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Home / Business / Personal Finance

Just 32pc of NZX50 companies hit high standard with code of ethics

Tamsyn Parker
By Tamsyn Parker
Business Editor·NZ Herald·
26 Sep, 2021 04:00 PM4 mins to read

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How ethical are NZ's listed companies? Photo / File

How ethical are NZ's listed companies? Photo / File

Only one in three of New Zealand's top 50 sharemarket listed companies meet an international best practice standard for their code of ethics and 14 scored just one point out of 10.

In 2017 the NZX launched a corporate governance code in which the first principle states that boards should document minimum standards of ethical behaviour to which the directors and employees are expected to adhere.

But Jane Arnott, a director at research and training firm The Ethics Conversation, found in her research that many companies appeared to have taken a "cut and paste" approach from the NZX's supplied information and lacked any genuine commitment.

"While good guidance is given from the NZX they are identified as the minimum standards.

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"Businesses who are genuinely committed to meeting the NZX Corporate Governance Principles, as evidenced by the highest-ranking companies, consider their particular place in the economy and in society and have a code that is applicable to the risks faced and the audience to whom it is directed – employees and stakeholders."

Arnott's research analysed the codes by looking at their language and tone, user friendliness, speak up or whistleblower information and leadership using a scoring system developed by the Institute of Business Ethics UK.

The highest ranking companies in the study were Fisher and Paykel, Spark, Meridian, Z Energy, Vector, Fonterra, Air New Zealand, Trustpower, Westpac, Fletcher Building and Heartland Group.

But the worst was a dual listed financial company with a branch network throughout New Zealand that stated its "purpose" within its code of conduct was "helping Australians succeed".

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Jane Arnott, director of The Ethics Conversation. Photo / Supplied
Jane Arnott, director of The Ethics Conversation. Photo / Supplied

Arnott found just 22 per cent of the companies specified what the values of the company were or explained how the application of values worked in practice.

And a shocking 70 per cent of the codes did not have the backing of the company's chief executive.

"When the highest paid executive elects to be divorced from a fundamental pillar of how the company is run, how the employees interact in the marketplace, how they interact with each other - that absence is very questionable. It indicates they are so far removed from wanting to engage with their own employees."

Arnott said a code of ethics or conduct was important because it was a foundation document.

"It is like the architecture of the company. If you don't get those plans right then you can't expect the building to be robust, stable, enduring so it's an indicator."

Whistleblowing

She also found that whistleblowing or speaking up was poorly understood by companies.

"It is a huge concern when a company believes that somebody can just pick up the phone and call the CEO - I mean really?

"External speak up lines, in my view, they are an essential requirement for a culture to have the opportunity to be able to go outside.

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"New Zealand is a village, we cannot compel people to speak up, we can only encourage them and one of the tools of encourage is to provide an external speak up line."

Arnott said there was also a view in many companies that you could only report serious misconduct.

"The whole benefit of speaking up is to intercept and intervene when it is a small thing going on because by the time it is a big thing you are talking major reputational damage."

Arnott said she undertook the research to help feed into a review of the governance code in which the NZX's regulatory arm RegCo is due to undertake by the end of this year.

She also hoped to give examples of which companies were doing a good job to encourage others to follow.

"My intention wasn't to name and shame. If anything it was to encourage and promote."

She said good companies would go ahead and develop a strong code, regardless of what the listing requirements were.

"They will do it because they know it leads to positive outcomes for all stakeholders. The laggards will be dragged along."

She said the issues pointed to boards not being proactive enough in encouraging their CEOs to front foot company culture and to the CEOs themselves to drive the culture of the company they were leading.

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