The Accident Compensation Corporation (ACC) fund has urged the NZX to retain shareholder disclosure rules for material and related party transactions amid back-pedalling in other jurisdictions.
Blair Cooper, ACC Investments head of equities, said the circa $50 billion fund was especially wary of moves in the UK to soften shareholder protections.
Among other proposals, the mooted Financial Conduct Authority (FCA) market reforms will cut current requirements for UK listed companies to seek shareholder approval for “significant” or related-party transactions.
The ACC was one of almost 60 signatories – also including the NZ Superannuation Fund and Mint Asset Management – to an International Corporate Governance Network letter earlier this year calling on UK authorities to abandon the proposed rule change.
“We have communicated our concerns around the UK changes to the NZX (and the FMA) and understand that it has no immediate intention to review the major/material transaction approval requirements,” Cooper said.
The NZX last reviewed its material/related-party transaction settings late in 2022 – completing the process the next year – but the exchange says in a recent note that a further “grass roots” probe of the rules might be in order following the UK move.
“Whether such a review is necessary will depend on whether NZX becomes aware of conduct or other matters that would suggest that it would be appropriate to review these settings,” the note says.
“In this regard we note the recent consultation being undertaking by the UK Financial Conduct Authority, that proposes the removal of compulsory shareholder votes and shareholder circulars for related party transactions, and the different approach that ASX takes in relation to these requirements.”
A spokesperson for the NZX said any potential review of related party rules would centre on the scope of the settings rather than a proposal to remove the disclosure requirements.
If a review goes ahead it “would involve a full formal market wide consultation”, the spokesperson said, which “does not form part of the workplan for 2024”.
Cooper said the NZX should resist any race-to-the-bottom on shareholder protection rules as global exchanges fight to retain listings and attract initial public offerings.
“There is inevitably a tension between exchanges wanting to provide the most attractive listing destination for issuers, and the long-term pressure of wanting an exchange with strong well-governed companies,” he said.
“ACC values the protections which the current rules provide and argues that strengthening settings would support value creation and a stronger market.”
If approved, he said the UK proposal could prove detrimental to shareholder value as the risk of poor corporate decision-making increases.
“It is reasonable to assume that investors will seek higher returns to compensate for the risk which arises from the weaker governance settings, with negative consequences for share prices,” Cooper said.
Consultation on the FCA ‘Primary markets effectiveness review’ closed early last month.