Governance news bites

Governance is often in the headlines, and the last few weeks have been no exception. Recent news related to governance includes: 

Another loop in the carpet

Bremworth, the carpet and rug manufacturer, has undergone a dramatic boardroom shake-up following shareholder unrest. A group of dissident investors successfully forced the removal of most of the company’s directors, prompting the resignation of former NZX chair James Miller and others. The upheaval was driven by dissatisfaction with Bremworth’s strategic shift away from synthetic carpets to an exclusive focus on wool – a move aligned with sustainability trends but facing commercial challenges. Initially, shareholders had requested a special meeting to vote on board changes, but this was withdrawn as resignations and new appointments pre-empted the need. Rob Hewett CFInstD has since been appointed chair, marking a shift in governance and potentially in strategic direction.

In contrast, media company NZME is facing governance turbulence driven by a different kind of shareholder influence. Canadian billionaire Jim Grenon has been aggressively buying shares and pushing for board representation, triggering scrutiny from the Takeovers Panel. Unlike Bremworth, where shareholder activism led to an immediate overhaul, the situation at NZME is still in flux with concerns over corporate control and regulatory intervention. For New Zealand directors, these cases highlight the challenges of balancing shareholder activism with board autonomy, managing strategic pivots that may alienate investors, and navigating regulatory scrutiny in board appointments.

Exports drive growth, but are boards too distracted by the US?

New Zealand’s economy grew by 0.4% in the December 2024 quarter, continuing a pattern of modest recovery but still facing headwinds from high interest rates and global uncertainty. While annual GDP growth reached 1.2%, the gains remain uneven with the services sector driving much of the expansion. Exports played a crucial role in economic performance with rising demand for dairy, meat, and logs offsetting weaker domestic activity. However, the broader outlook for trade remains complex as shifting global dynamics influence export markets and boardroom strategy alike.

One notable shift during 2024 is the US overtaking Australia as New Zealand’s second-largest trading partner, reflecting stronger US demand for New Zealand goods. Yet, China remains dominant, accounting for nearly twice the value of exports to the US. This underscores a key risk for directors and boards: while geopolitical tensions and new trade opportunities with the US may capture headlines, China’s scale and continued appetite for New Zealand’s exports remain critical. Business leaders should be wary of distraction – while diversifying trade relationships is prudent, China’s economic trajectory still holds the greatest sway over New Zealand’s export fortunes.

The limits of board oversight: lessons from Tesla’s legal saga

A recent Delaware court ruling against Elon Musk’s record-breaking $56 billion Tesla pay package serves as a stark reminder of the importance of robust board oversight and shareholder rights. The court found that Tesla’s board, dominated by Musk loyalists, failed in its duty to negotiate an arms-length compensation deal. For New Zealand directors, this case underscores the need for independent decision making and rigorous governance structures that prioritise shareholder interests over personal affiliations. While New Zealand’s corporate landscape differs from that of the US, the principle is still the same: directors must ensure that executive compensation is fair, justifiable and tied to genuine performance metrics.

For New Zealand directors, the case also highlights a growing trend, in the United States at least, of courts and shareholders becoming increasingly willing to challenge excessive pay and perceived governance failures. These debates have been a little more muted in New Zealand. However, where these issues arise here boards need to proactively review their remuneration policies, strengthen independent oversight and continue to foster a culture of transparency (see the NZX Governance code and remuneration reporting template). In this context, the Tesla ruling is more than just an American corporate drama; it is a cautionary tale for all directors who serve as fiduciaries of shareholder value.