Owner's Expectations

Foreword#

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I am pleased to present this updated set of expectations for the Crown companies and other entities for which the Treasury provides performance advice to Ministers.

Thank you to those of you who provided feedback during the update of this document, which has helped ensure it is relevant, useful, and fit‑for-purpose.

The Treasury has developed this Owner's Expectations document as part of its advisory role to Ministers on Crown company and entity governance, ownership, and performance. Crown companies and entities play an important role in our economy and society. They operate in many sectors, delivering goods and services that New Zealanders access every day.

Boards are responsible for the governance of these important publicly owned companies and entities. Directors are selected for their ability to help set the direction for, and contribute to the effective oversight of, the companies and entities.

High-performing boards assist entities to contribute to New Zealand’s overall productivity and living standards, and to better deliver the objectives for which they were established. Efficient and effective governance maintains and enhances the value of the Crown’s investment. It also enables entities with a commercial mandate to fiscally support wider government priorities.

Ministers rely on boards to govern and lead each entity, and their performance needs to be able to be demonstrated objectively. This Owner’s Expectations document sets out expectations of boards in areas such as financial and non-financial performance, entity and board conduct, and the maintenance of effective and professional relationships with the Treasury.

I encourage you to adopt this document as a key guide to the processes that underpin relationships between Ministers, boards, and the Treasury. Policy choices and expectations are set out through letters of expectations and through public accountability and business planning processes. Treasury staff are happy to assist you with any questions you have about the expectations in this document.

I also encourage you to share this information with your chief executives and other senior managers so they can better support you in your governance role.

Thank you for agreeing to serve on a Crown Board. You are making an important difference for all New Zealanders.

Ngā manaakitanga

Caralee McLiesh
Secretary to the Treasury
Te Tumu Whakarae mō Te Tai Ōhanga

Introduction#

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Purpose#

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The Crown companies and other entities that the Treasury provides ownership, governance and performance advice on provide a range of services and products and make a significant contribution to the economic and social wellbeing of all New Zealanders. Their performance contributes to the Crown’s overall financial position and the delivery of government policies and priorities.

This document sets out the framework within which relationships between Ministers, boards and the Treasury are expected to be conducted.

Ministers act as the shareholders and responsible Ministers of entities covered by this document. Shareholding Ministers for Crown companies and responsible Ministers for entities establish performance expectations and hold the Crown companies and entities accountable to these.

Boards are appointed to professionally govern Crown companies and entities and are responsible to Ministers for providing strategic oversight and ensuring that performance expectations are met.

The Treasury performs two critical roles:

1. It is the system steward for commercial entities and is a source of expert advice and guidance on requirements and obligations.
2. It is the primary ownership, governance and performance advisor on State-owned enterprises, Crown financial institutions and other entities owned by the Crown.

All of this system is governed by Parliamentary process. Entities are expected to appear before select committees annually to explain performance and to answer questions from Parliamentarians. Entities are also expected to support their responsible and shareholding Ministers with their obligations to Parliament and for public accountability.

Scope#

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The expectations in this document apply to the boards of the following entities for which the Treasury provides performance governance, and appointments advice to Ministers:

• State-owned enterprises (SOEs)
• Crown companies
• Public Finance Act 1989 (PFA) Schedule 4A companies
• Statutory entities
• Crown financial institutions (CFIs)
• Airport companies in which the Crown has a shareholding.

Details of the different types of entities are provided on the Treasury website, Types of companies and entities, and in Table 1.

These expectations relate only to entities for which the Treasury has the primary role in providing advice to Ministers, and do not apply to the mixed ownership model companies (the PFA Schedule 5 companies and Air New Zealand). Entities for which the Treasury has a secondary role should refer to guidance documents issued by the primary responsible department.

Structure#

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Part 1 discusses the role of boards and directors, the board appointment process, and expectations relating to governance.

Part 2 outlines expectations for financial and non-financial performance.

Part 3 outlines expectations on matters such as reporting, disclosure, public accountability and business cases.

Further information is provided in the appendices.

This document replaces the Owner’s Expectations last updated in April 2020. The Treasury seeks to update this document regularly to ensure it is current and relevant. It is intended to be a procedural guidance document. Policy choices and expectations are transmitted through a letter of expectations and through Statement of Intent processes. The expectations outlined in this document do not override any legislative or regulatory obligations or, where applicable, the NZX Corporate Governance Code or listing rules.

This document may be supplemented from time to time by bespoke guidance.

If you have any feedback or questions on this document, please contact your entity’s Relationship Manager at the Treasury.

Part 1: Boards and governance expectations#

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Role of Ministers #

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Each Crown company has two shareholding Ministers: the Minister of Finance and a ‘responsible’ Minister, who each hold 50% of the company’s shares.

Statutory entities have a responsible Minister. The Minister of Finance also performs functions related to financial accountability.

The shareholding and responsible Ministers set out what the Crown seeks to achieve through ownership of entities. This typically includes agreeing the direction and performance expectations for the entity, and performing oversight of the entity’s strategy, capability and capacity to continue to deliver services to agreed quality standards in the future.

Ministers' powers are set out in the legislation establishing each type of company or entity, the Crown Entities Act 2004, and the relevant legislation for statutory entities.

Their duties include:

• developing and communicating ownership policies and expectations
• appointing and removing directors or members
• being responsible for board performance and taking remedial steps if boards fail to perform in line with expectations
• commenting on draft accountability documents, and
• providing or withholding approval for transactions where approval is required.

Role of the Treasury#

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The Treasury acts on behalf of Ministers and advises them  on setting expectations and on the performance of each board and organisation overall, with a particular focus on protecting and actively optimising the Crown’s investment in the entity.

The Treasury also manages the process to appoint directors on behalf of Ministers and provides advice on skills and competencies required for each board.

The Treasury assesses entity performance across four dimensions:

1. Strategy, investment and alignment
2. Leadership
3. Organisational performance
4. Delivery of results.

Where the Treasury identifies areas that an entity may need to develop or strengthen, it adopts a risk-based approach. This means that in-depth analysis or strategic reviews may be appropriate in some cases.

Role of the board#

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Boards of Directors are appointed by shareholding Ministers to provide professional governance of entities.

Boards are the government's primary mechanism to govern entities successfully, to develop strategy, to achieve results and to demonstrate efficiency.

Because entities covered in this document do not face competition for ownership, the role of boards in driving performance and in demonstrating efficiency is of higher importance.

Board appointment processes#

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Appointments

To provide Ministers with appointments advice, the Treasury and chairs review and consider board composition and skill requirements when:

• vacancies arise
• an existing director's term ends
• there are substantial changes in a company's or entity's business, requiring new board skills, or
• there are concerns about the performance of a board or individual members.

Following a nominations process and Ministerial approval, shortlisted candidates are interviewed. Due diligence, including reference and background checks, is carried out and recommendations of appointable candidates are provided to Ministers. There may be specific statutory requirements to consider for the qualifications of directors, depending on the entity. If Ministers agree, Ministers’ preferred candidates are presented to the Appointments and Honours (APH) Committee and Cabinet. Directors are usually appointed by the Minister for a term of up to three years, subject to satisfactory completion of background checks.

For the Guardians of New Zealand Superannuation, the Minister is required to establish a committee to nominate candidates and to consult with other political parties in Parliament. The Governor-General makes the appointment, on the recommendation of the Minister, for a term of up to five years.

For the Reserve Bank of New Zealand, other political parties in Parliament must be consulted; and the Governor-General makes the appointment on the recommendation of the Minister for a term of up to five years. This process also applies for the Reserve Bank Governor.

While some directors may be appointed because of their knowledge of the sector in which an entity operates, no director is appointed to any board in a representative capacity. Directors are appointed as professional governors and are expected to perform their duties on that independent basis.

Eligibility and capabilities for directors

Everyone is eligible to be considered for appointment to a Crown board, barring any disqualifications that may apply as stated in section 151(2) of the Companies Act 1993 and, for statutory Crown entity boards, in section 30 of the Crown Entities Act 2004.

Public servants from core government departments are generally not eligible for appointment to Crown boards, but Ministers may exercise discretion to allow appointment. Similarly, the staff of an entity cannot generally be appointed to the board of their own organisation, although they may be appointed to subsidiary boards.

There are 27 capabilities for all directors, which fall into three areas:

1. Crown Companies portfolio alignment - demonstrates awareness of their context, understanding of own motivations, and commitment to requirements.
2. Skills, Knowledge and Experience - the expertise that a director brings to the role, and their understanding and appropriate applications of practical and theoretical information.
3. Behaviours, Attributes and Characteristics - the way they think, their attitude, and their disposition that shapes a director’s responses and behaviours.

Further information on becoming a director can be found here: Getting into Directorships – Board Appointments, and information on capabilities, including for members designated as chair, is provided here: What we look for – Board Appointments.

Induction

It is the responsibility of the chair to put in place an induction programme for new directors. It is important for new directors to receive an early understanding of the board’s business and the organisation’s operations, including relevant legislation and statutory requirements. Depending on the nature of the business, this induction and familiarisation process may include visits to key sites and briefings by internal and external experts. New directors should be given a director’s manual, or similar information, and recent key board papers or other background material as soon as possible after their appointment. The Treasury also holds induction briefings, usually twice a year, on the role of directors and Ministerial expectations; this includes briefing incoming directors on this Owner’s Expectations document. Directors are expected to have read this documentation and to comply with it.

The Public Service Commission (PSC) has produced induction material for boards of statutory entities: Induction: Crown Entity Board Members – Te Kawa Mataaho Public Service Commission.

Term-ends and reappointments

Directors are typically appointed for a three-year term.[1] They hold office at the pleasure of Ministers and may be removed at any time by notice in writing (except for members of independent Crown entities who can be removed only by the Governor-General).

Directors may be reappointed, subject to their availability, their contribution and whether their skills are still a good match for the next stage of the entity's business cycle. It is rare for a director to serve more than three terms, but under some circumstances, or where there is a strong business need, directors may occasionally be asked to make themselves available for a further period to ensure business continuity.

Directors should receive a letter from the Minister before the end of their term advising them whether they will be reappointed. A term may be extended for a short period if decisions are still being made about board composition and the entity’s constitution permits this. For statutory entities, directors remain in office despite the expiry of their term until they are reappointed, a successor is appointed, or they are advised that they will not be reappointed and that no successor will be appointed.

Directors may resign from a board by notifying the Minister and chair in writing. The Treasury will normally offer an exit interview with departing directors. Information provided will be treated in confidence.

Fees and expenses

Crown boards do not set their own fees.

The Cabinet Fees Framework (the Framework), administered by Te Kawa Mataaho Public Service Commission, sets fees for boards of Crown entities, including Crown Agents, Autonomous Crown Entities and tertiary education institutions, as well as trust boards, advisory bodies and committees, Royal Commissions, Public, Government and Ministerial Inquiries, statutory tribunals, individuals appointed as statutory bodies that are not covered by the Remuneration Authority, and some subsidiary bodies. The Commission reviews the Framework every three years.

The Remuneration Authority sets remuneration for a range of independent statutory officers and boards where the holders of the office are required to exercise a high degree of independence (eg, the Reserve Bank).

For Crown company boards, ordinary fees are set by shareholding Ministers in line with the Treasury's Crown Companies Fees Methodology (CCFM) approved by Cabinet. Ordinary fees cover the full ‘normal' contribution of each director, including attendance at board and committee meetings, meeting preparation and travel time, stakeholder management, and any other agreed tasks. The Treasury reviews benchmarking for fees under the CCFM every three years.

Special purpose fees are rare and considered in exceptional circumstances and for a limited period only where directors are required to contribute time over and above what would be considered an ordinary commitment.

Fees and member-related expenses are paid out of the organisation's own budget and the amount paid on director fees, professional development and training should be published in annual reports. It is expected that director and board development is normal business for entity boards, and that a prudent budget will be established and maintained for these purposes.

Further information on the methodologies, fees, payments and related policies is provided in Figure 1 and in Appendix 3.

Board performance evaluations

Board evaluations are a tool for boards to improve their performance and to allow Ministers to assess the performance of a board. External board evaluations should ideally take place biennially, unless there have been recent significant changes to board composition or when commercial imperatives demand full board attention. Self-assessments of board performance are encouraged in between biennial external board evaluations. Each company or entity is responsible for the cost of these evaluations.

Although not always feasible, board evaluations should ideally be conducted by an independent and external person or group with experience in undertaking board evaluations. Independence is important as it limits bias and provides confidence that the results of the evaluation are reliable and accurate. Independence can also assist in eliciting frank and honest responses from participants, thereby improving the validity of results.

Board evaluations should be tailored to the needs of the organisation and recognise the challenges facing it at the time. The evaluation should assess both performance to date and fitness for future challenges and cover at least:

• performance of the board as a whole, including:
  • strategy (the clarity of the board's aspiration for the organisation)
  • planning (the degree to which the board focuses its time on the most substantive issues)
  • oversight of the organisation (influence on management decision-making, quality of oversight of the CEO, and organisational performance)
  • performance and risk management (the contribution of the board and committees to business activity, operations, and management of risk)
  • management engagement (the quality and timeliness of management's information flow to the board)
  • governance processes and policies (agenda, board packs, committee structures, quality of reports)
  • capability (assessment of board composition to meet the strategy, future challenges, and/or regulatory demands of the company or entity and its environment, including an external assessment of the board's skills matrix)
  • leadership and culture, and
  • stakeholder engagement
• performance of individual directors including competence and contribution
• performance of the chair
• board learning priorities and objectives, and
• recommended actions that the board and individual directors can take to address issues identified.

The content of an evaluation should, as a minimum, include actions taken and progress made since the previous board evaluation and any issues relating to board performance that have emerged since the last evaluation.

Board evaluations should ideally incorporate both qualitative (eg, interview, observations) and quantitative elements (eg, numeric or time series information on performance factors derived from surveys of members or stakeholders) from a range of sources including feedback from the chair, directors and management, and comparison with benchmarks or evidence of best practice.

Chairs must see the results of the full board evaluation and provide at least a summary of the results to the Treasury. The Treasury may ask to see the full evaluation if the summary does not provide enough information. Chairs may choose not to share individual director assessments. Directors must also see the full results of the full board evaluation, excluding other individual director assessments.

The chair should monitor action points and keep the Treasury informed.

Individual director assessments should be used for professional development and to support succession planning. If a chair has concerns about the performance of a director, the chair should raise these concerns with the individual and advise the Treasury. If a chair’s performance is an issue, the deputy chair or other directors should first address this with the chair and, if necessary, discuss with the Treasury.

Figure 1: Crown Director Fee Setting Methodologies - Crown companies

Board duties, expectations and other governance matters#

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Board duties

The role of a board is first and foremost to govern the entity effectively to ensure that it delivers value. The board is accountable to Ministers for the performance of the entity, and for demonstrating that the entity is efficiently and effectively managed.

The board must ensure that the entity operates in a way that is consistent with its legislation, objectives, function, and public accountability documents.

The role of a Crown board differs in two key respects from that of a board in the private sector.

1. The entity does not face explicit pressure on ownership. A private sector company may be subject to significant consequences including takeover, breakup or closure if its board and management fail to perform, or to meet profitability expectations. In the absence of market pressure, boards are responsible to shareholding Ministers for ensuring the management performs effectively.
2. Crown boards face some additional duties in terms of public accountability. These duties include preparing public accountability documents, appearing before select committees, responding to requests under the Official Information Act 1982 (OIA), providing information for Ministers to reply to parliamentary questions, or submitting additional reporting if required by legislation. Crown boards are encouraged to reflect broad government priorities and pay attention to any reputational impact to the Crown in carrying out these duties.

Ministers expect that their boards will act as exemplars for excellent governance practices with respect to the entities covered by this guidance. This includes the quality and timeliness of performance reporting.

Ministers, rather than boards, appoint the chair. If required Ministers will also appoint one member as deputy chair.

Guidance notes on issues such as risk management and ethical behaviour are relevant regardless of whether directors are on Crown or private sector boards and include the:

• NZX Corporate Governance Code: https://nzx.com/regulation/nzx-rules-guidance/corporate-governance-code
• Financial Markets Authority's Corporate Governance in New Zealand handbook: https://www.fma.govt.nz/library/directors-and-officers/corporate-governance-handbook/, and
• Institute of Directors' Code of Practice for Directors: https://iod.org.nz/about-us/policies-and-documents/founding-documents.

Directors should refer to these and other relevant documents, bearing in mind that some expectations and practices differ according to the nature and duties of the entity.

For companies, the Companies Act 1993 sets out the legal duties of company directors: https://companies-register.companiesoffice.govt.nz/help-centre/company-directors/what-it-means-to-be-a-director. These are supplemented by other duties set out in the Crown Entities Act 2004. For Crown entities, the Crown Entities Act 2004 sets out the legal duties of entity boards and directors.[2]

Commitment to board duties and attendance

Boards should agree in advance on a schedule of meeting dates so that directors can manage their commitments to ensure attendance. The membership of each board is designed to provide a balance of competencies and skills necessary to conduct the board's affairs.

Directors are expected to allocate two to three days per month to their board duties to prepare for meetings, attend board and committee meetings, and for other related duties, such as visiting company operations. Directors should avoid over-committing to too many other roles and should retain flexibility to allocate more time if major issues or emergencies arise as the absence of a director can have a negative impact on board deliberations. Directors are expected to resign from their position if they are unable to allocate sufficient time and attention to their duties.

Entities are expected to show the number of board meetings attended by each director in their annual reports. Missing two or more meetings in a year should raise initial concerns, while missing three meetings in a year is a serious issue unless the board has approved a leave of absence for justifiable reasons such as illness. The chair is required to advise Ministers of non-attendance. Ministers will communicate concerns to the affected director and, unless there are extenuating circumstances, will ask the director to resign.

Partial attendance, if frequent, is also a problem. It is disruptive to board discussions, denies the board the benefit of the director's expertise and may mean the director loses continuity in board decisions. Boards are encouraged to raise partial attendance as an issue with the Treasury if a solution cannot be found.

Regular participation in board meetings by video- or tele-conferencing may be acceptable if the chair considers it effective. Chairs should consider the benefits of personal interaction.

Boards may wish to engage a future director to participate in and observe their meetings under the Future Directors in the State Sector programme, as a contribution to growing the pipeline of future governance talent. Future Director positions are not Minister-appointed roles and are not considered by the Cabinet Appointments and Honours Committee. The Future Director candidate will be selected by the board chair or panel, on behalf of the host entity. Ministers and the Treasury should be informed of Future Director appointments and resignations.

Board committees

Board committees help to increase the overall effectiveness and efficiency of the board. Committees can be standing or ad hoc in nature and typically encompass areas such as audit (finance and risk) and human resource matters. There is no specific expectation for any prescribed or optimum number or type of committee unless, for companies, it is stated in the company constitution.

Subsidiary boards

For companies, the parent board is responsible for appointing directors to its subsidiary companies (if any), unless there are specific limitations in the company’s legislation, constitution, Statement of Corporate Intent (SCI) or Statement of Intent (SOI).

If a director on a parent company board is appointed to the board of a subsidiary, these directorships may be covered by ordinary parent board fees. However, if the additional requirements on the parent directors are significant, the parent company board may set additional subsidiary director fees at appropriately conservative levels. Fees paid by the subsidiary to the directors in this situation do not require Ministerial approval but should be reported.

Ministers do not appoint executive directors to Crown boards unless there are exceptional circumstances. Parent company boards may appoint executive directors to subsidiary boards; but executive directors should not be paid directors' fees. Recognition of their contribution as directors should be included in their remuneration package as managers.

Board conduct#

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Board conduct and ethics

Boards set the culture, value system, and leadership tone for their organisation through their behaviour and practices in areas such as integrity, honesty and transparency, relationship with management and staff members, director attendance and commitment, and control of board expenditure.

Each board should have a charter/code of practice to provide guidance and to assist directors to carry out their duties and responsibilities effectively and in accordance with the highest professional and ethical standards. Some boards may choose to have separate documents, for example a charter covering board procedures and a code of conduct/ethics covering ethical behaviour. It is best practice to publish these documents to demonstrate the company’s values to staff and to the wider community.

The NZX Corporate Governance Code provides recommendations on a code of ethics (Principle 1) and a board charter (Principle 2).

Code of conduct

Directors are expected to act in a politically impartial manner that is consistent with the Code of Conduct for Crown Entity Board Members.

The Code of Conduct for Crown entity directors is issued by the Public Service Commissioner under section 17(3) of the Public Service Act 2020 to apply to directors of statutory entities (excluding corporations sole) and Crown entity companies (excluding Crown Research Institutes and their subsidiaries).

In addition, Schedule 4A Companies are covered by their own code of conduct, Code of Conduct For Directors of Schedule 4A Companies.

Conflicts of interest

A conflict of interest arises when a director's duties or responsibilities to the company or entity could be affected by some other interest or duty that may not be in the best interests of the company or entity. Each director must make efforts to identify relationships that do or may give rise to a conflict, either their own or those of fellow directors. For companies, the Companies Act 1993 makes it clear that a director must act in the best interests of the company.

Boards must have a process in place for disclosing and dealing with actual and perceived conflicts of interest, including the maintenance of an interests register and the disclosure of interests at meetings or when certain issues are discussed. The board's policy on conflicts of interest should form part of its code of conduct.

Conflicts that arise must be handled appropriately and promptly. When assessing whether a conflict exists, directors need to consider issues of perception as well as matters of fact; they should err on the side of caution when deciding what needs to be disclosed.

For companies, directors should check whether their company constitution states that directors with an interest in a transaction may not vote on a matter relating to the transaction. Ministers generally expect that directors who are interested in a transaction will absent themselves from deliberation on the matter, unless the board or committee resolves that this is not required.

For statutory entities, the Crown Entities Act 2004 provides conflict of interest disclosure rules and, for the Reserve Bank, similar rules are provided in the Reserve Bank of New Zealand Act 2021.

Further information, including examples of conflicts of interest and guidance on how to manage them, can be found in the Office of the Auditor-General's guidance: Managing conflicts of interest: A guide for the public sector – Office of the Auditor-General New Zealand (oag.parliament.nz)

Liabilities and indemnities

Failure by directors to discharge their duties diligently and properly can result in personal liability and reputational damage. Directors are personally responsible for their duties and obligations imposed by legislation, and their personal assets and professional standing are at risk. The Crown does not provide directors and officers with any indemnity against personal liabilities incurred while performing, or failing to perform, their duties. The Crown Entities Act 2004 provides directors of statutory entities with immunity from civil liability in respect of an excluded act or liability (an act or omission undertaken in good faith for intended performance of the entity's functions), unless directors breach their individual duties under the Act.

There is no guarantee, implied or otherwise, that the Crown will meet the liabilities of a Crown company or entity. In the event of liquidation of a Crown company, the liquidator will endeavour to make such recoveries as are available for the benefit of the company’s creditors, which could include claims against directors for reckless or insolvent trading or other breach of duty.

Boards should establish a comprehensive risk management programme. An essential component of this programme is the ability for entities to indemnify their directors against liability to the extent permitted by law, coupled with adequate insurance for directors against liability (including Run-off insurance). The cost of the premium can be paid by the company if the cover is within the limits and under the criteria prescribed by the Companies Act 1993.

This information is a guide only. Directors should obtain appropriate legal advice to reflect their own personal circumstances and those of the entity.

Expectations of directors#

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Support effective Māori-Crown relations

We expect entities to embody the Crown's good faith and collaborative approach to Māori-Crown relationships.

Resources are available to support Crown entities to work in partnership with Māori. Te Arawhiti has a range of tools and resources to support Crown entities to effectively engage with Māori on various issues and build true and practical partnerships. The Treasury applies He Ara Waiora alongside the Living Standards Framework, which helps the Treasury to understand a Māori perspective on wellbeing and to interweave and embed Te Ao Māori perspectives in our policy advice with integrity.

Relationship with the Treasury

The Treasury is the lead advisor to Ministers on board and entity performance. Boards and senior managers are expected to work closely and openly with Treasury officials and to provide information where requested. Boards should invite Treasury officials to observe and to engage with them during relevant parts of their annual sessions when they discuss their strategic plans for the coming year. This participation will give Treasury officials a better understanding of these plans and relevant context and help them to provide informed advice to Ministers.

In turn, Treasury officials will assist companies and entities by providing advice or clarification on processes, advising Ministers in a timely manner on matters such as approval for major transactions, and providing feedback to boards when Ministers or officials have concerns about performance.

Confidentiality and security of information

Directors have a duty of care and need to be vigilant to ensure the security of information they receive in hard copy or electronically. The company or entity must have processes in place to ensure the proper use and confidentiality of its information and communications. These processes must cover personal devices used by directors to hold and receive information and communications. Board papers remain the property of the entity and should be returned when a director retires.

Parliamentary and local body elections

Directors need to exercise care around political neutrality, particularly at election times as there is generally a higher level of scrutiny of public organizations. Chairs should pay particular attention to the ‘no surprises' expectation (outlined below) during an election period.

Any director wishing to stand as a candidate for election to Parliament or to be placed on a party list is required to take a temporary leave of absence from their board position once their intention to stand as a candidate is publicly announced. If elected to Parliament, the director must stand down.

Boards should consider on a case-by-case basis the role of directors standing as candidates in local body elections. If there is any conflict between the role of the company or entity and the local body, the director would be expected to take a temporary leave of absence. Crown-appointed directors of airport companies in which local bodies have an ownership stake should take a temporary leave of absence and resign if elected.

Other issues to raise with Ministers

A director may be in a situation where continuing to act in that role might place the entity or Ministers in a position of embarrassment, because of circumstances not related to the directorship of a particular entity. Examples of such situations might include where:

• legal proceedings have been, or are likely to be, brought against the director
• the director has been, or is likely to be, subject to negative media or public scrutiny
• the director is placed in a situation of actual or perceived conflict of interest
• an issue affects the director's ability to contribute to the board, for example as a result of other time pressures, extended overseas travel, or illness
• the director is appointed to any position as an employee of the Crown, or intends to undertake significant contract work for any Crown organisation, or
• any other similar situation places the company, entity or Ministers in a position of embarrassment.

If any of these circumstances arise, the director concerned should bring the matter to the attention of the chair immediately. The chair should advise Ministers, if appropriate.

Professional and legal advice

Boards should authorise in advance any professional and legal advice they need to decide or deal with an issue that requires consideration independent of management. Where this is impracticable or inappropriate, the chair may initiate matters, with the board to be advised of arrangements entered into as soon as possible and at least at the next board meeting.

Consultancy services provided by directors

Directors should not undertake consulting work for the entity. This does not preclude a director from undertaking assignments for the board that fall within the scope of his/her normal duties, but it does preclude the director from carrying out, for example, a consulting assignment that would otherwise be contracted to a third party. If the chair considers that an exception to this rule is justified, the chair should document their reasoning and refer the circumstances to Ministers for approval in advance.

Directors should not be placed in a conflict of interest situation through the company's or entity's involvement with an organisation with which the director has a substantial commercial or professional interest or employment relationship. Such a situation could arise where the organisation:

• has been engaged for a one-off, specific assignment, or
• has an ongoing relationship with the company or entity, for example in the provision of professional services.

In the first situation, provided that the director concerned declares their interest in the organisation to be engaged for the assignment and takes appropriate actions (eg, refraining from voting), it is unlikely that the organisation needs to be excluded from undertaking the assignment. In this situation, a director should not be directly involved in providing the service or advice.

The second situation raises greater concern. Boards should not enter any ongoing relationship with an organisation in which a director has a relationship like that described above.

 

Part 2: Performance expectations#

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Performance expectations#

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Companies and entities are expected to perform in accordance with the relevant legislation for each company or entity type, such as:

• SOEs are companies subject to the State-Owned Enterprises Act 1986 and are expected to operate as successful businesses, including being as profitable and efficient as comparable businesses not owned by the Crown.
• Crown entities are subject to the Crown Entities Act 2004. In general they are expected to act as successful going concerns and to operate in a financially responsible manner.
• Public Finance Act (PFA) Schedule 4A companies are subject to the Public Finance Act 1989; some sections of the Crown Entities Act 2004 also apply. Their expectations vary in accordance with their constitutions.
• All companies are subject to the Companies Act 1993.

Some entities such as the Accident Compensation Corporation, Government Superannuation Authority, Guardians of New Zealand Superannuation, Kiwi Group Capital, National Provident Fund, Public Trust, New Zealand Lotteries Commission, and the Reserve Bank have certain legislative provisions in relation to the funds they manage.

The following table sets out specific expectations:

Reporting obligations #

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Figure 2 summarises the reporting and business planning process. This is a summary only. Dates and requirements vary for some types of entities, and approximate date ranges are shown for some activities. Further details are provided in Part 3: Reporting and accountability, and in Table 1.

Letters of expectations set out government priorities

Ministers provide their performance expectations of each board through an annual letter that contains specific expectations for each company or entity. However, Ministers can convey expectations to boards at any time. For statutory entities under the Crown Entities Act 2004, a broader ‘enduring letter of expectations' is issued by the Minister of Finance and the Minister for the Public Service. For other entities, Ministers may issue an ‘enduring letter of expectations'.

Boards prepare meaningful performance indicators

Boards are expected to develop performance indicators that will demonstrate how well the entity is delivering the goods and services it is charged with providing. The Treasury’s website provides information and guidance to support entities to meet their various reporting requirements under the Public Finance Act and Crown Entities Act Reporting: Performance | The Treasury New Zealand. It includes guidance on how to produce appropriate and meaningful performance reporting for users, as per the reporting standard PBE FRS 48.

The following five prompts are intended to help with developing strategic intentions, such as for a Statement of Intent.

PBE FRS 48 15(a) and 15(b) requires service performance information to provide users with:

• sufficient contextual information to understand why the entity exists
• what it intends to achieve in broad terms over the medium-to-long term and how it goes about this, and
• information about what the entity has done during the reporting period in working towards its broader aims and objectives.

PBE FRS 48 paragraphs 16 to 19 provide guidance on the application of paragraph 15 which entirely focuses on the ‘whole' reporting entity.

Because the entities covered in this guidance do not face normal commercial disciplines on ownership (eg, share market trading, takeover if underperforming relative to competitors), the choice of performance indicators is a critical task for the board.

Boards should pay particular attention to ensuring that key performance indicators address:

• the creation (or protection) of value for shareholders
• measurable results
• meaningful measures (including input ratios, time and cost measures) to demonstrate efficiency over time
• the development of credible strategies to mitigate shocks or long-term trends, and
• operational and management efficiency (appropriate and defensible cost structures).

Boards should seek appropriate comparators to benchmark performance against, for instance, comparable private sector entities, external industry benchmarks or internal time series information. These indicators must be:

• meaningful to the entity and its legislative purposes and role
• specific, measurable, timely, and able to be audited
• within the entity's responsibility or power to control or influence, and
• consistent with and, as appropriate, influence the entity's purpose, business, and operating principles.

There are many ways an entity may choose to measure its performance, and many aspects that it might consider measuring consistently on both a quantitative and qualitative basis. As well as delivering financial results, entities are expected to manage their operations and capability to efficiently and effectively deliver services now and in the future.

Financial targets must be discussed with Ministers

Companies are expected to add to shareholder value in their operations over the longer term and to meet short-term financial targets. They are encouraged to include in their SCI/SOI the financial performance measures shown in Appendix 2, along with other relevant measures.

SOEs should set financial targets that:

• focus on earning appropriate risk-adjusted rates of return over the business planning period
• replicate the disciplines exerted over private sector companies that result from share market trading and the threat of takeover, and
• reflect the SOE's operations in an environment that is competitively neutral with the private sector.

A target in excess of the cost of capital does not need to be achieved consistently every year as long as an appropriate average return is achieved over time, such as a five-year period.

Where the operation of the business is believed to create ‘public value', this value needs to be explicitly identified and costed.[3] Ministers may choose to purchase all or part of the price of this contribution to public value but will expect the specifications and cost of these contributions to be identified explicitly and to not be subsumed in the cost of other services.

CFIs should be focused on earning appropriate risk-adjusted rates of return. They are encouraged to address in their SPE/SOI the financial performance measures as set out in Appendix 2, along with other relevant measures.

Crown entities are expected to operate in a financially responsible manner. Crown entities should follow relevant guidance when developing SPE/SOIs, including guidance from the Treasury on Crown Entities Act: Statement of Intent Guidance and Reporting: Performance.

Figure 2: Key steps in the reporting and business planning processes

Decisions on dividends policy or retention of capital rest with Ministers not with boards

Boards are expected to develop an appropriate dividends policy, reserves policy, and views on retention of capital by entities. However, Ministers may determine the amount of dividend payable.[4] Investment decisions are the responsibility of the board unless it is a major transaction or requires new capital from the shareholder. Boards are expected to respect the government's priorities and take them into account when setting its dividend policy and the need to retain capital for future investment. Capital retention needs to be supported by robust fiscal and asset management planning. Chairs should alert Ministers to potential dividend policy changes well before the board forms a final position on the matter.

Boards should alert Ministers to performance shocks, issues or shortfalls

Boards should advise Ministers if they anticipate that the entity will not achieve its performance targets, along with the proposed actions the board intends to take to remedy the situation. This advice can generally be achieved through quarterly reporting to, and interaction with, Treasury officials. Where forecast performance shortfalls are significant, more direct and immediate notification is expected. In cases of serious underperformance or financial distress, Ministers have several options, including:

• seeking more detailed information from the entity (eg, monthly accounts and cash flow forecasts)
• working with the board to improve company performance
• reviewing the membership of the board
• appointing a special advisor to the board, and
• liquidating or recapitalising the entity in extreme circumstances.

Unless there is express agreement from Ministers (subject to Cabinet approval), boards should not assume that the Crown will provide additional financial support to an entity to meet its liabilities. As with a normal private investor, equity injections from the Crown are usually viewed as a last resort.

How the Treasury advises Ministers about entities' performance

The Treasury is the lead advisor to Ministers on the performance of boards and entities. It takes a comprehensive approach when assessing performance and expects to see measures addressing:

• Strategy, investment and alignment: is strategy well set and being implemented given each organisation's operating environment and prospects? Is it aligned with the organisation's core purpose, the nature and scope of activities, and Ministers' expectations? Are investment choices supported by robust business cases and executed well?
• Leadership: do the board and management teams have the appropriate skills? Are these applied well in leading the organisation and are they effectively managing or mitigating risks? What are the key risks and how are they changing over time? Is there adequate succession planning in place for key roles?
• Organisational structure: is each entity developing a strong culture and a fit-for-purpose organisational structure? Does the structure promote accountability and flexibility? Does the company or entity have the capability and capacity to deliver?
• Cost structure: can each service or business line within the entity identify costs against that area of business, and demonstrate that it represents efficient use of resources? Where appropriate can it demonstrate that its cost structure is comparable to, or better than, relevant and appropriate public and/or private sector comparators?
• Results: how efficiently and effectively is the organisation using the resources available to it? How productive is it, how is product and service quality tracking, and how satisfied are the organisation's customers? To what extent is the organisation contributing to desired outcomes?

Within the arm's length model, the Treasury's advice to Ministers about how they influence performance mainly focuses on use of the three most important levers available to Ministers. These levers are:

• being clear about the Crown's ownership purpose
• appointing high-performing, effective boards, and
• participating in the annual business planning and reporting process, including setting clear ownership, legislative, and Ministerial expectations.

The Treasury provides a full performance report to Ministers on a six-monthly basis aligned with the half-year and full-year reporting points of companies and entities. The report highlights priority areas for development across financial and non-financial dimensions, as well as key actions and levers available to improve performance. It also updates Ministers on performance issues, material projects and other significant developments in individual company and entity reports as required.

A risk-based approach is used to determine the intensity of engagement with companies and entities. If a company or entity is performing well, and the Crown's ownership purpose is clear, emerging risks are addressed on a case-by-case basis and Ministers' and the Treasury's focus is likely to be on business-as-usual matters.

If a company or entity faces challenges or change, is impacted by regulatory or policy reviews, or the Crown's ownership purpose is unclear, Ministers are likely to be focused on these matters and the Treasury is likely to be carrying out in-depth analysis or strategic workstreams to support Ministers' ability to exercise their levers.

Strategic reviews#

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From time to time, either Ministers or boards may request that a strategic review be undertaken. Such a review may be requested if there is:

• a material or permanent shock to the business or its operating environment
• a material change to the cost of a business or investment project
• significant change in the board composition or of the Senior Management Team, or
• any other matter that may affect the long-term trajectory or viability of the entity.

Strategic reviews will need to be agreed by Ministers, with Ministerial sign-off of the terms of reference. Strategic reviews will be conducted by appropriately selected independent and external persons. Ministers may reserve the right to approve membership of the review team on advice from the Treasury, and the chair.

It is normal to expect a decision to commission a strategic review will be made by Cabinet, or be subject to consultation by Ministers depending on scope and materiality.

The appointment of a new chair and/or chief executive may also be a useful opportunity to consider commissioning a strategic review of the business' direction and strategy.

Funding for a strategic review will usually be met from the entity's budget.

Other expectations#

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Besides expectations for financial performance, Ministers also have expectations for entities for the following operations of a financial or business nature where applicable.

Diversification

Entities should diversify only into technologies, products, and markets that are related to their existing core business and in ways that use existing skills. Except in very rare circumstances, the Crown will not provide new capital for diversification.

Overseas expansion

When considering overseas expansion, entities should not lose focus on their core business, which would dilute the Crown's ownership purpose, and expansion strategies should tend toward developing and leveraging off domestic activities rather than developing entirely new products and services for international markets.

Expansion activities should not significantly increase the entity's risk profile, put its local operations and assets at risk, or create a risk that the New Zealand Government may be associated with and held accountable for poor company actions and behaviour overseas.

Companies should have some level of private sector debt for expansion and should not seek total funding by the Crown, including through withholding dividends, unless there are extraordinary circumstances. Debt funding should be consistent with a company’s capital structure policy.

Joint ventures

Joint venture (JV) arrangements may be a way of leveraging expertise and capital. Companies should enter into JV arrangements only if they retain substantive control over their business activities. Formal arrangements over aspects like ownership and intellectual property should be created, and there should be transparency on the sharing of risk. The consultation and approval for capital investment decisions section outlines expectations in relation to informing, consulting and obtaining approval from Ministers.

Companies should ensure that any JV arrangements are subject to at least the same level of financial budgeting and monitoring control as that which applies to the company and its subsidiaries. Companies should also take care when choosing their JV partners to avoid any negative reflection on the company and, hence, the Crown as company shareholder.

Joint ventures may also be relevant for statutory entities. Before entering a joint venture, statutory entities are required to advise Ministers in writing.[5]

Subsidiaries

The parent entity must comply with any restrictions in its SCI or SOI that relate to acquiring or forming subsidiaries and appointing directors. The powers and functions of each subsidiary must be treated as if it were subject to the same statutory limitations as the parent entity, unless different legislative requirements apply. The parent entity board remains accountable to shareholding Ministers for subsidiary activities and performance, and must have in place appropriate financial controls, business planning, and monitoring procedures.

The board must ensure that any subsidiary over which it has control acts in a way that allows the board to meet expectations as set out in this document and a letter of expectations. Public accountability documents for the parent entity must include information on subsidiary activities and performance.

Explicit disclaimer of Crown guarantees for borrowing or financing

For all financing not provided by the Crown, there must be a disclaimer associated with the finance contract that the Crown does not guarantee or financially support any such borrowings. The disclaimer aims to give a clear signal to third parties of the nature of the relationship between the Crown and entities in respect of any such borrowings.

Ownership review clauses

Some loan documents link the loan terms to the shareholder's identity so that, if control of the company changes, the lender reserves for itself the right to call up the loan. This would connect the terms of borrowing with the Crown and could incorrectly give the appearance of an implicit Crown guarantee. Ministers prefer companies not to enter into loan agreements that provide for a review of the loan at the lender's discretion or involve a technical default in the event of an ownership change. A change of government or change of Minister does not constitute an ownership change as ‘Ministers’ are listed as shareholders, not the individuals occupying Ministerial roles.

There are alternative mechanisms that may provide lenders with comfort. These range from covenants concerning debt/equity ratio and interest coverage to lenders taking security over specific company assets. However, these mechanisms can place constraints on the company and must be designed to minimise the extent to which they might frustrate any future company restructuring.

Capital management and dividend policy

Entities should minimise the level of surplus capital on their balance sheets. Companies that pay dividends are expected to return surplus capital to the Crown so that it may be used for other government priorities. The level of estimated dividends (and forecast payout ratio) is set by the board after considering Ministers' comments through the business planning process. It is driven by each company's desired capital structure, profitability, and the level of future capital expenditure as outlined in the business plan and SCI/SOI. Companies should operate a dividend policy that:

• translates to payouts that are commensurate with those of their listed peers not owned by the Crown
• gives an appropriate balance between dividends and reinvestment in the business, and
• shows a degree of consistency and improvement over the years.

An appropriate dividend policy should relate to a proportion of a financial metric that is suitable for each company, either operating or free cash flow, adjusted or underlying net profit after tax, or earnings. The dividend policy should also be linked to the company's desired medium-term sustainable financial structure, for example the desired credit rating. The dividend policy should also aim to maintain consistency in the dollar value of dividend payments from year to year, and preferably with increases over time.

The proposed dividend payout ratio and estimated dividend payment should be included in the business plan for each year covered by the plan.

Ordinary dividends may be paid as an interim dividend and a final dividend. Special dividends may be paid as the board sees fit. Interim dividends are paid as soon as possible after the half-yearly report and final dividends as soon as possible after the annual accounts are finalised.

For the Reserve Bank, the board makes an annual dividend recommendation to the Minister in accordance with agreed dividend principles, and the Minister determines the amount to be paid, having regard to the board's recommendation, the principles, and any other relevant matters.

Tax planning

The Crown expects entities to behave responsibly in relation to tax planning. Boards are fully accountable for their tax-planning activities and need to be able to explain their decisions to all stakeholders.

When assessing company performance, Ministers view dividend payments as if they were a domestic resident taxpayer. This means that imputation credits are treated as if they have value in the hands of shareholders. If the company has imputation credits, they should be attached to dividends and, if sufficient credits are available, dividends must be fully imputed.

Credit rating policy (for SOEs)

The Crown expects that SOEs will have a capital structure consistent with a BBB (flat) stand-alone credit profile as a minimum, unless the SOE can demonstrate good reasons otherwise. This is to ensure that all SOEs have appropriate financial disciplines to manage capital efficiently at similar risk levels.

Estimate of current commercial value (for SOEs, TVNZ, Public Trust)

The State-Owned Enterprises Act 1986 requires each SOE to include in its SCI the board’s estimate of the current commercial value of the Crown’s investment in the SOE and its subsidiaries and a statement of how the value was assessed. This expectation applies also to TVNZ and Public Trust. This is consistent with Ministers’ expectation that the board has an ongoing fundamental understanding of the company’s value, what the value drivers are, and their effect in terms of company value. The following example shows how commercial value can be calculated.

The DCF methodology should be used when preparing valuations. However, this may not always be feasible and alternative valuation methodologies may be discussed and agreed with the Treasury. Boards are encouraged to have their valuations carried out or at least peer-reviewed by third parties with specialist valuation expertise, and these parties should be regularly rotated.

• The valuation was calculated as at 30 June [year].
• The discounted cash flow (DCF) methodology was used to calculate a net present value (NPV) of the entire group, including all subsidiaries, on an after-tax basis.
• The DCF/NPV was based on the nominal (ie, not inflation-adjusted) future cash flows set out in the group's three-year business plan, with forward projections then also made for years 4 to 10. A terminal value of $x million was included in the terminal year. The growth assumption assumed in the terminal value was x%.
• A discount rate of x% was assumed.
• The valuation was prepared internally by the group's finance team and was externally peer-reviewed by XYZ Ltd before approval by the board. Key assumptions underlying the valuation were … . XYZ Ltd reviewed and verified the key underlying assumptions.
• The current commercial value of the Crown's investment of $x billion (often referred to as the equity value) was calculated by taking the enterprise value of $x billion and deducting net debt of $x million.
• Other material factors relevant to the determination of this valuation are … .
• The valuation compares with a commercial value as at 30 June [previous year] of $x billion. The key reasons for the change in commercial value are, for example:
  • an increase in year 1 to year 3 cash flows of $x million due to changed expectations for the future price of x
  • a reduction in year 4 to year 10 cash flows of $x due to …
  • a reduction in the terminal value due to …, and
  • a change in the discount rate (WACC) from x% to x% due to … .

Chief executive employment

For statutory entities, the Crown Entities Act 2004 requires boards to obtain written consent from the Public Service Commission (PSC) before finalising or amending the terms and conditions of employment of a chief executive. The Public Service Commissioner must consider factors such as government expectations and may withhold consent.

Company chief executive terms and conditions are matters for the board to determine. A board may, at its discretion, discuss their decision with the Public Service Commissioner on a ‘no surprises' basis.

The chief executive (the Governor) of the Reserve Bank is appointed by the Governor-General on recommendation from the Minister, after they have been nominated by the board, and other political parties in Parliament have been consulted. The Governor’s remuneration is determined by the Remuneration Authority, and other terms and conditions of appointment are determined by agreement between the board and the Governor.

Part 3: Reporting and accountability#

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Business planning #

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During the business planning process, boards develop an annual plan and deliver an SCI or SOI to Ministers; some also deliver a Statement of Performance Expectations (SPE).

Boards should be satisfied that accountability documents and reports provided to Ministers and the Treasury represent their views of the strategy to enhance the value delivered by the entity, the outlook, its likely performance and its capability to deliver. Reports should not simply reflect management's reporting to the board.

Expectations letter

Ministers generally send an annual letter of expectations for each entity and a timeline for the business planning process. In response to the expectations letter, the board is expected to send a strategic issues letter to Ministers outlining major issues that the entity expects to address during the business planning round.

Letters of expectations are not statutory documents and like any owner, Ministers can convey expectations to a board at any time, or may decide not to send a letter of expectations. Entities' duty is to prepare statutory accountability documents based on the best information available at the time. Where Ministers communicate expectations after the preparation of statutory documents, an entity should amend the document if necessary to reflect these expectations.

Accountability documents

Each board prepares and provides Ministers with a draft SCI or SOI. SOEs provide an annual SCI, and the airport companies provide an annual SOI. Other companies and statutory entities subject to the Crown Entities Act 2004 and the Reserve Bank Act 2020 provide an SOI at least once in every three-year period. Companies subject to the Crown Entities Act 2004, statutory entities and the Reserve Bank must also provide an annual SPE.

The relevant legislation sets out the information to be contained in each SCI or SOI and SPE and the timeline is shown in Table 1. The Treasury prepares a report for Ministers outlining the key aspects of each company’s or entity’s plans outlined in its documents. As part of this process, officials will engage with each company or entity to clarify any questions that may arise. Given tight timeframes, companies and entities are strongly encouraged to engage early with the Treasury on draft documents, particularly if substantial or material changes from previous years are being proposed.

Ministers may comment on the draft documents, which may include a request for further information or clarification of certain matters. This may be in the form of a letter or, if required, a meeting with the board. Boards are required to consider any comments by Ministers and deliver their final documents. Ministers may also direct the board to amend certain provisions of an SOE’s SCI or a Crown entity’s SOI or SPE.[6] These documents are tabled in the House of Representatives and entities should upload them to their websites.

If the board wishes to amend its SOI, SCI or SPE after it has been tabled, it must advise Ministers and consider any comments that Ministers may have on the proposed modification(s). If there are significant changes to an entity’s areas of activity, strategic plans, or financial forecasts after the SOI or SCI has been tabled, a new document should be prepared and submitted.

Further guidance from the Treasury on performance reporting in relation to accountability documents is available at: https://www.treasury.govt.nz/information-and-services/state-sector-leadership/guidance/reporting-performance.

Business plans

As well as the SCI or SOI, boards also prepare three-year business plans. Entities are expected to prepare, and provide the Treasury with, a draft and final business plan consistent with the accountability documents. Business plans are not public documents.

The business plan should include:

• market context (including global and local trends, opportunities and challenges)
• strategic context (including priorities and initiatives)
• financial plan including the ‘funding requirements' three-year Income Statement and Balance Sheet, and
• three-year capital investment plan (which highlights significant areas of expenditure and when the entity is planning to consult with the responsible Minister, if required).

Reporting #

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Quarterly reports

Entities are expected to provide quarterly reports to the Treasury no later than one month after the end of each quarter.

There is no set content or format for the quarterly reports. The information and commentary in each report should:

• summarise performance against its SCI
• highlight major achievements for the quarter
• identify the cause of any major variances
• provide an outlook of performance to the end of the year, and
• signal any developing issues and emerging risks and opportunities.

Information should be provided in a consistent format to permit in-year and between-year comparisons of performance. When the basis for measuring performance is changed, boards will be expected to have satisfied themselves that these changes represent an improvement in transparency and accountability. Boards should not normally change performance measures during a financial year without the explicit agreement of the Treasury and Ministers.

For companies, financial information includes the financial statements: profit and loss, balance sheet, and cash flow. Companies must provide information on the quarter just ended and for the year to date, with a comparison against budget for each. Comparative (trend) information for the relevant period in the previous year would provide a fuller picture of long-term progress. Separate statements must be provided for each subsidiary.

Result announcements

Each SOE must provide a copy of its annual and half-yearly results announcement to Ministers' offices within two months from the end of the half-year or year, before it uploads its announcement to its website.

Half-yearly reports

SOEs and airport companies are required to deliver their half-yearly reports to Ministers within two months of the end of the first half of each financial year (ie, by the end of February). Compliance with reporting and tabling requirements is the responsibility of each entity company.

Legislation does not specify the information to be presented in half-yearly reports. Each company specifies the content in its SCI or SOI.

Annual reports

SOEs, airport companies and the Reserve Bank are required to deliver their annual report to Ministers within three months of the end of each financial year (ie, by the end of September). Crown entity companies, PFA Schedule 4A companies, and statutory entities are required to deliver their annual report by no later than 15 working days from receipt of their audit report.

The required content of annual reports is outlined in legislation. The content of the documents is the responsibility of the board of each entity.

In addition, SOEs are expected to make a public announcement of their half-yearly and full-year results no later than 60 days after the end of each period.

Further information can be found at https://www.parliament.nz/en/pb/papers-presented/presentation-of-papers.

Annual shareholder meeting

The Companies Act 1993 requires all companies to call a meeting of shareholders each year unless the company constitution does not require a meeting to be held.[7] For fully Crown-owned companies, Ministers will typically sign a resolution in lieu of an annual meeting.

Companies that do hold meetings of shareholders are responsible for setting the date, agenda and resolutions for the meeting. The agenda (including any resolutions), proxy form, minutes of the previous meeting, and the annual report need to be sent to Ministers and the Treasury with sufficient notice for officials to advise Ministers on any relevant matters, and for Ministers to vote on the resolutions.

‘No surprises' policy

Boards of entities are accountable, through Ministers, to the House of Representatives and to the public in general for the performance of the entity. However, when issues arise, it is often the Minister who will face Parliamentary or public scrutiny. Therefore, boards must keep Ministers informed. This is referred to as the ‘no surprises’ policy.

Entities are expected to inform Ministers in advance of any material or significant events, transactions, and other issues that may:

• be contentious
• positively or negatively affect the performance of the entity
• affect the delivery of a key service or project, or
• attract positive or negative public interest.

In providing ‘no surprises' updates, entities should use their judgement to distinguish between operational matters and performance or shareholding matters.

Similarly, entities are expected to keep Ministers informed of opportunities to make announcements about their work. Such occasions could include, for example, international awards, important successes such as major new contracts, or ceremonies for the opening of new buildings.

CFISnet reporting

Most entities regularly provide their financial information to the Treasury via the Crown Financial Information System (CFISnet). This information is used for performance assessment and to generate the Crown accounts. Entities are expected to upload their CFISnet submissions on time and to a high standard of accuracy.

Public accountability#

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Disclosure of material information (for SOEs, TVNZ, and Public Trust)

SOEs, TVNZ, and Public Trust are expected to keep the public informed of material matters or transactions that have an effect on their business, commercial value, or financial results. Once one of these entities becomes aware of any such material information, it must immediately advise Ministers and the Treasury and release the information to the public. This means more than just uploading information onto its website.

Entities are not required to disclose information in cases where, for example, the information is incomplete (eg, information about a partially developed proposal), where confidentiality needs to be maintained, during negotiations, or where releasing the information would breach the law or an obligation of confidentiality. As far as reasonably possible, without materially affecting its business, each entity must avoid entering into any obligation to any person that would prejudice its ability to comply freely with these rules.

As a guide, these entities should refer to the NZX continuous disclosure rules (https://www.nzx.com/regulation/nzx-rules-guidance) and aim to comply with the spirit of those rules where relevant for disclosure of information to the public.

Disclosure of material information (for CFIs)

CFIs are expected to inform responsible Ministers on a ‘no surprises' basis of any large transactions or performance loss considered material or that would likely draw public attention.

Public meetings

Boards of companies and statutory entities may hold annual public meetings, if they wish. These meetings are separate from the annual shareholder meeting, which is a meeting between a company board and shareholding Ministers. Boards should inform the Treasury of the date(s) of their public meetings, along with the agenda.

Select committees

Select committees provide an opportunity for Members of Parliament from all parties to receive information from and question an entity, in committee or in the presence of the public. There are several reasons a company or entity may appear before a select committee:

• It may be asked to advise a select committee on an inquiry or proposed legislation.
• It may wish to make a submission on a bill that might affect its area of operation.
• A select committee may receive a complaint or petition from members of the public about a company or entity that might then be called in for a review.

Select committees also regularly check on the previous year's performance of public organisations. As Parliament has the ultimate authority over public spending, select committees examine and comment on whether money authorised by Parliament was spent as intended and what was achieved through the spending. Select committees carry out annual reviews to look at an entity's performance in the previous financial year, which may also examine current performance and other issues.

The annual review process starts once an entity has presented its annual report. Each committee will review the entities in its subject area and normally seek a briefing from the Office of the Auditor-General about each company or entity and any particular challenges it faces. This may help the committee decide which organisation to review in depth.

The committee then usually sends a list of detailed questions for the entity to answer in writing and calls in the company or entity for questioning in a hearing open to the public. Normally the chair, Chief Executive Officer, Chief Financial Officer, and other senior managers are expected to appear before the committee. These financial reviews should be viewed as opportunities to emphasise the importance of what entities do. If the entity is concerned about providing information given the public nature of the hearing, these concerns should be raised with the committee rather than refusing to provide the information. If the committee still requires the information to be provided, the entity may request that the committee receive the information in private. Chairs are encouraged never to refuse outright to answer a question.

Following the hearing, the committee may send a further set of questions or requests for information, while the entity may also send additional information in response to points raised during the hearing. The committee prepares reports on the issues that the committee considered. The committees have until the end of March to complete reviews. Once all the committees have reported to the House, Parliament holds the annual review debate in which Members of Parliament discuss the reports, sector by sector.

For more information on annual reviews, refer to https://www.parliament.nz/en/visit-and-learn/how-parliament-works/fact-sheets/annual-reviews-explained. For further information about select committees, see https://www.parliament.nz/en/pb/sc.

Directors and managers are expected to be open and forthright in their dealings with select committees and to familiarise themselves with the Standing Orders of the House of Representatives: https://www.parliament.nz/en/pb/parliamentary-rules/standing-orders/#Chapter4.

The entity must advise Ministers when it is due to appear before a select committee, if it plans to make a submission in person or in writing; and to provide information to the Minister in accordance with the ‘no surprises’ policy.

Parliamentary questions

Ministers may receive written or oral questions from other Members of Parliament. Ministers have six working days to respond to written questions, while oral questions are received in the morning and answers must be delivered in the House of Representatives during the afternoon session on the same day. Where information is required to answer these questions, entities will need to provide assistance within tight timeframes.

For further information see:

• https://www.parliament.nz/en/visit-and-learn/how-parliament-works/fact-sheets/the-questions-you-don-t-hear-in-the-house, and
• https://www.parliament.nz/en/visit-and-learn/how-parliament-works/fact-sheets/question-time-how-do-oral-questions-work.

Official information

Entities are subject to the Official Information Act 1982 (OIA) and are expected to comply fully with the OIA in making information available to the public within the stated deadlines, unless there are valid reasons for withholding information. Entities should inform the Treasury when a significant, topical, or potentially contentious OIA request is received and of the intended response.

Visits by and meetings with Members of Parliament

Local Members of Parliament or spokespeople from non-government political parties may wish to visit entities or meet with managers or staff members. Likewise, entities may wish to proactively arrange these meetings or visits. Entities should advise Ministers’ offices before arranging visits/briefings and are encouraged to set an agenda for these meetings. Entities should not discuss any confidential information during these meetings or visits.

Disclosure of senior management remuneration

SOEs, PFA Schedule 4A and Crown entity companies, and the airport companies are expected to at least meet the NZX disclosure guidelines when reporting the remuneration of their chief executive. Each entity has received specific guidance on this from Ministers. Refer to Principle 5 of the NZX Corporate Governance Code (https://nzx.com/regulation/nzx-rules-guidance/corporate-governance-code), and in particular recommendation 5.3 (which applies to chief executives only but should ideally also be applied to other senior managers).

Good-practice disclosure includes:

• the company's strategy and approach to remuneration
• fixed remuneration
• how short- and long-term incentives are set and measured
• actual payments under their short- and long-term incentives, including the percentage achieved against the objectives for these incentives
• the amounts of other benefits paid, for example KiwiSaver, insurance, or fringe benefits such as carparking, and
• the total remuneration per annum, as an exact dollar amount, not a range, for the past five years, and showing the remuneration of their predecessor for comparison (this may not be applicable depending on the time elapsed since appointment).

For statutory entities, the PSC issues an annual report showing chief executive remuneration for each entity. Refer to Workforce data – Senior leader remuneration/pay – Te Kawa Mataaho Public Service Commission.

Consultation and approval for capital investment decisions#

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For some capital investment decisions, an entity may need to seek approval from shareholding Ministers, consult with shareholding Ministers, or simply inform shareholding Ministers.

Seek approval

Companies must not enter into ‘major transactions' as defined in the Companies Act 1993 unless the transaction has been approved by special shareholder resolution or is contingent on such approval.

Although an investment may not be a major transaction, if additional equity from the Crown is required, boards should first consult with shareholding Ministers before committing to the investment.

Consult

Where the company proposes to change its dividend policy to fund the investment, shareholding Ministers should first be consulted.

For any transaction or initiative that is not a major transaction and does not require Crown capital or a change in dividend policy, companies, entities and subsidiaries of companies are expected to consult Ministers before entering into such a transaction if it:

• meets the criteria for consultation according to the thresholds set by the board in its SOI or SCI
• meets the criteria for consultation if set by shareholding Ministers in a letter of expectations
• falls outside the nature and scope of the company's activities as defined in its SCI or SOI
• involves diversification or overseas expansion (including offshore investments), or
• represents a matter that, in the view of the board, is likely to attract media or public attention.

If in doubt, boards should discuss each case with the Treasury.

The level of information required to support consultation in these cases, and the time required for the consultation process, is likely to vary depending on factors like the nature of a transaction or initiative.

As a rough guide, an issue that requires consideration by Ministers will require several weeks. An issue that needs to be referred to Cabinet will need at least two months. Ministers are expected to consult colleagues before submitting a Cabinet paper, and there may also be coalition and support party consultation required, depending on the issue.

If in doubt, or if a matter is genuinely urgent, seek guidance from the Treasury.

Inform

Boards of companies and entities are expected to inform Ministers, in advance, of any transaction that does not require approval or consultation but that falls within the scope of the ‘no surprises' policy.

Business case format and process

Companies should seek advice from the Treasury and consider at an early stage if a capital investment proposal requires shareholder approval. If that is the case, Crown entity companies and PFA Schedule 4A companies must follow the Treasury's Better Business Case guidance in accordance with Cabinet Office circular (23) 9: https://treasury.govt.nz/information-and-services/state-sector-leadership/investment-management/better-business-cases-bbc. SOEs and airport companies are also encouraged to use this approach.

For investments that are subject to shareholder approval, Ministers will decide whether they wish to provide approval. The factors that they will take into account include but are not limited to:

• the business case for the proposal
• the size of the proposal and fit with core business and strategic objectives as set out in the SCI or SOI
• the Crown's ownership purposes
• Ministers' expectations set out in the most recent letter of expectations
• the fit of the proposal within the wider portfolio of Crown-owned companies and entities and the Crown balance sheet (ie, whether it would involve a concentration of risk)
• the track record of success with similar investments, and
• whether the proposal can be funded without the need for a Crown equity injection.

In addition to these factors, if a company is considering a significant capital investment decision that involves diversification, overseas expansion, the acquisition or establishment of a subsidiary, or entry into a joint venture, Ministers will take into account the factors set out in Part 2 of this document.

When developing business cases, entities should consider showing how they create value in more than just financial terms. While many templates and methods are available, companies and entities may wish to consider the Living Standards Framework (LSF) developed by the Treasury. As part of this framework, the Treasury has developed the LSF dashboard as an analytical tool to provide insights into key aspects of current and future wellbeing. The Treasury will apply the LSF when assessing and providing advice to Ministers on business cases. Refer to https://treasury.govt.nz/information-and-services/nz-economy/living-standards.

Ministers will advise the company whether they approve the transaction. If the transaction is subject to the injection of Crown equity, this will require Cabinet approval. The threshold for approval will be high as Cabinet will need to consider the request for new capital within the context of the Crown’s overall investment priorities and objectives.

Significant capital investment decisions may also be subject to:

• Cabinet Office Circular 18 (2) (Proposals with Financial Implications and Financial Authorities) about approval of proposals with financial implications: https://dpmc.govt.nz/publications/co-18-2-proposals-financial-implications-and-financial-authorities, and
• Cabinet Office Circular 23 (9) (Investment Management and Asset Performance in Departments and Other Entities) about Cabinet Office expectations for the management of investments and physical and intangible assets: https://www.dpmc.govt.nz/publications/co-23-9-investment-management-and-asset-performance-departments-and-other-entities.

Post-investment reviews (for SOEs and TVNZ)#

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The boards of SOEs and TVNZ make decisions each year either to return available cash to the shareholder by way of dividends or to invest surpluses back into the company. Ministers are interested in the value that these companies are creating from these investment decisions and would like to receive information on how successful past investments have been. Therefore, the boards of these companies should conduct post-investment reviews for the following investments:

• for companies with an equity book value <$100 million: investments >$5 million
• for companies with an equity book value between $100 million and $1 billion: investments >5% of equity book value, and
• for companies with an equity book value >$1 billion: investments >$50 million.

On some occasions, Ministers may ask a board to review an investment that falls below these thresholds.

Entities are encouraged to undertake a review 12 to 14 months following the investment, with a second review two years after the first review. There is no prescribed template for a post-investment review, although reviews in general should cover at least the following information:

• actual vs budgeted costs, cash flows, and financial returns by financial year
• the latest forecast of net present value, internal rate of return, payback period, and impact on shareholder value compared with business case projections
• explanations for any key material variances, and
• financial benefits and business objectives achieved or not, and lessons learnt for future investment decisions.

Table 1: Summary of features and process requirements#

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This table does not include the Local Government Funding Agency, and companies that are in the process of being wound down.

Appendices#

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Appendix 1: Glossary#

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CE Act 

Crown Entities Act 2004

CEO

Chief Executive Officer

CFISnet

Crown Financial Information System

CCFM

Crown Companies Fees Methodology

EBIT

Earnings before interest and tax

EBITDAF

Earnings before interest, tax, depreciation, amortisation and fair value adjustments

NPAT

Net profit after tax

NZX

New Zealand Stock Exchange

OIA

Official Information Act 1982

PFA

Public Finance Act 1989

PSC

Public Service Commission

SCI

Statement of Corporate Intent

SOE

State-owned enterprise

SOE Act

State-Owned Enterprises Act 1986

SOI

Statement of Intent

SPE

Statement of Performance Expectations

Appendix 2: Financial performance measures #

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Commercial objective entities

Commercial objective entities (COEs)[8] should report the following measures. This list is not exhaustive, so COEs may also report other measures.

When calculating the below measures please:

• use the line item as it is defined in your COMU/ComOps CFISnet reporting, and
• refer to the guidance notes.

Shareholder return

Profitability/efficiency

Capital Structure

Growth

Reinvestment

*Notes

‘Average' means the average of the last financial year and current financial year.

Public benefit-oriented entities

Public benefit-oriented entities (PBOEs)[9] should report outputs consistent with Treasury guidance. They should also report the following financial performance measures:

Crown financial institutions

Crown financial institutions (CFIs) should report the following measures. This list is not exhaustive, so CFIs may also report other measures.

Risk-adjusted returns

Asset allocation

Risk measures

Appendix 3: Directors' fees, payments and related policies#

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This appendix outlines policies and practices relating to director fees, reimbursement, and related matters. It is expected that each entity will adapt the content of this appendix to form part of its policies and procedures manual (or equivalent document).

For the Reserve Bank, remuneration of directors and of the Governor is determined by the Remuneration Authority. Accordingly, for the Reserve Bank, the policies and practices set out in this appendix should be interpreted as being subject to that determination.

Ordinary and special purpose fees

For all entities, directors' fees are approved by responsible Ministers. Fees consist of:

• ordinary fees to cover the full ‘normal' contribution of each director, including attendance at board and committee meetings, meeting preparation and travel time, stakeholder management, and any other agreed tasks, and
• special purpose or additional fees, if requested by a company and approved by the responsible Minister.

Ordinary fees are calculated in accordance with a methodology approved by Cabinet based on factors such as company size, turnover and complexity in relation to equivalent non-Crown companies. The fees are reviewed periodically and changes are subject to Ministerial approval. Annual fees should be budgeted on the basis of an annual ordinary rate per director, twice that rate for chairs, 1.25 for deputy chairs, and 1.1 for sub committee chairs who are not the chair or deputy chair, based on the actual or expected number of directors. Ordinary fees cover the full expected duties of a director.

In 2003 the Ministers of Finance and State Services approved benchmarking board fees against the private sector, but with a discount of 10% to reflect the element of public service on Crown company boards.

Special purpose or additional fees are rare and considered in exceptional circumstances and for a limited period only where directors are required to contribute additional time over and above what would be considered an ordinary commitment. Exceptional circumstances could be where:

• significant director involvement is required in a specific and time-limited major issue, such as establishing or restructuring a company, a major acquisition, or where changes in legislation lead to significant change
• directors represent the company on relevant industry committees or boards, where the commitment is significant, and
• additional contributions are made by directors relating to lengthy travel requirements (although Crown companies should not normally pay additional, special purpose fees to a director who travels on Crown company business unless the director’s presence is essential and the circumstances are exceptional).

Special purpose or additional fees are not paid just because of a heavy workload. Having to commit time to handle a heavy workload is already reflected in the level of ordinary fees set for an entity. Requests for special purpose or additional fees should be made in advance and require Ministerial approval. If approved, fees may be used only for the purpose for which they were approved.

Payment of fees

Annual remuneration will be prorated for terms shorter than 12 months. Boards should not pay fees as an upfront lump sum to provide for any unexpected events or circumstances that may arise where the input of individual directors during the year may vary.

Crown company directors do not receive a retirement allowance or any equivalent fee at the end of their term even if the date of retirement precedes the expected end date.

The Companies Act 1993 requires disclosure in a company's annual report of the total remuneration and the value of other benefits received by directors or former directors.

Any requests for increase of director fees can be considered throughout the year, and boards should ask for advice from the Treasury on the appropriate process, before incurring any liability for additional fees.

Fees for subsidiary entity directors

Additional fees may be paid for parent company directors on subsidiary boards if the additional requirements on the parent company directors are significant. This includes where the board operates in its own right, has its own regular meetings and committees, and has a separate management structure reporting to it.

For members of subsidiary bodies of all entities, the board of the parent entity sets the fees within the applicable framework or methodology.

Although this is an operational matter, boards should respect the conservative approach adopted by the Crown in setting fees for all Crown entity boards. Fees should be set based on an appropriate review of the scale of the subsidiary (eg, revenue, assets, complexity etc) and the level of fees paid to the parent board and company boards of a similar scale in the Crown domain.

Board expenses and claims for expenses incurred by directors

Crown company constitutions restrict the remuneration and other benefits payable to directors to those notified by responsible Ministers from time to time. However, the board may authorise the company to pay or reimburse reasonable expenses for directors to attend company meetings or in relation to other affairs of the company.

The board should set an annual budget for board expenses, including director development and training, so that they can be dealt with through the company's normal channels of policies, authorisation, and internal control. Performance against budget and company compliance with reimbursement/payment policies should be reviewed regularly by the audit (or other delegated) committee or the board itself if there is no such committee.

In some cases, the chair may authorise board expenditure personally, while in other cases they may choose to rely on systems within the company. The expenses of the chair should be authorised by the chair of the audit committee or a director of similar standing, or by two other members of the board. The board should approve any financial delegation of directors’ expenses.

To support claims for reimbursement of expenses, supporting documentation should be produced at the time of the claim and should clearly illustrate the relevance and business purpose of each item.

Professional development

Professional development is important for directors to perform their governance role effectively. Improving knowledge, skills and expertise in areas relevant to the organisation's purpose, function and strategic intent will significantly boost capability and, as a result, entity performance.

All boards are expected to have an annual professional development programme. An allowance of $4,000 to $6,000 per director per annum is generally accepted. Boards must notify the Treasury of any individual director spend over $10,000 or other extraordinary expenses before they are incurred.

Requests for professional development must be approved by the chair or in line with the boards’ own professional development policies.

Sensitive expenditure

Sensitive expenditure refers to expenditure that could be seen as unusual for the entity's purpose and/or functions or that gives some private benefit to an individual staff member. Travel, accommodation and hospitality spending are examples of areas where problems often arise when individuals are perceived to, or do, directly benefit personally from sensitive expenditure incurred during the conduct of a public entity’s business. Boards should refer to the Office of the Auditor-General’s guidelines on controlling sensitive expenditure: Sensitive expenditure — Office of the Auditor-General New Zealand (oag.parliament.nz)

Policies

Policies relating to director payments and reimbursements should cover at least the following matters. These policies should be reviewed regularly and updated where appropriate.

Travel

Policies for director travel expenditure and reimbursement of expenditure should include but not be limited to the approval process for local and overseas travel, standard of hotels, class of travel, daily allowances and accompanying partners.

There should be clear expectations of the reconciliation and approvals required when travel has been completed, including a comparison with budget.

Vehicle expenses

Policies should cover the use of rental cars, taxis, ride-share/hail services, company car parks or other parking, and the use of private vehicles including reimbursement (typically at a rate in line with that paid in the public sector). Where trips can be undertaken by other, similarly convenient and possibly less expensive, means, the policy should also deal with the approval process (eg, where directors wish to drive when another transport mode is available).

Entertainment and hospitality

Policies should provide guidance to directors when hosting functions or entertaining business stakeholders.

Membership of business organisations, airline club memberships

Policies should state a measure of frequency and business reasons/necessity for use to support any expenditure of this nature.

Communications and telephones

Policies should outline communications and telephone costs including entitlement to and use of mobile phones, claiming for business use of a director's own phone, private calls when away on business etc.

Professional and legal support

Policies should state when professional and legal advice will be provided if required by directors.

Secretarial support for directors

Entities should provide secretarial support for their directors. Where directors require secretarial support but may not have immediate access to entity support staff, they might use staff in their own businesses and seek reimbursement.

In principle, payment for outside secretarial support is not a practice that the Crown endorses. However, as a practical and operational matter, it is an issue for the board to resolve. In considering reimbursement for the use of outside support staff, the board should be convinced that it is cost-effective and that the proposed cost is reasonable. Any arrangement should be minuted, monitored, and regularly reviewed.

Medical insurance and key-person insurance

Directors may wish to take advantage of medical insurance policies at corporate rates if offered to company or entity staff members. As these policies are for the personal benefit of directors, they should preferably pay premiums directly to the insurer.

Key-person insurance premiums fall into the same category if the beneficiary is the director concerned. Where the company or entity is the beneficiary of the policy, the matter should be treated as a company expense.

Gifts, koha, and donations

Directors are remunerated through fees only and should not seek to benefit financially in any other way. No director, or any member of a director's immediate family, may accept gifts, entertainment, discounts, loans, commissions or other favours from individuals or organisations, if they could influence or be perceived to influence a business decision or be considered to be extravagant or unduly frequent, particularly if the organisation or individual is soliciting business or information from the entity. Policies should outline restrictions, if any, on the maximum value of gifts permitted to be given or received at any one time, or during any given period. Any gift received should be recorded in the entity's interests register, and a policy should be in place to assist directors in dealing with such situations.

Childcare, parental leave and care of dependants

An entity's policies on matters of care of children, case of dependants, and parental leave should (where necessary) be specifically adapted to apply to directors.

Use of entity resources

Policies should cover personal use of entity assets, including office accommodation, computer equipment, use of internet and email, utilities, stationery and office equipment. The expected practice is that the use of entity facilities to conduct private business is not appropriate. However, in some instances it may not be practical to separate out personal expenditure (such as for mobile phones or small-scale internet use), and the policy should cover this.

Use of director assets

Policies should be very clear and describe the circumstances for use of a director's private assets, and rates should be set to recognise the cost for the entity's use of these assets. If circumstances involve multi-purpose or shared use, this should be clearly covered. Reimbursement rates should be clearly set which reflect the benefits for both the director and the company. Situations where use is made of other assets (eg, use of a relative’s accommodation) should be covered by the policy.

Credit cards

Credit cards used appropriately can be an expedient means of managing directors' expenses. However, there have been issues with this in the past and the easiest way to avoid these problems is not to have credit cards, or to make individual directors directly responsible for payments in the first instance.

Oversight systems must be in place that are rigorous and transparent. There should never be any confusion about whether a director was authorised to incur a payment, what it was for, and where the supporting documentation is located.

Entity credit cards should be limited to situations where there is real need and there is no viable alternative. The preferred options are for directors to use their own credit card or to apply for an additional card in their name, to pay the amount due, and to claim reimbursement at the end of the month.

Where significant credit limits are required to cover regular and material expenditure on entity business (such as overseas travel), the entity could apply for a credit card in the name of the director for exclusive use on entity business up to a limit set by the entity. The director is responsible for payment of the card by the due date and claims reimbursement at the end of the month.

Generally, cash withdrawals on credit cards or pre-loaded foreign exchange debit cards should not be permitted but, if there is a need to draw foreign currency while on an overseas trip, the director must comply with organisational policy on accountability and documentation.

Claims for allowances from more than one entity

When a director has multiple board appointments or conducts business on behalf of more than one entity, the director must allocate expenses among different organisations. The entity must ensure that the director has provided supporting information that confirms that any expenses paid relate only to the organisation against which they are claimed. It is not always practical to differentiate explicitly between which organisation is deriving benefit. Policies should ensure that the organisation that gets the substantive benefit from the expenses pays for it.

Loans and guarantees to directors

Directors should not receive loans from the entity of which they are a director, nor should the entity provide any guarantees for loans to directors, unless the entity provides loans in the normal course of its business. In this case there must be clear policies in place on director access to such loans, which must be at arm's length from the board and on the same terms as for any member of the public (ie, the directors should not receive any benefit or preferential treatment).

Breaches

Policies should include procedures for staff, management or directors to raise concerns about possible breaches of approved processes.

Tax matters

Directors should seek professional advice on their taxation obligations.