News Risk Management22 Aug 2018

New Zealand:Directors face increasing company risks

22 Aug 2018

Directors in New Zealand are working harder and longer as they grapple with an increasingly complex business environment and more company risk, said a recent report.

At the same time, director fees are seeing a slow increase, according to the Directors’ Fees Report 2018, a joint publication between the Institute of Directors and EY New Zealand.

Greater focus on sustainability and governance

 “Nowadays there are more legislative and regulatory requirements, including health and safety issues. Directors must keep on top of complex risks such as cybersecurity and climate change. There is more disclosure, reporting and transparency expected on environmental and social impacts,” said Institute of Directors chief executive Kirsten Patterson.

“For directors to lead sustainable organisations, they need to keep up with rapid technological advances, disruptive business models and engaged stakeholders,” said Ms Patterson.

Adding to responsibilities has been the revised NZX Corporate Governance Code 2017, applying from 31 December 2017, and the refreshed Financial Markets Authority (FMA) corporate governance principles and guidelines, which took effect from February 2018.

Increase in fees, time spent

Median fees for non-executive directors have risen only 2.3% in the past 12 months, from NZ$44,000 ($29,300) to $45,000.  At the same time, executive directors’ fees rose from a median $35,000 to $36,000, an increase of 2.9%.

Time spent by directors on board matters has increased from 106 hours a year in 2017 to 127 hours in 2018. This is up from 88 hours in 2014. Seventy-nine percent of boards meet six to 15 times a year and most professional non-executive directors have an average of four directorships.

“Directors are spending more time on strategy, performance, compliance and risk-oversight. Public scrutiny on performance and behaviour can be intense, and fiduciary responsibility is weighty,” said Ms Patterson.

58% of non-executive directors in the survey sample said they were happy with what they were paid. 76% of organisations provided directors with liability insurance.

Directors should also pay attention to non-financial risks

EY New Zealand partner Una Diver says while boards are typically good at providing oversight of financial risk, historically there has been less focus on non-financial areas.

“The report encourages boards to closely monitor how non-financial risks – including reputation and conduct – are identified, rated and remedied,” Ms Diver said.

The survey showed the number of women non-executive directors on boards increased by 4% - up from 30% in 2017 to 34% in 2018. Women board chairs had the largest median increase in fees in 2018, surpassing male chair fees.  A woman board chair is paid a median $60,000 fee compared to the median fee for a male chair which is $54,029.  The women chairs work more hours – a median of 194 hours worked compared to a median 152 hours worked by male chairs.

Alongside their traditional duties around oversight, governance and risk, directors are also expected to be closely involved in the company’s broader impact on society, for example, organisation purpose and a “social licence to operate”. So they must consider and engage with all stakeholders on governance, social and environmental issues, not just shareholders, said Ms Diver.

Most non-executive directors in the Fees Report 2018 survey sample were New Zealand European (85.3%). Other ethnicity figures were Maori (4.7%), UK and Irish Republic (2.0%), Australian (1.4%), Northern American (0.8%) and Pacific peoples (0.7%).

Of the 1,546 organisations represented, 90% were New Zealand-owned. The organisations included 38% unlisted private companies, 17% listed private companies and 21% not-for-profit organisations. The report analysed data collected from 2,158 directorships and 792 members of the Institute of Directors of New Zealand.

This year was the first time the annual report captured directors’ fees by market capitalisation was captured, as many listed companies view market capitalisation as the best way to compare their directors’ fees with other entities with a similar market capitalisation. The full 109-page Directors’ Fees Report 2018 is available for purchase from EY.

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