“NZSA has been a force for good for capital markets in New Zealand … in how policies, legislation, structures and institutions have developed in response to shareholder needs. Some of that wouldn’t have happened to the same extent had NZSA not been in existence,” he says.
“Whether you’re a member or not, we think we benefit the market as a whole.”
Being in the middle means the association can facilitate conversations between different stakeholders to solve problems, by advocating directly on behalf of retail investors.
Getting results
Asked for an example of its effectiveness, Mander, who has led a tiny team of researchers for five years, says the list is long, but cites the case of listed cinema software company Vista last year.
The appearance on the register and demands of 19.9% shareholder Australia’s Potentia Capital were creating uncertainty and instability for Vista’s share price, he says.
“The market doesn’t value uncertainty and so for us, a really key concern was what was the best way forward to unlock the situation.
“This was an example of where we always engage with everyone involved in a situation. We talked to Potentia, we talked to the (Vista) board and executives to understand the strategy of the company and where opportunity may lie.”
Another example of a good outcome from NZSA intervention is that of NZX-listed carpet maker Bremworth this year, Mander says.
In its discussions with shareholder groups during a shareholder revolt over leadership and financial performance, NZSA discovered “significant agreement” between the groups.
“We made a public call for the different groups to get together and work out a solution for the benefit of everyone. And that’s exactly what happened.”
Among this year’s flurry of aggressive takeover actions and board battles was a proposed board rout at media company New Zealand Media and Entertainment (NZME) by wealthy Canadian ex-pat Jim Grenon, who spent just over $9 million in March to take his holding to a 9.3% stake in the NZX-listed media company.
Mander says the NZSA has met with, and continues to meet, Grenon and the NZME board.
He says the discussions are an example of how the NZSA can apply its researched principles for the benefit of individual shareholders in the long term. Its main concerns in the NZME situation related to the independence of directors, he says.
Independence counts
Independence is an important principle for the NZSA itself.
“We are independent, we’re not beholden to anyone or anything and we are not-for-profit,” Mander says.
“I’m very interested in membership, absolutely right, but ultimately [membership] provides a benefit for any shareholder, regardless of whether you’re investing in KiwiSaver or via a broker or directly [yourself]. Ultimately that independence is really important as a means of holding to a set of evidence-based principles.
“That reflects great governance, which ultimately we think leads to great performance in the long term.
“Ultimately what we would love to see in terms of New Zealand capital markets is a sense of confidence in our market. We’ve got good access to capital in New Zealand – individual investor capital is relatively strong now and institutional capital is being driven through the likes of KiwiSaver and other wealth management.”
Our capital markets are growing rapidly, Mander says.
“There’s going to be a real market and a future for where that capital has to go, and it’s going to go to great businesses that are well-governed, well-managed and attractive to investors – not just in New Zealand, but around the world.”
Market confidence
Kiwis’ historic reliance on property as their main asset class is giving way to a more mature attitude to investment and diversification, the NZSA believes.
“A big part of NZSA’s role is making sure that whether you’re a domestic investor or an international investor looking at New Zealand, that you have confidence in our market.
“Confidence through effective disclosure, confidence those investor protections are there….that the policy is there so that people can feel confident about investment,” Mander says.
With capital market growth and more investment diversification comes more risk.
And says Mander, no amount of policing and encouragement of investor protections – whether they come through better legislation or improvements in listing rules and companies’ own conduct – is a substitute for homework by investors themselves.
New blood
NZSA chair Sam Dixon, appointed this year on returning home after a 25-year international career in investment banking and fund management, says it’s not the NZSA’s job to mitigate investment or macro-economic risk.
“I believe we’re looking after three investor groups… we’re not investigating corporate risk or risk-taking via investment.
“We provide education to the younger retail investor. That’s something we can do by shining a light on best practice.
“We also assist institutional investors via advocacy. (Second) supporting institutional investors and if after that there is a level playing field for investors in New Zealand, that will attract the third pool, which is foreign investors into New Zealand.
“I’d like to get a lot of younger members so they see what we do.
“They can get excited, turn up at AGMs, or use us as their proxy. That’s the education piece.
“Then there’s the advocacy piece where we want to work more closely with fund managers, larger institutional investors, working with them in their processes and advocating on their behalf if it’s for the betterment of the wider New Zealand landscape.”
Dixon says he’d like the association to get closer to the Financial Markets Authority (FMA) and new government agency Invest New Zealand.
“(So we’re) working shoulder to shoulder, making New Zealand a more attractive place to invest through advocacy, shining lights on various systems and suggesting best practice.”
Mander says the association has “immensely” improved the relationship with the FMA.
“(FMA) does have a role to play in engaging with the market. Yes, it enforces the market but given New Zealand’s size, that engagement development is really critical as well.
“Honestly, we’d love to see more engagement.”
Managing risk
Mander says investors need to understand their risk.
“There’s a key balance between saying you should be protected from poor disclosure or actions that hurt your rights as a shareholder, but actually, you are still taking a risk.”
It’s been interesting watching company attitudes to risk evolving, almost an unintended consequence of the climate change disclosure regime,” he says.
“Whatever your views on that regime, it has certainly heightened directors’ and investors’ awareness of risk.
“I think companies are now having a much more mature conversation about what their risks actually are, how they relate to the business and how that is relevant for investors as well.
“That’s not a bad thing and an example of how the conversation has matured over the last few years to the point we are again seeing improvements, both in terms of disclosure but also in terms of the underlying practice of how risk is identified and managed.”
The NZSA aims to build trust across the investment landscape.
“We behave as we seek the markets to behave: transparent, simple, effective and equitable,” says its website.
But investors themselves need to do their part, says Mander.
“Investors have to have basic involvement. I think it’s great to start early because if you make mistakes when you’re young, chances are those mistakes will not be life-threatening and you’ll recover… and learn from the experience.
“We shouldn’t be afraid of making mistakes…it’s about taking risks, informed risks and learning from that mistake and moving on.
“That’s how we develop and grow as nations.”
Investment decisions aren’t all about the financials.
“(It’s also about) Understanding, having that wider context of what’s going on in the world, how do geopolitics impact the company you might be interested in? Corporate strategy is another great place to start – is this a good investment or not?”
Mander says it’s interesting that New Zealand has a lot of listed companies with a dominant shareholder – one which owns more than 30% of the shares.
He recommends investors consider this aspect, given takeover offers can come in below fair value in the case of a company trading well below its fair share value.
“It’s about making sure those interests are aligned with what your own interest might be.”
Corporate governance
NZSA chair Dixon advises a study of a board’s skills mix.
“Have a skills matrix for a company. You can see, okay, there’s a good finance individual there, a good legal individual there but possibly not a good customer-facing individual there ... maybe there are three lawyers.
“If you look at a few of the board battles in the last six months, a lot of the comments from the aggressor is that a board is not fit for purpose and I think those are very valid comments.”
The association believes at a macro level, governance in New Zealand performs well.
But director recruitment tends to be “a very risk-averse business, which isn’t always appropriate” says Dixon.
“We think there’s an untapped pool of potential directors and that’s simply based on the fact they can’t demonstrate public company experience. Well, how do you get that experience in the first place?
“Do I think we’re well-served by the emerging executives and people who become directors? Yes I do. But boards should take a more balanced approach in terms of how they recruit.”
NZSA’s production of skills matrices for listed company boards is a valuable service, Dixon says.
Another is its tracking of the quality of CEO remuneration disclosure.
Mander says this has noticeably improved in the past year and the organisation is formally analysing by exactly how much.
It plans to produce this year its first annual report on CEO remuneration structures and how they relate to performance.
He agrees the workload for such a small organisation is “very high”.
“Part of the answer is having a really great board with a diverse range of skills – that’s really helping. We also have a network of volunteers who will attend corporate shareholder meetings and ask the tough questions on behalf of NZSA.
“One of the key challenges for us over time is to ensure we can sustain (this pace) and be a sustainable advocate for investors in the long term.”
This includes putting strategies in place to support an increase in investors working through fund and wealth managers, Mander says.
“We need to make sure we continue to evolve what we offer to support those fund and wealth managers as well as individual investors.”
Who’s running the NZSA?
Chairman Sam Dixon
Dixon has returned to his home town Auckland to head up Murray & Co’s fund distribution business after a 25-year career in investment banking and fund management with JPMorgan and HSBC in London, Hong Kong and Sydney, including stints in Moscow, Geneva, Milan, Beijing and Mumbai. He set up HSBC’s global hedge fund credit risk team and supported the launch of its prime brokerage business in Europe and Asia. He also managed global investor relationships developing multi-product relationships with an array of global investors. He says this background ensures he’s well-placed to comment on best practice within global capital markets and assist investors in New Zealand connect with offshore opportunities. Dixon holds a Bachelor of Commerce from the University of Otago, is a regulated banker in the EU, Hong Kong and Australia and a member of the Institute of Directors and Institute of Finance Professionals.
Chief executive Oliver Mander
Wellingtonian Mander joined the NZSA in 2020. He is a board member of the NZX Corporate Governance Institute and a market development consultant for Locus Technology.
He is a director of a family investment company and has a private business consultancy. Mander has a Bachelor of Commerce from Canterbury University.
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