KiwiSaver pressure building on boardrooms

Scrutiny of NZX-listed boards should increase, given the amount of new KiwiSaver money coming into local companies, says Tower's Sam Stubbs. Photo / NZ Herald.

Directors can expect to start facing greater pressure from KiwiSaver providers holding progressively bigger stakes in NZX companies, says the head of Tower Investment.

Sam Stubbs said that as KiwiSaver reached maturity, competition was intensifying between scheme managers for a piece of the pie.

That would lead to greater activism from providers like Tower looking for better returns and to retain and attract customers, he said yesterday.

"KiwiSaver funds under management will continue to grow and that will have a big impact on corporate governance in New Zealand," Stubbs said.

"People like us and other KiwiSaver scheme managers are going to be looking at boards more closely to see how well they're performing."

KiwiSaver was effectively bringing the boardroom into New Zealand living rooms, he said.

As providers started to hold bigger stakes in companies, directors should expect to face questions if they were not performing up to scratch, he said.

"Boards can get very stale very quickly and some directors feel it's almost an entitlement to be there for a long time.

"It's not as if we want to sit on boards and make decisions but when we see examples of poor decision-making, we will get involved."

Stubbs said Tower would also be looking closely at rotation policies and the number of boards individual directors were sitting on at any one time.

Increased scrutiny could lead to changes in director remuneration, although Stubbs was not opposed to better pay for those who performed strongly.

"Good governance and good quality directorship may see pay rises for good directors."

New Zealand investors had traditionally been reasonably passive and greater shareholder activism would be a good thing for the country, Stubbs said.

Brian Gaynor, executive director at Milford Asset Management, agreed that KiwiSaver would eventually have an effect on governance but said any such change was another decade away.

"There's a long way to go before that happens because there's far more money from KiwiSaver investors held in cash and bond funds than in local companies.

"I have got no doubt that over time these things will occur but I'm more concerned that New Zealand had a great year in 2012 but a huge amount of KiwiSaver money was not exposed to that."

Latest statistics from Morningstar estimated that only 9.8 per cent of KiwiSaver funds were allocated to shares in New Zealand companies.

That compared to 5 per cent in Australian shares, 22.2 per cent in other international shares, 38.7 per cent in cash and New Zealand bonds, 17.7 per cent in international bonds and 3.1 per cent in property.

Andrew South, a portfolio manager at Brook Asset Management, said he did not expect KiwiSaver to provoke any notable difference in shareholder activism.

"We (Brook) have always been proactive with that so from our point of view that won't change because of KiwiSaver, South said.

"I think corporate governance has structurally been on the improve in New Zealand but activism has always been part of our DNA anyway."