Directors must be careful in trading

Keith Turner. Photo / Natalie Slade

Last week columnist Brian Gaynor questioned why directors of Fisher & Paykel Appliances had not bought shares in the company when there was a "clear window" of opportunity to do so after the presentation of results.

Gaynor also raised the issue of Chinese directors who did not attend meetings and whose places were filled by alternate directors about whom no background information was provided.

Fisher & Paykel Appliances chairman Keith Turner responds.

Both in New Zealand and Australia, boards are paying a great deal of attention to continuous disclosure.

It is a high duty and boards are keen that shares reflect the value of the enterprise they are involved in.

However, what if, during those supposed "clear windows", they possess knowledge about proposals that are potentially price sensitive but are "partial or incomplete", and therefore not able to be disclosed.

Directors would be open to the risk of insider trading if they trade during those windows.

Results announcements may amount to full disclosure of financial performance, and appear to create a safe harbour for directors to trade in shares, but they do not necessarily cleanse directors from the risk of insider trading.

My recent experience at Fisher & Paykel Appliances is a case in point.

While undertaking a comprehensive strategic review of F&P Appliances, we were considering all sorts of options.

My approach was to resist trading while we were debating and commercially analysing ideas that could have material value implications.

Can that debate be conducted in public? My answer is no.

It will unnecessarily restrict the risk versus value trade-off activities that boards must engage in, on shareholders' behalf, if they are to pursue shareholder value.

I would note that five of eight directors at the F&P board table hold shares and that clearly drives the board's incentive in the interests of shareholders.

It is not a surprise that newly appointed directors may take a while to find the right window to trade in, especially when a company is in transition.

Brian Gaynor's comments on Chinese directors are somewhat more helpful.

The Chinese have their own way of doing business and, if they are to invest in New Zealand (and remember New Zealand wants to encourage foreign investment), we do have to find some middle ground.

In the case of Fisher & Paykel Appliances, the two alternate directors make excellent contributions to the board, not in the least because they know the industry, have the right skills to complement the board and are able to speak English fluently.

The fact that custom requires senior executives to formally hold the positions is in my mind neither here nor there, provided we get skills, continuity and contribution from those who do attend on their behalf.

However, Gaynor made a useful point and one which I intend to act upon. That is to publish the credentials and experience of the alternate directors who do attend the board.