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Corporate Governance environment
By virtue of the industries in which it operates and its critical role within New Zealand's capital markets, the NZX Group is subject to a more complex corporate governance environment than most New Zealand listed companies.
The overarching regulatory and compliance framework within which the NZX Group operates is summarised in the table below.
Principal source of
External assurance activities
NZX Limited (as a listed entity)
Companies Act, FMCA
Annual statutory audit by
NZX Main Board Listing Rules
Ongoing Special Division
Capital markets – clearing house
RBNZ and FMA jointly
Annual operational audit of
Fund trust deeds
Annual compliance report to
Electricity Authority Industry
Annual compliance audits by
As a listed entity, NZX is required to comply with the NZX Main Board Listing Rules (the Rules) (including in relation to the Exchange Traded Funds (ETFs) managed by its wholly owned subsidiary Smartshares Limited). For all other listed entities, NZX is charged with the monitoring and enforcement of compliance with these Rules. As NZX cannot regulate itself, the monitoring and enforcement of NZX’s own compliance with the listing rules is undertaken by the Special Division, an independent division of the New Zealand Markets Disciplinary Tribunal (the Tribunal). Members of the Special Division are appointed by the Chair of the Tribunal and confirmed by the Financial Markets Authority (FMA).
Corporate Governance framework
Against this backdrop, the NZX Group's governance framework is summarised in the diagram above.
The Board is responsible for the overall direction and strategy of NZX. It appoints the Chief Executive and delegates the day-to-day operation of NZX’s business (excluding NZX’s regulatory functions) to the Chief Executive.
As at 31 December 2016, the Board comprised six directors, all of whom were non-executive directors and all of whom were independent directors in accordance with the Rules, with the exception of James Miller, who was non-independent by virtue of also being a director of Accident Compensation Corporation, which is a substantial product holder in NZX. The directors are James Miller (Chair), Neil Paviour-Smith, Alison Gerry, Dame Therese Walsh, Jon Macdonald and Dr Patrick Strange. Profiles of directors are provided on page Board of Directors.
In accordance with NZX’s constitution and the Rules, one third of the directors are required to retire by rotation every year and may offer themselves for re-election by shareholders. Nominations for directors may also be made in accordance with NZX’s constitution.
The Board holds regular scheduled meetings. The Board also holds ad hoc meetings to consider time sensitive or specific issues (including via teleconference).
The Board has access to executive management, who are invited to attend and participate in appropriate sessions of Board meetings.
Directors may seek their own independent professional advice to assist with their responsibilities.
The Board has established a Code of Ethics that provides a set of principles for directors to apply in their conduct and work for NZX. The principles include the management of conflicts of interest, the required skills of directors, trading in NZX’s shares, and maintaining confidentiality of information received in their capacity as directors of NZX.
The Board has in place a Conflict Management Policy. The purpose of this policy is to identify possible conflicts that might arise between NZX’s commercial and regulatory roles and to describe the processes in place at a management and Board level to ensure that these potential conflicts are appropriately managed.
The Board has four standing committees: the Audit and Risk Committee, the Regulatory Governance Committee, the Human Resources Committee and the Conflicts Committee. No additional remuneration has to date been paid to any director for additional duties associated with membership of any committee. The non-director members of the Regulatory Governance Committee and the Conflicts Committee are paid separate fees for their services on these committees.
The terms of reference for each of the Board committees can be downloaded at: www.nzxgroup. com/investor-centre/corporate-governance
Information on attendances at committee meetings during 2016 is disclosed in a table on the next page.
Audit and Risk Committee
The purpose of the Audit and Risk Committee is to assist the Board with financial reporting and corporate financial matters. The Audit and Risk Committee also assists the Board in fulfilling its risk management responsibilities, other than with respect to regulation which is addressed by the Regulatory Governance Committee and clearing house risk which is addressed by the Board of New Zealand Clearing and Depository Corporation Limited. The Audit and Risk Committee also oversees internal and external audit processes.
The Audit and Risk Committee may only comprise independent directors and at least one member must have expertise in accounting or a financial background. As at 31 December 2016, the members of the Audit and Risk Committee were: Neil Paviour- Smith (Chair), Dame Therese Walsh and Dr Patrick Strange. Neil Paviour-Smith and Dame Therese Walsh are considered by the Board to have expertise in accounting and a financial background.
The Audit and Risk Committee has a clear line of communication with the independent external auditor (KPMG), independent internal auditor (EY) and the internal finance and audit team, and it may, at its discretion, meet with the independent auditors without management being present.
Regulatory Governance Committee
The Regulatory Governance Committee’s core function is to assist the Board with its governance responsibilities relating to NZX’s regulatory function. The Committee does not have any authority to make regulatory decisions and is not involved in day-to-day operations, management, or decision making except where specific delegations of authority may be made by the Board. No such delegations were made in the financial year to 31 December 2016.
The Regulatory Governance Committee comprises non-executive directors and an independent non-director member (Derek Johnston). As at 31 December 2016, the members of the Regulatory Governance Committee were: Derek Johnston (Chair), Alison Gerry, Jon Macdonald and Dame Therese Walsh.
Human Resources Committee
The core function of the Human Resources Committee is to ensure that human resource policy and practices support NZX in achieving its commercial and stakeholder goals.
As at 31 December 2016, members of the Human Resources Committee were Jon Macdonald (Chair), Alison Gerry, James Miller and Neil Paviour-Smith.
The Conflicts Committee’s core function is to monitor the adequacy of the company's conflicts arrangements and make recommendations to the Board on conflicts management policies and procedures, including recommendations to address any perceived or actual conflicts of interest between NZX’s regulatory responsibilities and its commercial interests.
The Conflicts Committee is appointed by the NZX Board, and comprises directors who are deemed by the Board to be sufficiently independent of conflicts in relation to NZX Group activities and an independent non-director member (David Flacks, who is also chairman of the Tribunal). The members of the Conflicts Committee are Dame Therese Walsh (Chair), Alison Gerry, Jon Macdonald and David Flacks.
2016 Board and Committee attendance
Audit and Risk
Dame Therese Walsh
Dr Patrick Strange
The Chief Executive is not a member of any Committee but attended a number of meetings as an invited attendee.
The Chief Executive is responsible for implementing policies and strategies set by the Board and is accountable to it. The Chief Executive and senior management operate under specific delegations of authority from the Board. In October 2016 the Chief Executive resigned, effective 31 December. NZX has appointed an Interim Chief Executive while a search for a new Chief Executive is undertaken.
The Board has made a separate direct delegation to the Head of Market Supervision in respect of NZX’s regulatory functions. Accordingly, the Head of Market Supervision has a direct reporting line to both the Chief Executive (in respect of operational matters) and the Board (in respect of regulatory matters).
In addition, the Head of Compliance is responsible for ensuring that NZX’s compliance frameworks and policies remain fit for purpose and that these are duly followed in practice.
NZX’s Head of Funds Management has a direct line of reporting to the Chief Executive as well as a secondary line of reporting to the Board of Smartshares.
During 2016 the Chief Operating Officer role was replaced by a Head of Market Operations role. NZX's Head of Market Operations has a direct line of reporting to the Chief Executive as well as a secondary line of reporting to the Board of New Zealand Clearing and Depository Corporation Limited in respect of the activities of the NZX Group's clearing house.
Profiles of all the senior managers of NZX are available at: www.nzxgroup.com/who-we-are/ management-profiles
Insurance and Indemnification
NZX provides insurance cover and indemnities to directors and executive employees. Further detail is set out on page Indemnification and insurance of directors and officers.
Gender and Diversity
NZX is committed to building and maintaining diversity of skills and perspectives across the organisation. We believe that diversity of thought at all levels, in an inclusive environment, leads to improved outcomes for our employees, our customers and our shareholders. The NZX Diversity Policy requires:
- Transparent, merit-based, recruitment and reward decisions;
- Identification and support of talented individuals; and
- Use of flexible work practices to encourage broad workforce participation.
NZX established a Diversity and Inclusion employee committee in 2016. Its objective is to implement improved diversity and inclusion initiatives across the organisation.
As part of NZX’s annual employee engagement survey, measurements are taken on employees’ views of NZX as an equal opportunity employer and as an employer that cares about its employees’ wellbeing. The results of this survey are reported to the Board.
The Diversity Policy does not set quantitative targets for workforce composition, but does require an age and gender breakdown to be provided to the Board quarterly. The Board will consider whether further measurement is appropriate over time and will consider updates to the current policy as part of transitioning to the updated NZX Corporate Governance Best Practice Code.
The gender balance of NZX directors, officers and all permanent employees (excluding officers) for the years ended 31 December 2016 and 2015 was as follows:
31 DECEMBER 2016
31 DECEMBER 2015
The board has evaluated NZX's performance against its 2016 diversity objectives.
Key people managers will receive diversity training.
Senior management are due to complete refresher training in 2017.
HR metrics based on gender and age will be presented to the Board quarterly for their consideration.
Further, the Human Resources Committee reviewed the diversity policy and its application across all of the organisation.
Management will consider whether there are other measures which may be appropriate for understanding the composition of the NZX workforce and, if such measures are identified, will present these to the Board for its consideration.
Although no additional measures have currently been identified, this will continue to be kept under review.
NZX will undertake a review to ensure that remuneration is fair and equitable across all levels of the organisation to minimise inadvertent discrimination.
In addition to internal assessments, NZX continued to utilise the services of the Hay Group to provide independent benchmarking.
During 2016 NZX undertook the Gallup Work Survey. This included a question on whether staff consider NZX an equal opportunity employer.
72% of all NZX employees either agreed or strongly agreed that NZX was an equal opportunity employer.
A rating of 3.76 out of a possible 5 was achieved.
As noted above, the Board has adopted a Code of Ethics, Delegated Authority Policy and Diversity Policy. In addition to these policies, the Board has adopted a formal Securities Trading Policy and Conflict Management Policy.
Securities Trading Policy
NZX has a Securities Trading Policy to assist in compliance with insider trading provisions of the FMCA. The policy is administered by NZX’s Chief Financial Officer. The policy restricts directors and officers trading in a number of ways including:
- Prohibiting trading by NZX senior managers and directors in NZX’s securities during “black-out” periods set out in the policy. These occur prior to the release to the market of NZX financial results and prior to the release to the market of any prospectus for a general offer of securities issued by NZX or a subsidiary of NZX (excluding Smartshares).
- If a director, or officer or employee of NZX wishes to trade NZX securities outside a blackout period, that person must first apply for and obtain, consent from NZX’s Corporate Counsel.
- If the Chief Executive wishes to trade NZX securities, additional arrangements, including approval by the Chair of the Board apply.
Because of the nature of NZX’s business, any employee who wishes to buy or sell any financial product listed on NZX’s markets must follow the policy and apply for consent to trade. This policy is reinforced through individual employment agreements.
Conflict Management Policy
As a licensed market operator, NZX is required to undertake the supervision of the markets that it operates. This dual role as market operator and regulator may lead to a perception of conflict between NZX’s regulatory and commercial functions.
For this reason, it is important for NZX to effectively and demonstrably manage any conflicts that might arise between its commercial and regulatory roles. Accordingly, NZX has developed a Conflict Management Policy. The purpose of this policy is to identify possible conflicts and to describe the processes in place at a management and Board level to manage potential conflicts.
NZX staff receive training on both NZX's securities trading policy and conflict management arrangements periodically. Copies of both policies can be downloaded at: www.nzxgroup.com/investor-centre/corporate-governance
Other Governance practices
Given the size of the Board, there is no nominations and succession committee. Rather the full Board is involved in the director nomination process.
NZX has internal procedures to ensure that key financial and material information is communicated to the market in a clear and timely manner. In addition to its disclosure obligations under the Rules, NZX has adopted a quarterly revenue reporting regime and produces operating metrics monthly. This additional information is intended to provide transparency and assist the market in evaluating NZX’s performance. NZX also maintains a website which provides contact points for the public, and is updated with information regarding NZX, and its releases. This information is available at: www.nzxgroup.com/investor-centre/reports-information
Corporate social responsibility
NZX has outlined its approach to corporate social responsibility on the corporate governance section of its website: www.nzxgroup.com/investor-centre/corporate-governance/corporate-social-responsibility
The Board is responsible for ensuring that key financial and business risks are identified and appropriate controls and procedures are in place to effectively manage those risks.
Corporate Governance best practice
NZX is committed to ensuring it employs best practice governance structures and principles in keeping with Appendix 16 of the NZX Main Board Listing Rules (the Rules) and the Corporate Governance in New Zealand Principles and Guidelines published by the FMA in December 2014. As noted above, during 2015 - 2016 NZX undertook extensive industry consultation to update its current version of Appendix 16 which is planned for publication in 2017. NZX will be undertaking a process to update its policies and practices to reflect the new corporate governance standards and this will be reflected in future reporting.