Top 5 issues: 2. Governance reform
Directors and boards will face increased scrutiny of governance – practice, duties and liability – with reforms across multiple pieces of legislation reshaping accountability, transparency and the alignment of board activities to stakeholder expectations.
Governance is in the spotlight in 2025, with a series of reforms reshaping expectations – governance practice, duties and liability – for directors.
Updates to the financial services and health and safety frameworks, along with changes to the Charities Act 2005 and the Incorporated Societies Act 2022, all point to a heightened emphasis on governance standards and practice. Building on earlier legislative changes, further changes have been signalled in the Companies Act 1993, to be undertaken in two phases.
The second phase, focusing on directors’ duties, liability and enforcement, is, in part, sparked by the Mainzeal Supreme Court decision. This review offers a rare chance to revisit and refine the principles that guide directors’ duties and governance practices. It means a sharper focus on upholding professional standards, governance practice and accountability.
Why it matters
The Companies Act review is an opportunity to modernise a governance framework that has remained largely unchanged for decades. Phase one of the reforms will focus on modernising, simplifying and digitising the legislation, as well as removing the requirement to publish company directors’ residential addresses on the Companies Register.
Directors will need to become familiar with the requirements and the opportunities the changes will create. The changes should make it easier for companies to operate and raise capital and ease the burden on directors which has increased year on year, particularly for listed company directors.
Alongside the more immediate legislative shifts, phase two of the proposed changes, a review of directors’ duties by the Law Commission, aims to clarify directors’ responsibilities, particularly in managing financial risks and ensuring greater transparency.
Some of the reforms may help to simplify compliance, but they come at a time when stakeholders expect boards to demonstrate stronger governance and take a more active role in oversight. While the nature and enforcement of directors’ duties across a range of organisations may change, expectations of good practice governance, and boards adding value and being accountable for their actions, are likely to remain, if not increase.
On the global stage, there is a clear move towards greater transparency. In the UK, the recently published version of the UK Corporate Governance Code (2024 Code) requires companies to report on their approach to governance.
This includes a focus on board decisions and their outcomes within the context of the company’s strategy and objectives. It also emphasises the importance of transparent and effective governance reporting, aligning board activities with the company’s strategic goals. For New Zealand directors, it is about aligning their approach to governance with these evolving standards and being ready to demonstrate how they are meeting regulatory requirements and stakeholder needs.
Directors need to think beyond legislation and regulation in New Zealand and globally. With the pace of technological and societal change outstripping regulation, directors are increasingly faced with gaps that formal rules do not yet cover. This means looking beyond the statutory minimums to embrace voluntary codes and best- practice frameworks. These tools can help boards anticipate emerging risks and build trust with stakeholders.
Directors’ leadership in these areas is crucial as they navigate a landscape where formal regulations often lag real-world developments.
Read the companion article by Mary-Jane Daly CFInstD,
Independent Director
Governance reform planned for 2025 signals a clear shift towards enhancing governance standards and accountability in New Zealand. This comprehensive approach challenges boards to adapt and modernise their practices, and adopt a more holistic approach to governance, including the need for boards to exercise enhanced caution and accountability in managing financial risks and corporate obligations.
This increased focus on fiduciary responsibility and transparency aligns with a global movement which emphasises transparent governance reporting, aligning board decisions with corporate strategy, and demonstrating outcomes.
For directors, the heightened accountability places us in a dual role: first, delivering strategic oversight to the company and, second, as guardians of sound governance and facilitators of an evolving regulatory environment.
While some aspects will be simplified, the net impact of this increasing complexity of obligations can also impact on board effectiveness if not well balanced against our core accountabilities of having a clear vision for the business and developing and overseeing the execution of the organisation’s strategy.
Boards need to have a clear vision of what they want to achieve, stay with it and have all the governance and management structures working towards achieving it. We must be well-informed of changes in legislation and proactive in implementing best practice. This includes having the systems and processes to support regulatory obligations.
Another important aspect of these reforms is the expectation for New Zealand boards to align governance activities with stakeholder interests.
This requires boards to articulate and communicate their governance approach transparently. By preparing and publishing governance statements, boards can demonstrate their commitment to accountability and align their actions with both shareholder and broader stakeholder expectations.
For example, a board that consistently reports on its governance objectives and outcomes helps build trust and clearly communicates the value that robust governance brings to the organisation.
Looking forward, boards in New Zealand must adapt to rapid technological and social changes that regulations often struggle to keep pace with. Embracing voluntary codes and best practices, especially in areas such as artificial intelligence and emerging technologies, can allow boards to address gaps in current regulation.
Such foresight will enable directors to anticipate emerging risks, prioritise ethical considerations, and build stakeholder trust by demonstrating a commitment to responsible governance beyond the minimum statutory requirements.
We need to remain cognisant of the need to continually elevate our governance practices. For independent directors, the challenge lies in ensuring we are not only responsive to regulatory mandates but are also forward-thinking leaders in governance.
By cultivating a proactive, informed, and transparent governance approach, we can effectively navigate the complexities of these reforms and enhance the resilience, accountability, and reputation of the organisations we serve.
Mary-Jane Daly CFInstD, an Independent Director, is Chair of AIG Insurance New Zealand Limited, Chair of Fonterra Shareholders Fund, and a director at Kiwibank and Kiwi Property Group.
Board focus, actions and discussions for 2025
| FOCUS | ACTIONS | DISCUSSION |
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Impact of the Companies Act review and other governance-related reforms
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| Aligning governance with shareholder and stakeholder expectations |
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| Adopting voluntary codes and best practices |
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