Focus on Governance

Learnings for the secretariat function from recent NZX Disciplinary Tribunal decisions

Right at the centre of obligations for listed companies is the continuous disclosure regime - what needs to be disclosed to the market and when.

Many varied scenarios have been grappled with under this regime over the years. While lawyers are often expected to have the answer, it is worth remembering that a key element of the regime is what a reasonable person would expect to happen to the price of a company’s shares. This means that there must be some proper analysis and thought from directors, and the question not simply outsourced.

We have looked at some more recent decisions from the NZX Markets Disciplinary Tribunal where companies were found to have breached the continuous disclosure rules. The issues dealt with by listed companies, and in the Tribunal decisions, have included matters of:

non/late disclosure of litigation
late disclosure of major board changes
failures to announce promptly and without delay
material changes to earnings expectations and,
late filing of annual reports

In all these cases the Tribunal found gaps in the companies’ processes and procedures to manage their continuous disclosure obligations. In other words, if the companies had operationalised what a good disclosure policy requires, they may well have identified the issue and met their obligations.

Consider the following quotes from Tribunal decisions:

“processes were inadequate”

“a significant lack of care and due process”

“there were no compliance or operational processes to verify [information]”

“appeared to not have effective processes and procedures in place to ensure adequate consideration was given to its continuous disclosure obligations”

“ought to have expediated Board approval”

The penalties ranged from public censure of the organisations, through to fines of $150,000 and orders to pay the costs of the Tribunal.

The implications of these decisions are far reaching, including in relation to D&O availability, the extent of coverage and premium levels, not to mention attention from litigation funders.

So, what are some of the learnings that Board can take from these decisions?

Have proper systems and processes in place to ensure adequate and timely consideration of the matters that give rise to disclosure questions.
Include a trigger for the Board and management to think about the need to disclose potentially price-sensitive matters promptly and without delay.
At each meeting, identify items that might trigger an escalation before the next scheduled meeting and put a process in place to manage them ahead of time.
Implement a regular continuous disclosure assessment at any Board meeting, with management presenting key metrics against the potential disclosure triggers for your particular business – not all businesses will be the same.
Establish nimble and well-understood processes to deal with situations where you need to make a disclosure decision quickly, and perhaps without everyone available to consider it.
Appoint someone to ensure that your market disclosure policies and processes are followed – this means someone who can operationalise them and make them live and breathe.
Record which decisions are made and why. Show that you understand your company’s sensitivities and how they relate to the disclosure rules.
Keep yourselves ‘match fit’ by training your management and Board using relevant examples of situations that could arise for the company.
Track and monitor your sensitive issues. Examples include earnings relative to market expectations, bank covenant compliance and forecasts, transactions and contracts in play.

At Computershare we have a dedicated international team that is here to support listed companies with their governance and company secretariat needs. We can tailor service arrangements to provide varying levels of service according to your company’s needs.

If you think that we might be able to help you, please contact Charles Bolt at Charles.bolt@computershare.co.nz or on 021 889 533.