NZSA Disclaimer
We wrote recently about the changes we wanted to see at New Zealand’s financial regulator. We supported new leadership with the capability to drive cultural transformation at the FMA and bolster market confidence.
Last week, we learned about the appointment of both James Miller (Chair) and Trevor Janes to the FMA Board. NZ Shareholders Association (NZSA) is effusive in its praise of both, referencing both the integrity and trust that both bring to New Zealand’s capital markets.
Miller is a recipient of the NZSA’s 2024 Beacon Award; an Award focused on doing the right thing for shareholders. He does not shirk from tough situations, as evidenced by taking on director roles at both Ryman Healthcare and Fletcher Building at the beginning of those firms’ transformation journey. We firmly believe that his skills will go a long way to solving issues at the FMA.
Workload and Conflict
Nonetheless, there are two key questions related to Miller’s appointment. The first relates to workload; Miller is taking on an FMA that likely requires a high degree of hands-on effort over the medium-term, exacerbated by the current lack of CEO. Undertaking this work in addition to his directorships of four listed companies (one of which as Chair) would seem unsustainable.
As an experienced director, Miller is undoubtedly aware of this and will understand the need to urgently navigate his own succession at some of those companies to ensure he can cope with the increased work effort at the FMA.
The second issue relates to the potential conflict of interest between Miller’s new role at FMA and his listed company directorships.
Management of interests is nothing new to most directors, particularly so in a small country like New Zealand. Under New Zealand’s rules, all interests must be disclosed, with the FMA maintaining processes to ensure that no untoward influence can occur in any Board decision-making.
In addition, for listed companies, there are some safeguards in place; for example, the regulatory arm of the NZX (NZ RegCo) is the first line of regulatory defence.
But conflicts of interest are not always linear in nature. Take the fund manager, regulated by the FMA, who may wish to criticise Fletcher Building or Ryman Healthcare; both companies where Miller is on the Board. Or a default KiwiSaver provider, appointed by the FMA.
This is less about Miller as it is about the legislative framework governing the appointment. New Zealand and the UK are markets where the only obligation is disclosure. At the other end of the extreme, the US has an outright ban on SEC Commissioners taking on external roles. Australia and Germany both require ministerial consent prior to accepting the Chair role in their respective regulators, although in practice, few consents are granted.
What Now?
The New Zealand approach is founded in the principle expressed by Minister Brewer today, that is designed to include people with “extensive and current experience in financial markets and services”. Miller certainly has experience, regardless of whether he retains his external Board roles or not.
When it comes to maintaining current experience, that is where the FMA’s ability to engage with the market stakeholders becomes critical; arguably something that has been all too lacking in recent years.
At the least, NZSA would want to see Miller’s appointment to kickstart a review of the processes governing Board appointments in both the Crown Entities Act and Public Service Commission.
That may also mean a change in how we fund these types of roles. Miller is unlikely to be taking on the FMA for the money; his passion for a thriving capital market in New Zealand is well documented. The (last disclosed) FMA Chair was paid around $230k per annum; while meaningful for most New Zealanders, this pales in comparison to Miller’s approximate $600k from the Boards on which he serves today.
New Zealanders are famed for being cheap. Sometimes, though, the conversation should really be about value.
Last, this may be time to reflect for Miller. His capability at driving improvements within New Zealand’s capital market should be the legacy for which he should be remembered. Sometimes, doing the right thing is hard. At NZSA, we hope that the transformation of the very structure that governs New Zealand’s capital market means more to him than his other Board roles. For the sake of optics, market confidence, trust and integrity, Miller should be part of the solution, not the problem. On that basis, NZSA encourages Miller to resign his interests outside the FMA.
The value of a strong FMA can’t be underestimated. Our market needs a regulator that is above reproach and reflects the trust and integrity that it wishes to instil in others.
Oliver Mander