Wednesday 31 December 2008

New Zealand: where governance went wrong + review of corporate governance disclosure

Towards the end of last month, the chairman of the New Zealand Securities Commission - Jane Diplock - delivered a speech titled "Where governance went wrong - globally and in New Zealand". The following extracts are worth quoting directly:

In examining our own problems in New Zealand with failed finance companies, we have certainly seen that a lack of good corporate governance has been a contributor. We have not been alone in this. Considering international developments we see a common thread - a failure of good corporate governance. Good corporate governance remains a key underpinning of successful capital markets globally. Whether corporate governance systems have been rules-based or principles-based has not been material, we have seen failures in New Zealand and globally, across the board.

There has been the failure of boards of directors and management to transparently disclose the true nature of their products and the risks associated with them. We have also seen flagrant breaches of accounting standards. IOSCO's task force on the sub-prime crisis looked closely at the implications of institutions, investment banks and regulators relying on mark to model or as some have described it mark to myth, rather than to the market, especially at times of illiquidity in markets for those securities. There have been signs of poor governance in respect to matters of capitalisation and liquidity management.

In 2005 and 2006 the Commission reviewed corporate governance disclosures of issuers in their annual reports. Reviews revealed that while corporate governance disclosures by issuers were improving there was nevertheless significant scope for improvement. In particular, disclosures on how entities manage their shareholder and stakeholder relationships were very limited.

Therefore as part of its financial reporting surveillance programme, the Commission is about to undertake a fresh review of corporate governance disclosures and will report on this in due course.

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