Raising the bar for company directors

Sean Hughes. Photo / Mark Mitchell

Sean Hughes wants the bar raised for New Zealand company directorships saying they should not be handed out like some "sort of retirement benefit".

Hughes has put raising the standard of this country's corporate governance near the top of the priority list for the newly established Financial Markets Authority.

He says investors are entitled to expect more of boards.

"I don't buy this argument that if you raise standards by legislating directors' duties then you will frighten people away from becoming directors. What you will do is frighten people away who shouldn't be directors.

"The people who are well qualified and experienced should fear nothing because in fact simply by being themselves and adhering to the normal standards of behaviour they will meet the standard."

Hughes wants to see a written set of principles that express what society expects of a director. "I do find it fascinating that you have to pass a test to drive your car, but what do you have to do to become a director to look after millions of dollars of investors' funds?

"What I want to get away from is this concept that it's some sort of retirement benefit ... that if you've spent 20 or 30 years in the workforce that you get to look after people's money for them."

Hughes emphasises the necessity for directors to have the right skill-base. Avoiding conflicts and ensuring adequate related parties' disclosure are also relevant.

"One of the things I would like to sponsor in my early days in this role is a national conversation around corporate governance - what do we expect and how might we best frame it and express it."

Such a conversation would be timely given the Cabinet's approval for a proposal to crackdown on reckless or dishonest directors in the wake of the finance company sector collapse.

The changes are opposed by some in the professional community who claim criminalising dishonest misconduct by directors might deter honest and competent players.

Under the proposed changes, directors will face criminal liability for intentional and egregious breaches of directors' duties under the Companies Act 1993. In particular:

* The duty to act in good faith and in what the director believes to be the best interests of the company;

* The duty not to carry on the business of the company in a manner likely to create a substantial risk of serious loss to the company's creditors; and

* The duty not to incur an obligation unless the director believes at the time on reasonable grounds that the company will be able to perform the obligation when it is required to do so.

Hughes' position was underscored in a statement by FMA chairman Simon Allen last week.

"We can and will set clearer rules for how markets and businesses should operate to a higher standard, and we will more consistently and strongly enforce those rules," Allen said. "However, New Zealand cannot regulate its way to improved standards of market behaviour, company performance and corporate governance."

Ultimately, if New Zealand is to seriously lift its game, it requires all market participants, including professional company directors running businesses, to take these new rules and responsibilities of conduct, governance and integrity very seriously.

"In that sense, we are all in this together, and I can't over-emphasise that enough."