be
assessment of independence should can be compromised from automatically disqualified from being
be undertaken “including having relationships formed over time an Independent Director, especially
regard to the factors described in the with management or substantial if the rest of the board and the
NZX Corporate Governance Code” to shareholders, and management team are relatively new.
reinforce that the general principle test As recognised by the ASX Code, a mix
• changing “close family ties” to
needs consideration too. of tenure will serve the board well.
“close personal ties”, to reflect
recent changes to the equivalent
test for ASX.
Average length of service (years)
Tenure changes Company March 2017 March 2022
13.8 10.4 3.4 yrs
Length of service figures are Delegat
reasonably predictable as boards VS
at the top of the tenure ratings must VS (24.6%)
eventually refresh their membership.
13.3 9.2 4.1 yrs
EBOS
VS
VS (30.8%)
10.2 7.8 2.4 yrs
Millennium &
Copthorne VS
Hotels VS (23.5%)
11.9 8.7 3.2 yrs
Property
For Industry VS
VS (26.9%)
9.3 8.5 0.8 yrs
Ryman
VS
VS (8.6%)
9.9 3.0 6.9 yrs
Vector
VS
VS (69.7%)
4 Chapman Tripp
Director Duties Bill
– a road to nowhere
The debate over shareholder primacy vs
stakeholder theory that was reignited by New section 131(5) proposed
by the Webb Bill
former Financial Markets Authority CEO Rob
To avoid doubt, a director of a
Everett in 2019 has now made its way to the company may, when determining
debating chamber in the form of the Companies the best interests of the company,
take into account recognised
(Directors Duties) Amendment Bill (Bill). environmental, social and
governance factors, such as:
The member’s bill, sponsored The stakeholder theory calls for the
(a) recognising the principles of
by Labour MP and chair of interests of those with some stake
the Treaty of Waitangi
the Finance and Expenditure in the company and its business
(Te Tiriti o Waitangi)
Committee, Dr Duncan Webb, was (such as employees, creditors and
drawn from the ballot last year and the wider public) to be taken into (b) reducing adverse
is awaiting its first reading. It’s a account by the directors, alongside environmental impacts
simple one-page Bill, the working the interests of shareholders.
(c) upholding high standards of
bit of which is accomplished in a
The Supreme Court confirmed ethical behaviour
single clause to amend section 131
of the Companies Act (Act). in Debut Homes that the “acting (d) following fair and equitable
in the best interests” test is a employment practices
The purpose of the amendment subjective one; the director must
is purportedly to make it clear act “in what the director believes (e) recognising the interests
that, when a director determines to be the best interests of the of the wider community.
what is in the best interests of company”. Therefore, there is no
the company, the director may doubt a director can, under the
take into account “recognised current section, take into account
environmental, social and factors such as those in the Bill if
governance factors”. they believe that is also in the best
interest of the company.
Virtue signalling
In our view, the Bill adds nothing
to the existing law of director
duties and is a virtue signal to the
stakeholder theory of corporate “The Bill is trying to fix an
governance. issue that doesn’t exist –
Section 131 of the Act requires
the current law does not
directors to act in the “best prevent or preclude a
interests of the company”. director from taking into
The traditional view is that
this requirement is fulfilled by
account factors such as
directors acting in the best those listed in the Bill.”
interests of the shareholders as a
whole, i.e. shareholder primacy.
Michael Arthur
Partner, Auckland
View the Companies (Directors
Duties) Amendment Bill
5
Because the Bill does not use As for creditors, even with the Bill Those hoping this Bill would result
mandatory language, it will enacted, it won’t be any defence at in similar obligations imposed under
all for a director to say that they were section 172 of the UK Companies Act
not create any new ability for
acting in the best interests of the 2006 will be sorely disappointed.
shareholders to claim that stakeholders (or other factors listed in
directors failed to consider the the Bill, such as Te Tiriti/The Treaty). Wider reform needed
non-exclusive list of factors it
Directors are obliged to avoid We have asked the Government to
will introduce. We think that is a
substantial risk of serious loss to put a review of sections 131 – 138
good thing as it could otherwise creditors, and it is difficult to see how of the Companies Act on the Law
undermine directors’ business the proposed new considerations Commission work programme. There
judgement and provoke could lessen that obligation. is no need to wait, including for a
vexatious litigation. decision from the Supreme Court
More harm than good? on the Mainzeal litigation. Urgent
comprehensive reform is needed in
Importantly, if shareholders are Rather than clarifying the law, the Bill this area now.
not happy with the direction of might have the opposite effect as there
the company, they have the right are a couple of drafting areas which The Bill is just a distraction. We think
to replace the board (or chair, or require elucidation: what is meant by it best that the Select Committee
individual director) with persons more “recognised environmental, social and recommend it not proceed.
aligned to the stakeholder theory – if governance factors”, recognised by
that is what they want. whom, and at what point in time?
Read our submission and other
commentary on our website
6 Chapman TrippChoosing the best
share issue structure
Boards have a lot to think about, and some
difficult choices to make, in deciding the NZSA independent advice
to the board and other
fairest and most efficient structure to use policy developments
when raising capital. The New Zealand Shareholders’
Association (NZSA) has abandoned
The answer will depend on a range As with the director’s duty to its Role of the Company Secretary
of contextual factors – whether the act in the best interests of the policy in favour of a position which
raising is for balance sheet repair, company, the section 47 duty better recognises the roles played
growth/acquisition, or to provide leaves considerable room by multiple internal executives and
working capital; whether the issuer for directors to exercise their external professionals in ensuring
is in control of the timetable; commercial nous. that the Board receives effective
the profile of the share register assurance in the governance of
(institutional or retail-based); Most of the various structural key risks.
whether the offer should be alternatives enable director’s
underwritten, and transaction cost. to seek to facilitate a pro rata The new policy currently being
outcome, as contemplated by developed will instead emphasise
Section 47 of the Companies Recommendation 8.4 of the NZX the importance of boards having
Act recognises the complexity Corporate Governance Code, access to independent advice, no
involved in these decisions by with some options having reduced matter where it comes from. We
requiring directors to exercise market risk, lower dilution and agree with this approach.
judgement and to certify what they underwriting cost.
consider to be fair and reasonable The NZSA is also reviewing, a
to both the company and existing number of its 21 policies. Four of
shareholders. For issues at more these – Director Fees, Director
than a 15% discount, the listing Tenure, Future Directors, and
For a deeper look at the Independent Directors Share
rules also require directors to
trade-offs involved, see our Ownership have been updated
certify the price is fair to those
recent Brief Counsel on this topic and a further two are out for
not participating.
consultation.
NZX capital raisings completed ($ value by structure) We recommend directors
12 months to 31 March 2022 familiarise themselves with the
updated policies, as the NZSA’s
influence continues to grow.
$29.7m $23.6m
$84.0m
$330.0m
Total NZX
secondary
capital raisings
$2,338m
$1,870.5m
Placement + SPP (13) Rights offer (2) AREO (2)
Placement + Rights offer (1) Placement (1)
7The Top 75 –
board analysis
This is the sixth year of Chapman Tripp’s data series. Results are as at
31 March 2022. Our comparison base is 2020, when we last published
our analysis.
Overview Independence
The Top 75 by market capitalisation ranged from Fisher & 77.3% of boards had a majority of independent directors,
Paykel Healthcare at $14.0b to Gentrack Group at $177m – with 20.0% having only independents (against 81.3% and
a smaller spread than in 2020, when the range was $17.5b 22.6% in 2020).
to $83m.
77.3% of boards also had an independent chair (2020:
Big movers were Rakon, up 53 places; NZME up 39 (from a 84%) and 32.9% had the CEO on the board (2020: 32%).
low base during the depths of COVID in 2020); Pacific Edge This trend reflects the continuing impact of the revised
up 39; and SkyTV up 19. Synlait Milk dropped 19 places. 2019 NZX Listing Rules and the updated NZX Corporate
Green Cross Health (which had jumped up in 2020) fell 15 Governance Code recommendations.
places, and Fonterra Shareholders’ Fund, 13 places as a by-
product of Fonterra’s surprise capital restructure proposals. Length of service
Hallenstein Glasson remains the longest Top 75 listing by The average length of service across the Top 75 increased
NZX or predecessor exchanges, at almost 75 years, and slightly to 6.0 years (2020: 5.8). The longest average tenure
Winton Land, which listed last year, is the newbie. was 19.3 years, and was held by the same company as in
2020, when it was 19 years.
The average time since first listing on NZX is 21.8
years (2020: 20.2). 36 of the Top 75 are also listed on
Skills matrix
ASX (48.0%).
68% of the top 25 published a director skills matrix in their
most recent annual report, and 36.0% of the middle 25, and
28% of the bottom 25. 44% of the Top 75 overall did so.
8 Chapman TrippDirector gender by NZX market capitalisation ranking
March 2022
51 – 75
4.80 1.64
Market capitalisation ranking
(25.47%)
26 – 50
4.56 1.88 (29.19%)
4.20 2.48
1 – 25
(37.13%)
0 1 2 3 4 5 6 7
Males Females
Multiple board roles Average board size
6.51 directors
Multiple directorships remain comparatively rare among
the Top 75. No director has five roles this year (2020: one),
three directors have four roles (2020: four), 15 directors
have three (2020: 13), and 44 directors have two (2020: 43).
The Top 75 had 492 directors altogether (2020: 487). down slightly from 6.54 in 2020
Gender diversity
Gender diversity – board chairs in the Top 75
16 of the Top 75 board chairs, or 21.3%, were women (2020:
21.3% women
13, 17.3%), as were six CEOs (8.2%) (2020: four), and 10
CFOs (14.1%) (2020: 12, 17.0%).
30.7% of directors overall were female, up from 19% in
March 2017.
up from 17.3% in 2020
Our analysis continues to show that the top 25 of the
Top 75 are leading the way on gender diversity over the
middle 25 or bottom 25. Geographic diversity – directors in the Top 75
46% Auckland-
Geographic diversity
225 of the 492 roles in the Top 75, or 45.7%, were filled
by directors who recorded their place of residence as
Auckland. Other popular locations were Wellington (34),
based residence
Christchurch (26) and Queenstown/Wanaka (23). 102 roles up slightly from 44.8% in 2020
were filled by directors residing overseas.
These metrics are all broadly the same as for 2020.
New Zealand Corporate Governance – Trends & Insights 2022 9The Top 75 – board composition,
size, diversity and length of service
as at 31 March 2022
AVG LENGTH
COMPANY NUMBER OF DIRECTORS CEO ON OF TENURE
0 2 4 6 8 10 BOARD (YRS)
Fisher & Paykel Healthcare Corporation 7.45
Meridian Energy 4.57
Auckland International Airport 4.51
Spark New Zealand 6.02
Mainfreight 19.34
Mercury NZ 6.46
Ebos Group 9.21
Contact Energy 3.83
Infratil 6.81
Fletcher Building 3.64
Ryman Healthcare 8.52
Port of Tauranga 6.93
The a2 Milk Company 4.35
Vector 3.02
Chorus 4.05
Goodman Property Trust 11.02
Genesis Energy 4.16
Summerset Group Holdings 5.11
Precinct Properties New Zealand 6.37
Trustpower (Manawa Energy) 2.10
SKYCITY Entertainment Group 3.73
Freightways 3.60
Z Energy 5.43
Vital Healthcare Property Trust 6.27
Kiwi Property Group 5.02
Restaurant Brands New Zealand 2.56
Air New Zealand 2.71
Property for Industry 8.66
Delegat Group 10.41
Heartland Group Holdings 2.49
Pushpay Holdings 2.34
Briscoe Group 12.71
Arvida Group 6.16
Argosy Property 3.92
Skellerup Holdings 9.03
The Warehouse Group 5.79
Stride Property Group 6.35
Winton Land 2.28
10 Chapman TrippNumber of male directors Number of female directors Male CEO on board Female CEO on board
AVG LENGTH
COMPANY NUMBER OF DIRECTORS CEO ON OF TENURE
0 2 4 6 8 10 BOARD (YRS)
KMD Brands 4.83
Pacific Edge 4.84
Oceania Healthcare 4.04
Scales Corporation 6.86
Synlait Milk 5.41
Investore Property 4.94
Napier Port Holdings 2.79
Serko 9.29
Sky Network Television 3.36
EROAD 6.12
NZX 4.75
Sanford 3.44
Tourism Holdings 5.34
Vista Group International 7.01
Hallenstein Glasson Holdings 16.37
Channel Infrastructure NZ 4.42
Rakon 8.27
AFT Pharmaceuticals 8.97
Fonterra Shareholders’ Fund 5.43
T&G Global 5.52
Turners Automotive Group 7.59
The Colonial Motor Company 8.81
CDL Investments New Zealand 11.36
NZME 3.78
PGG Wrightson 4.07
Tower 6.29
Millennium & Copthorne Hotels NZ 7.79
Steel & Tube Holdings 3.12
Scott Technology 5.25
Marsden Maritime Holdings 3.95
Comvita 3.24
Livestock Improvement Corporation 6.25
South Port New Zealand 8.30
My Food Bag Group 2.06
Seeka 7.55
Green Cross Health 9.34
Gentrack Group 2.44
New Zealand Corporate Governance – Trends & Insights 2022 11Developments in
shareholder engagement
When we commenced our analysis of the Top 75 in 2017, ‘hybrid’ shareholder
meetings were rare, and ‘virtual’ shareholder meetings unheard of. But social
distancing requirements under COVID-19 have, for lack of any alternative,
made virtual engagement the norm.
Views on whether issuers should continue with a ‘virtual’ or Meeting types held
‘hybrid’ format post-pandemic are mixed. Virtual meetings
offer some benefits:
• more certainty that a meeting may proceed, regardless
of restrictions on gatherings, flight disruptions or other
disruptive events
• time and cost efficiency for the issuer and shareholders Hybrid Virtual In-person
(travel costs are eliminated for shareholders, and the
cost of a venue and set up etc. is reduced) Top 25 16.0% 80.0% 4.0%
• potential increased attendance, and greater
participation from a shareholders resident in a broader Middle 25 27.3% 59.1% 13.6%
range of geographies, including overseas, and
• easier access for those with disabilities, including visual Bottom 25 21.7% 52.2% 26.1%
or hearing impairments.
But there are dynamics attached to everyone being in the
The number of meetings NZSA
same room that are not easily achievable online. Which is
exercised Standing Proxies:
why the New Zealand Shareholders’ Association (NZSA) is
124 152 20%
clear that, now the COVID-19 contact limitations have been
lifted, it expects companies to offer a physical meeting as
well as a virtual meeting.
in 2020 in 2021 increase
“NZSA believes hybrid Annual Shareholder
Meetings (ASMs) or Special Shareholder
Meetings (SSMs) maximise shareholder
participation and should become the default Another initiative that is sure to increase shareholder voting rate
format for all listed issuers.” is Computershare’s Proximity service, which was soft-launched
in New Zealand late last year, for use on a more widespread
basis for the post-June 2022 ASM season. The service will
New Zealand Shareholders’ Association – Policy #19:
allows institutional investors to access key meeting information
Shareholder Meetings
more easily and vote until the meeting voting deadline. This
could in practice allow institutions up to six additional days to
The NZSA operates a Standing Proxy service which allows consider the business of the meeting and submit their votes
NZSA to cast votes on behalf of both its members and non- (compared to current postal or email options).
members alike on shareholder resolutions of those issuers
it covers. It exercised between 1,500 and 2,000 Standing For some quaint reason, some institutional custodians still
Proxies across 152 issuer meetings in 2021, and expects submit proxy forms by facsimile machine!
the service to become more popular as it expands into
covering ASX-listed New Zealand companies this year.
12 Chapman TrippAttendance and participation Notices of meeting
Shareholder attendance at annual and special meetings The NZX Corporate Governance Code recommends that
remains extremely low, notwithstanding the introduction an issuer ensures its notices of meeting are “posted on the
of more virtual and hybrid style meeting formats. Voting issuer’s website as soon as possible and at least 20 working
also remains low, but the impending introduction of an dates prior to the meeting”. The Companies Act requires
automatic share voting process by online investment notices of meetings to be sent to every shareholder entitled to
platform Sharesies may soon shake that up. receive one not less than 10 working days before the meeting.
Sharesies tend to only tell members about votes that have
the “potential for material impact on the share price”. But
82.6%
few Sharesies investors currently choose to cast their vote,
even when the vote is of crucial importance.
Sharesies investors collectively own more than 7% of Air
New Zealand, their largest percentage holding of a NZX50
of the Top 75
company. Currently, the vast majority of those underlying provide 20+ working days’ notice
shareholders do not cast a vote. (on average)
“The reason why we haven’t Month of the most recent annual meeting of the Top 75*
done this already is we want to As most balance dates for the Top 75 are in March or
June, there is a clear skew of annual meetings being held
do this well. That means with in the latter half of 2021, reaching a peak in October
appropriate education alongside and November.
any voting options, explaining This may make it difficult fo investors with diversified
portfolios to attend all meetings.
why investors should care. We
want to make voting accessible
4 9 6 6 18 10 6 – 2 – 4 5
to everyone.”
June
July
August
September
October
November
December
January
February
March
April
May
Gus Watson
Sharesies Head of Investment 2021 2022
Top 75 annual meeting times*
Time 9:00am 9:30am 10:00am 10:30am 11:00am 11:30am 12:00pm
No. of
Companies 1 2 15 7 5 2 2
Time 12:30pm 1:00pm 1:30pm 2:00pm 2:30pm 3:00pm 3:30pm 4:00pm
No. of
Companies 1 10 1 16 3 4 0 1
*due mainly to new listings, only 70 of the Top 75 had held an annual meeting at the date of publication.
New Zealand Corporate Governance – Trends & Insights 2022 13Modern slavery
rules coming
New Zealand is likely to see modern slavery and worker exploitation
legislation enacted in the near future. Our approach will follow the UK and
Australian model but, as currently proposed, would go further in terms both
of coverage and of the obligations imposed.
Proposed responsibilities Responsibility
Some New Zealand businesses
already report under the UK and All entities To take reasonable and proportionate action if the entity
Australian regimes, both of which becomes aware of modern slavery in its operations and supply
require the publication of an annual chains at home or abroad or worker exploitation in its NZ operations.
Modern Slavery Statement detailing
the entity’s identification and
To undertake due diligence to prevent, mitigate and remedy
management of modern slavery risk in
modern slavery and worker exploitation by NZ entities where
its operations and supply chains.
they are the parent or holding company or have significant
But both are limited to businesses contractual control.
over a certain revenue threshold
and neither requires mandatory due Entities To disclose the steps the entity is taking to address modern
diligence. The New Zealand proposal with annual slavery in its operations and supply chains at home and abroad
would capture companies, sole revenues and worker exploitation in its NZ operations. There would be
traders, partnerships, state sector above $20m mandatory reporting criteria. Disclosure would be through a
organisations, local government, public statement as per the Australian/UK model.
charities, trusts, and incorporated
societies with responsibilities
Entities To undertake due diligence to prevent, mitigate and remedy
graduated according to size –
with annual modern slavery in its international operations and supply chains
below $20m, $20m to $50m,
revenues and worker exploitation in its NZ operations.
and above $50m.
above $50m
What is modern slavery? Enforcement
The proposed enforcement regime MBIE is seeking feedback on whether
Modern slavery includes situations would include a range of tools – e.g., remediation should be required,
of forced labour, debt bondage, infringements, improvement notices, particularly for large entities where
forced marriage, slavery, and human enforceable undertakings, and the there is “a clear link between their
trafficking and would apply to an publication of good and bad practice. actions and the harm”.
entity’s international and domestic
operations and supply chains. Modern Penalties are yet to be determined
What this means for directors
slavery is distinguished from worker but would likely be in line with
exploitation, which covers breaches of those under the Financial Markets Directors will need to consider
New Zealand employment standards. Conduct Act, the Health and Safety the practical application of the
at Work Act and the Anti-Money proposed regime, as part of a
Laundering and Countering the broader trend towards recognition
Financing of Terrorism Act – i.e., of ESG (environmental, social and
between $600,000 and $5m for body governance) matters in New Zealand.
See our website for further insights
corporates. Criminal sanctions are
on the proposed reporting
not being considered.
14 Chapman TrippClimate change posing ever
larger legal risks to boards
The directors of Royal Dutch Shell are being taken to court in the UK by
environmental NGO ClientEarth in a shareholder derivative action alleging
they are in breach of their duties under the UK Companies Act for failing to
take adequate action to support a global shift to a low carbon economy.
This will be the first attempt to sheet liability for climate This was the first such decision to be issued against a
change risk at director level. Most climate related private sector entity and is under appeal. ClientEarth is now
litigation globally so far has tended to be directed seeking to challenge the Shell board by claiming that Shell
against governments, local and national, and against (which recently announced the company was shifting its
government agencies. headquarters to the UK) is not doing enough to comply with
the Court’s instruction.
And where the target has been corporate, the sights have
been set on the company rather than on the board – a local Directors will be best served by staying across domestic
example being the ongoing action by Mike Smith, climate regulatory developments (including the recently
change spokesperson for the Iwi Chairs Forum, against released National Adaptation Plan and soon to be
seven New Zealand companies1. released Emissions Reduction Plan) and in touch with the
expectations of their shareholders and employees.
The ClientEarth case builds on a majority judgment in May
2021 by a first instance court in the Netherlands which itself
set new ground by requiring that Royal Dutch Shell reduce
1 C hapman Tripp is acting for multiple respondents in this litigation which is presently
its net emissions by 45% against 2019 levels by 2030. before the Supreme Court.
“Even if we assume that the
ClientEarth challenge does not
succeed, the volume of climate-
related cases is steadily growing and
directors themselves are increasingly
asking whether their business is
doing enough to prepare for a net
zero economy by 2050.”
Nicola Swan
Partner, Wellington
New Zealand Corporate Governance – Trends & Insights 2022 15New reporting requirements Boards at the serious end of the Smaller or low emission businesses
spectrum will need to prioritise may not have the means, or the need
Much attention has been placed on
climate risk identification, strategy to engage in a response of this order.
the development of the new climate
alignment, and climate adaptation and Directors would still need to focus at a
related reporting regime, ushered
transition planning. New Adaptation minimum on:
in by the Financial Sector (Climate-
and Transition Reports will be required
related Disclosures and Other • ensuring governance at board
from 2024 and 2025 respectively
Matters) Amendment Act. This will and executive level to allow for
which will focus stakeholder attention.
be rigorous, demanding a significant proper identification, analysis and
investment of time and cost for To create the space and capacity management of climate related risk
reporting entities. within a business to achieve the
strategic shifts needed to align • periodic assessment of the nature
To date, reporting entities have been and extent of the risk, including by
with a net zero economy, measures
getting to grips with the requirements seeking and critically evaluating
might include:
to identify and assess priority to advice as necessary
climate related risks and opportunities • creating a dedicated climate
for their particular business. The risk management governance • deciding whether, and what action
expectations being proposed by XRB structure. This could include a to take, taking into account the
are much more granular, reflecting dedicated board committee, led likelihood of the risk and the
international developments in by the chair or the deputy chair possible resulting harm, and
reporting standards. For example, two
areas of direct relevance to boards • identifying responsibility for the • disclosure of material risks
are the requirements to describe: net zero transition within the as appropriate.
executive, as well as engaging a
• the actual and potential financial broad stakeholder group
impacts of climate-related risks
TCFD/Sustainabilty
and opportunities on financial • freeing up resources to do an
voluntary reporting
position, financial performance early and thorough physical
and cash flows, and and economic transition risk Some listed issuers are already
assessment, with a focus on voluntarily preparing TCFD or
• how climate-related risks and business opportunities ESG reports, separate from their
opportunities serve as an input annual reports.
to financial planning processes, • developing and maintaining under
including for capital deployment continuous review quantitative, Companies which disclosed
and financing. qualitative and realistic climate a TCFD/Sustainabilty report
28%
related targets and commitments
This information will be publicly available
and will be a key focus for investors, • maintaining relationships with your
banks, insurers, climate activists, iwi stakeholders so that they know
and affected community groups – so the climate actions the business
not one audience but multiple, and is taking and you can keep them
each with its own perspective. How, onside (knowing whether they of the Top 25
then, do directors minimise their own are with you or not is the best
24%
and the company’s risk. indicator of future legal risk), and
This will be dictated to some extent by • explore the feasibility of sector
size, both of the organisation and of engagement on climate change
its exposure. scenario analysis (the disclosure
standard will require assessing the
resilience of the reporting entity’s of the Middle 25
business model against, at least, a
1.5˚C scenario and a greater than
16%
2˚C scenario. While the particular
impacts of any particular climate
Chapman Tripp’s commentary on the change scenario will be business
XRB consultation is available here specific, identifying the likely
physical and economic scenario
View the Financial Sector (Climate-
related Disclosures and Other
that the business will be operating of the Bottom 25
within will often apply across
Matters) Amendment Act online
the sector).
16 Chapman TrippOur team of experts
Primary contacts
Roger Wallis Josh Blackmore
Partner, Auckland Partner, Wellington
T: +64 9 357 9077 M: +64 27 478 3192 T: +64 4 498 4904 M: +64 21 828 814
E: roger.wallis@chapmantripp.com E: josh.blackmore@chapmantripp.com
Fiona Bennett
Partner, Christchurch
T: +64 3 353 0341 M: +64 27 209 5871
E: fiona.bennett@chapmantripp.com
Other contacts
John Strowger Rachel Dunne
Partner, Auckland Partner, Auckland
T: +64 9 357 9081 M: +64 27 478 1854 T: +64 9 357 9626 M: +64 27 553 4924
E: john.strowger@chapmantripp.com E: rachel.dunne@chapmantripp.com
Hamish Foote Nick Letham
Partner, Christchurch Partner, Christchurch
T: +64 3 353 0397 M: +64 27 289 9151 T: +64 3 353 0024 M: +64 27 204 7323
E: hamish.foote@chapmantripp.com E: nick.letham@chapmantripp.com
Alex Franks Philip Ascroft
Senior Associate, Auckland Senior Associate, Auckland
T: +64 9 357 9036 M: +64 27 212 1837 T: +64 9 357 9692 M: +64 21 127 8210
E: alex.franks@chapmantripp.com E: philip.ascroft@chapmantripp.com
Acknowledgments
Our thanks to Lynette Humphrey, Patricia Herbert, Liam Stoneley, Sophie Chan, Michael Arthur, Nicola Swan,
Josh Blackmore and Roger Wallis for helping to research and write this publication.
New Zealand Corporate Governance – Trends & Insights 2022 17Chapman Tripp is a dynamic and innovative commercial law firm at the Every effort has been made to ensure accuracy in this publication. However,
leading edge of legal practice. With offices in Auckland, Wellington and the items are necessarily generalised and readers are urged to seek specific
Christchurch, the firm supports clients to succeed across industry, advice on particular matters and not rely solely on this text.
commerce and government. Chapman Tripp is known as the ‘go to’ for
© 2022 Chapman Tripp
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