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Listing Rules want directors independent of what, or who?

  • December 7th, 2007

Mark Stewart’s objection to independent director status for Abano Healthcare director Trevor Janes raises a question the NZX ought to have answered long before now. Some time soon the question will force some hapless business people to  enrich some court lawyers, and puzzle the judge.

The question is what does “independent director’ mean, in the Listing Rules? What are they trying to achieve by Listing Rules 3.3.1 to 3.3.1B ? What mischief is targetted by the ‘Disqualifying Relationship” definition ?

Of course executive directors are not independent. But why should a director not be independent if he/she has a “direct or indirect interest or relationship that could reasonably influence, in a material way, the director’s decisions in relation to the Issuer“.

 I hope they have lots of interests that influence them in relation to the Issuer and their duties. Those interests should lead them to decide as firmly  as they can in the interests of its owners – the shareholders.

OK, that could be fixed easily, by inserting a couple of missing words. The interests they’re talking about are interests adverse to the interests of the company as a whole, or of the shareholders generally. But then it adds nothing to longstanding company law.

But the other provisions are harder to understand. They’re so mysterious I can’t work out what the Exchange is worried about. They seem to work in the opposite direction to what company law (fiduciary duties) try to acheive. They work against directors who might put shareholders interests first, but the Rules don’t say whose interests the NZX prefer.

Directors with a substantial shareholding are suspect (and those associated with such people).


The research literature, as far as it goes, suggests that the risk of companies being run in the interests of the staff, or underperforming, decreases when there are concentrations of shareholding. It seems to be associated with having shareholders with enough at stake to make it worth their while to stand up to dozy or self interested incumbent management.

There is always pressure on directors not ot cause a fuss. Especially if the Chairman has developed a comfortable relationship with the CEO, there can be overwhelming reasons to go easy on management, not to rock the executive boat. The Chair usually has a strong influence on renomination for election.

I can understand a concern to exclude directors from the ruling council when the shareholder they represent has something under way that conflicts with the interests of the other shareholders – like a related party deal involving the company’s assets, or a takeover. But the minority shareholders’ interests go the other way when the transaction under review benefits, or threatens the major shareholders and the minority similarly.

I want Directors who have “relationships and interests” that will help them be tough and diligent. Exclude them of course once the interests conflict, but that is what ordinary company law does, and is not what the Listing Rules do.

It seems to me that Trevor Janes should be involved in fending off Mark Stewart, or ensuring there are at least competing offers.

Disclosure – Trevor Janes is a friend as is Alison Paterson (Chairman of Abano) but I have spoken to neither of them on this matter, and I have no inside knowledge of the Abano situation.  



Interested in your point about the strong influence of the Chair on those nominated to the Board. Contact Energy is interesting in that the independent directors only maintain their positions because of the 51% Origin vote in their favour. Also these so called independent directors have clearly not acted in the minority shareholder interests in recommending twice that an offer by Origin to buy out the company be accepted.
Do you think that the majority shareholder should not vote on the election of independent shareholders when they are clearly opposed by the minority of shareholders? Is there any precedent or regulation on this matter?

Bryan Trenwith


I’m not sure that their recomendations can be seen as driven by some conflict simply because they turned out to be wrong.

I’m not aware of precedent, convention or regulation that obliges a controlling shareholder to allow a minority to prevail on any matter, other than on “self-dealing” transactions, where the majority shareholder wants to transact with the company.

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