Analysis on corporate governance compliance standards in New Zealand – a qualitative study on disclosures using content analysis and interviews
| DOI | https://doi.org/10.1108/JFRC-12-2017-0115 |
| Pages | 505-525 |
| Date | 01 November 2018 |
| Published date | 01 November 2018 |
| Author | Allan Chang |
| Subject Matter | Financial risk/company failure,Financial compliance/regulation,Accounting & Finance |
Analysis on corporate governance
compliance standards in New
Zealand –a qualitative study on
disclosures using content analysis
and interviews
Allan Chang
School of Business, Open Polytechnic of New Zealand, Lower Hutt, New Zealand
Abstract
Purpose –This paper aims to provide more insights into the standard of corporate governance in New
Zealand. The study intends to uncover how a small country with a well-developed economy with a good
system of law and order, good institutional set up and law enforcements and implements the principles
containedin the FMA’s corporate governance guidelines inpractice.
Design/methodology/approach –The study is a mixedstudy one where it employs case study content
analysis and augmented by conducting interviews. Large companies are selected to ascertain the level of
compliance of NZ companiestowards their obligations to report on corporate governancepractices within the
organisation. At the first stage, the study uses content analysis and looks at contents of company annual
reports and publicationson websites to determine whether they had disclosed as intendedby New Zealand’s
corporategovernance guidelines.
Findings –The study found that a high compliance was recorded in areas such as board composition and board
committees and low compliance recorded in areas involvingcostlyimplementationorwhentheissueissensitive
such as disclosures regarding remuneration details of directors and what non-audit work was undertaken and
whether it compromises auditor independence. Being a small country, NZ has performedwellinattractingforeign
investment due to its strong tradition of law enforcement and respect for regulations. With greater awareness of
the importance of corporate governance to investors, companies may see the benefit of greater compliance with the
corporate governance guidelines. This is in line with the stakeholder theory and resource dependency theory
where companies will voluntarily disclose information on corporate governance, social and environmental
performance over and above mandatory requirements to appease and manage their stakeholders.
Research limitations/implications –The sample size of thisstudy represents 3 per cent of total listed
companies in New Zealand,but the sample is approximately 10 per cent of local NZ listed companies (i.e. not
dual listed in Australia). There are 36 large companies in the New Zealand stock market with market
capitalisationof 1 billion and above. In addition, the companies selected for this study are well-knownin New
Zealand,and it is acknowledged that this can be a sourceof bias in my analysis.
Practical implications –As was revealed during the interviews with company’s senior officials,
Australian companies have achieveda higher level of compliance with the code of corporate governance. In
this regard, New Zealand willhave to step up and follow Australia’s lead to ensure greater compliancewith
the New Zealand corporate governance principles and guidelines. It would be in the best interest of the
company’sstakeholders if full compliance is achieved.
Originality/value –Studies on thelevel of compliance by New Zealand companieson their obligations to
meet the full extentof disclosures as stipulatedby the New Zealand corporategovernance guidelinesare rare.
Thisstudy aims to ascertainthe standardof corporate governancereportingin New Zealand andthe company’s
seriousnessto complyor attempt to meetthe requirementsin the seven stipulatedprinciples.
Keywords Content analysis, New Zealand, Corporate governance, Stakeholder theory,
Resource dependency theory, Compliance and regulation
Paper type Research paper
Study on
disclosures
505
Journalof Financial Regulation
andCompliance
Vol.26 No. 4, 2018
pp. 505-525
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-12-2017-0115
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1358-1988.htm
Introduction
In recent years, there has been an increasing focus on standards of corporate governance.
The global financial crisis of 2007-2010 has once againbrought into question the efficacy of
corporate governance practises around the world. According to the OECD steering
committee on corporate governance, the financial crisis can be attributed to failures and
weaknesses in corporate governance practices (Kirkpatrick, 2009). In this regard,
researchers have questionedwhether boards have the skills, knowledge and understanding
of the business to fulfil theirduties (Reddy and Locke, 2014); others argue that board failures
are the result of the lack of shareholdermonitoring (Icahn, 2009).
In New Zealand, the collapse of 50 finance companies in the aftermath of the global
financial crisis resulted in huge losses to investors and was attributed largely to poor
management and shortcomingsin corporate governance practices (Peart, 2008). As a result,
a powerful financial markets regulator, the financial markets authority (FMA) was set up
with wide powers to take action and made directors accountable for their decisions they
made.
The importance of corporate governancecannot be emphasised enough. Both theoretical
and empirical studies of corporate governance practices provide anecdotal (Ingley and
McCaffrey, 2009) and empirical evidence (Brown and Caylor,2006a,b;Larcker et al., 2007;
MacAvoy and Millstein, 2003) to support the view that good governance practices lead to
improved financial performance. In addition, studies have shown that firms with weak
shareholder protectioncould improve investor protection by increasing disclosure,selecting
a more independent board, aligning incentives or imposing disciplinary mechanism on
management (Klapperand Love, 2004;Ward et al., 2009).
There are studies to show that the quality of corporate governance has been shown to
affect cost of capital, leverage and financingpolicy. A study by Koerniadi and Tourani-Rad
(2014) showed that the cost of capital of firms with a high corporate governance score is
significantly lower thanthose of firms with a low governance score. The same study further
finds that firms with weak corporate governance mechanisms are more leveraged than
firms with strong governance mechanisms;and they also observed that firms with different
levels of corporate governance quality use different corporate governance mechanisms in
relation to their financingpolicy.
The New Zealand market provides a uniqueinstitutional setting as it is characterised by
a high level of block ownership that does not necessarily reside with one category of
investor, along witha relatively large percentageof outside directors and an inactive market
for corporate control (Burton et al.,2013). Compared to the USA and UK, New Zealand is a
relatively smaller economywhere the capital markets are not nearly as well-developedas its
Western counterpart. It has a large number of firms having a small market capitalisation
and ownership concentration is extremely high (Reddy et al., 2015). Consequently, the
Table I.
NZ corporate
governance
principles and the
number of good
practices identified
Principle No. of good practices identified
1–Ethical standards 2
2–Board composition and performance 10
3–Board committees 14
4–Reporting and disclosure 3
5–Remuneration 4
6–Risk management 2
7–Auditors 2
Total 37
JFRC
26,4
506
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