Companies (Directors’ Duties) Amendment Bill

Thank you to the member Andrew Bayly for that question. It is actually not one that I had considered may be put to me, but I enjoyed considering the reasoning behind that while I had the opportunity as that member put the question to me. My response to the member would be that I don’t think it is inconsistent with the idea of a duty to propose and clarify the matters that directors may consider, and I think it is quite proper that title remains the same. And for that reason, I didn’t consider putting in a Supplementary Order Paper to change the title of the bill.

Well, I think that was a valiant attempt from the member to try and do—I think she should have just stopped after she said the first thing, which is that she hadn’t considered it. And I think that’s probably the case because, of course, this bill was introduced by Dr Webb and had some madcap ideas in it, which the Economic Development, Science and Innovation Committee disagreed with and the advisers disagreed with and the submitters disagreed with. So I suppose one of the questions I’ve got to ask is: why did the member take on this bill? Why did she believe it was important to continue this bill and assume and take it over from the member?

Thank you, Madam Chair. I just wanted to traverse, I guess, how the member foresees this bill actually coming into place in practice, in terms of the provisions that have been created, in terms of just giving the potential opportunity to consider things other than profit. And while, of course, that may enable the more ethical company directors to then, you know, broaden decision making, whether the member is concerned that by not having a stricter provision so that they must consider other things other than profit—whether we’re missing out on an opportunity to actually create a much fairer economic system and more rigor in the decision-making process for company directors. And so I just wanted to get a bit of the rationale behind the “may” versus “must”.

If the member wants to stand up—the member in charge of the bill—I’m very happy to yield. I think it’s a very good point raised by the Green member about the requirement for “must”, which is the purpose or intent of his Supplementary Order Paper (SOP) 399, and the “may” that’s been adopted by the member sponsoring the bill. I am also very interested in this, because both SOPs refer to the need for directors to have regard to other matters other than maximisation of profit. Can the member inform us why she has a view that directors of businesses don’t currently also have regard for other factors when considering their duties?

The reason I make this point, I think it’s an absolutely fundamental point—and it was one that occupied the minds of the committee and certainly occupied the minds of the many submitters who made a good job in submitting to the committee—which is that if you are a director of a company, you are incredibly naive, stupid, or weird if you don’t have regard for factors other than profit maximisation. Particularly where companies have customers, and most companies do, if they’re not cognisant or up to date or aware of the needs, desires, and wants of their customers, inevitably that means that businesses fail.

So when directors are making decisions about their businesses, I would suggest to you, particularly with ones that have a strong retail customer focus, but it’s not exclusively that, they will always be mindful of ESG factors—environmental, social, and governance issues—and the wider issues that may affect their business. This is the reason why this bill has been deemed a virtue-signalling bill and a waste of Parliament’s time. And I would like the member to tell us why she thinks that directors don’t currently have that view. Because if they do have that view, then her SOP 396 is a complete waste of time and that means the entire bill is a complete waste of time. And I’ve got to say, many submitters did think it was a waste of time.

Thank you to both members for their various contributions and I’ll just go through some of the matters raised. The member from the National Party asked me why I decided to take over this bill from Duncan Webb. I did go through a process of going through all of the different submissions and looking at the report of the select committee before deciding to take this bill forward. The reason that I decided to do that is because I do think that this bill provides a valuable clarification in directors’ duties that I think will be a benefit to New Zealanders. The member, I’m sure, will agree that it’s important to have clear law that is easy to understand, and I think that this this very small bill in my name assists with that. So that’s in relation to the member’s first question.

In relation to the contribution from Ricardo Menéndez March on whether I do believe there needs to be stricter conditions, I think that this is the right balance in this bill. You will see by reading it that there’s three different provisions, which means that it’s up to the director of the company to consider the environmental, social, and governance (ESG) matters. To avoid doubt, they “may”, and then it provides some examples as well. So it’s very permissive in terms of allowing flexibility of company directors to consider matters outside of the maximisation of profit. I think, for a member’s bill, requiring them and putting the word “must” in there, as is mooted in his Supplementary Order Paper (SOP) 399, would be more of a substantial change, possibly not appropriate for a member’s bill in relation to how that would change company law. So that’s my view. That’s why I haven’t included that word in SOP 396; I haven’t sought to change the wording came back from the select committee.

But I did just want to make a few comments, if I may, about the Supplementary Order Paper that I did decide to add to the bill—a change from what was suggested in the select committee. I did read the select committee’s report in detail and it was notable for me that even though the original member in charge of the bill had provided a list of matters to be considered, when the select committee was considering it, they did refer to ESG—or environmental, social, and governance—matters. Now, we know that this is an established term that people are aware of. And the reason I decided to put that back into the bill is to really fulfil the purpose of the bill more effectively by not simply clarifying what may happen, but also giving some context for the purpose of the bill—so we know that the ESG matters are something that is being well understood within discussions within companies, but we also know that we have legislative precedent for the use of that term.

We have the KiwiSaver Act 2006 in section 129, which specifically mentions ESG factors, and for me that was beneficial to have that precedent already existing in law in relation to putting that term back into the bill. I also did a bit more research and found that there was reference in the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act—which this House considered a few years ago—which, while not referencing, I don’t believe, ESG matters within the substance of the main piece of legislation, referenced in the debates in the House the ability for companies to take these matters into account when they’re deciding things. So it was a very thoughtful process that allowed me to arrive at the decision around the Supplementary Order Paper that I decided to put in. So I just wanted to clarify that for members.

In relation to the final contribution from Andrew Bayly, I think that there are many directors of companies who are not aware, or could be convinced, that there is doubt about their ability to look at matters other than the maximisation of profit. And to avoid that doubt, I think that this bill provides a very valuable clarification that they may look at other matters, that there are things which are outside maximisation of profit which are relevant for directors. On that basis, I consider it to be a valuable addition to our company law.

Thank you, Madam Chair. Picking up on the comment by the member regarding, I guess, the purpose of members’ bills, I just want to acknowledge that we have had, historically, a range of members’ bills that are really substantive and make really massive changes in people’s lives and in the system, and in more discrete, targeted members’ bills such as this one.

I guess I wanted to seek some clarification as to—and we do support the purpose of adding that language “to avoid doubt”—whether this is a missed opportunity to actually ensure that it doesn’t still enable some companies’ directors to just continue business as usual. Because then all we’re doing is, I guess, for what we could consider good players—and I myself do have doubts about the so-called nature of ethical capitalism—but how does the member see, then, this bill being able to actually prevent the status quo for the worst players in the system when it comes to decision making?

Thank you, Madam Chair. I appreciate the member standing up, and I think she is genuine in sponsoring the bill, but I obviously have a different view on it. She made the comment that she had looked at the submissions. It’s the submissions that were the troubling element to this bill. Important organisations such as the New Zealand Law Society and the Legislation Design and Advisory Committee—which are not insignificant organisations by the way; just to make the point—oppose the bill. There were concerns both around the unintended consequences of opening up directors to potential court action, but there was also the point that they said there was no clear rationale on what the proposal by the member required, and we are concerned that this is more of a solution looking for a problem.

One particular thing: the office of the clerk to the select committee—and again, we’ve all sat on select committees; these are people who are not prone to exaggeration and outlandish comments—“Because the bill does not permit or prohibit any activity, it would not have any legal effect. The lack of legal effect brings into question whether this legislation is necessary.” There are other people who talked about it. There’s the strong view that you could achieve the same outcome simply through Cabinet making a resolution and there is no need for any specific legislation. So, in deciding whether to take this bill on, she said she looked at these particularly powerful submissions. Why does she disagree with the concerns that these august organisations have made to the select committee?

Thank you, Madam Chair, and thank you to Ms Belich. I thought she was about to stand up.

I just wanted to reiterate some other comments that were made—that I’m sure the member is absolutely genuine in putting this forward and wanting to improve the wellbeing of society and how it interacts with companies. I just had a slight concern there around the balance of how that may play out with the directors’ fiduciary duties and then with obligations from a context beyond the financial piece—how that would be balanced in court—and what sort of feedback we have had around that. I mean, there will obviously be an environmental, social, and governance component about it. In the New Zealand context, there may be a Te Tiriti context around that. I’m just interested to see what feedback there has been around that space and how that would be balanced against the fiduciary duties, and how those two will balance against each other. I wouldn’t want to see a situation where a director has got something over here saying that they need to look after the financial wellbeing of the company and then this piece coming in and they’ve got to look after some wider social goals. Thank you.

I thank the members again for their questions and engagement on this bill. In terms of the contributions that members have made, Ricardo Menéndez March talked about his reservations on the effect of ethical capitalism. I’d just reiterate to the member that this is a small bill and not looking at those big issues, which I can understand the member is passionate about. But this is, I don’t think, the vehicle to address some of those wider issues.

In terms of the submissions, yes, I did read and look through all of them, and I did take into account their feedback. I am aware of the feedback in opposition to the passage of this bill, which I did take seriously. The thing that I would mention to the member is that, because of the process that we go through—and the member will be aware of this, but just for the benefit of others watching—all of the submissions were received when the bill was in its first initial stage, and a lot of them reacted to the list that the original bill had put into place. I know that there are other factors included in their submissions as well, but I think the select committee did take into account some of the concerns that submitters had around the list which was included in the original bill.

As the member will be well aware, that list was removed at select committee, and the proposal at select committee to have it as a much narrower, much simpler bill I think addressed not all—and I agree with the member that there are some people who’d prefer this bill not to go ahead at all. My view differs from that, as it obviously may from the member’s as well. But I do think that a lot of the concerns relating to the particular matters in the original list of factors to be included are avoided through adopting the recommendations by the select committee and also with using the more commonly used term of “environmental, social, and governance” (ESG) in the Supplementary Order Paper which I’ve suggested. So I do acknowledge that. I did take that seriously. I just formed a different view from some of the submitters, and I do think that a lot of this will be taken into account by the changes that have been made.

In terms of legal effect, those who study statutory interpretation will be aware that any word in the law is capable of affecting the way that that law is interpreted. So, although this particular bill is very small and does, as I’ve mentioned several times before, have “to avoid doubt”, “may”, and “for example” as ways of mitigating the potency of this bill, I think that the impact of it will be to allay any doubt for directors that they are able to take other matters into account. So that kind of goes to a few of the member’s queries on this. The purpose of it, as I said in my initial statement, was to avoid doubt.

Just in closing my comments on those particular questions, I note from the select committee report the National Party’s minority—well, I don’t actually think it’s minority, because I think ESG is 50:50, but their view as stated in their report is: “Whilst we agree that there is benefit in corporate leaders taking into account ESG factors, we note that directors already have existing obligations under their fiduciary responsibilities.” So I would just note, for the members present who are opposed to the bill—and I respect that that’s their ability, to take a different view than other members in this House—that they have stated in their select committee report that they do agree there is benefit in corporate leaders taking into account ESG factors. And that is the purpose of this bill.

This is a rubbish bill. This is unnecessary, and I wonder if our greatest capitalist on the Labour side has been consulted on this bill, because he knew that buying shares in the company at Auckland Airport was the right thing. It had nothing to do with stakeholder capitalism, it had nothing to do with socialism, it had nothing to do with environmental, social, and governance—and this isn’t even effective in law. So why is this going through the House?

I said to Duncan Webb, right at the start, this is the worst bill I’ve ever seen with regards to directors’ duties. Every director in the country must be laughing at the Labour Party with this—must be laughing. What is the point of this bill? Let’s move on to something more substantive, and let’s just get this rubbish out, because it is a rubbish bill.

Well, I’m just fascinated with that member’s contribution, and I’m looking around and saying, “Who is this famous capitalist?” And I’m looking over—there’s Mr Nash over there, he looked like he was going to stand up. And now I look over to the other side and I see Andrew Little—I didn’t think that was the case. Oh, there’s people on the backbench, they’re burying their heads over there; maybe a couple of them have changed their pecuniary interest. And then I spy someone over there—is that who you are referring to? The good member from Mt Roskill, is it not?

Hon Michael Wood: Yes, and he’ll be here after the election, unlike that member.

ANDREW BAYLY: Right. Oh, that’s good that the member for Mt Roskill acknowledged himself as a capitalist. Thank you.

Hey, so I want to go back. You’re saying that you’ve made these changes—and I’m saying this to the member who’s sponsoring the bill. Well, I don’t know whether you have sought—and now I’m using the word “sought” and I’m looking at the member—whether the member has actually sought independent advice on the proposed change that she put in her Supplementary Order Paper (SOP). But I actually, overnight—because the member’s SOP got lodged late last night I think, or first thing this morning—went to a very well-known legal firm to ask their view of whether the change that you’re proposing in your SOP, what it meant for people. And the view comes back: this strengthens the virtual signalling—slightly, comma, slightly—and all the advice of the Office of the Clerk and all the recommendations of the Legislative Design and Advisory Committee, these criticisms still remain valid. That was the view of a very senior partner in a very well-known law firm.

So the member has dismissed the legal and all the people that made submissions. The other side of the coin, did she have regard for the NZX—which has been developing a code of corporate governance, which again, the issues around having regard for a wider set of factors such as ESG factors, which she’s talked about. It is already embedded in good corporate governance, so it is already there.

So I keep asking the member, why did she want to sponsor this bill and why has she made these changes when clearly the law already provides for it and permits directors to have regard for much wider issues, or factors, in making their decisions. There is good work being done in institutes like the institute of governance and also the NZX. So all that is already in place. And so I fail to understand why the member thinks this wording, which talks about “may have regard to other factors” is so vitally important and why that is such a game-changer.

I move, That the question be now put.

Madam Chair, a point of order. I totally agree with the—

No, no, no. Thank you. We are descending very quickly into disarray, which I don’t like. So I’m going to address the question is that the question be now put. Leave is sought for that purpose. Is there any objection? There is objection.

Thank you, again, to the members for their contributions. I’d just like to note, for the member who said, “Why are we doing this?” and “We need to move on to something else.”, it is, in fact, the member’s contributions that are preventing that very thing from happening.

In terms of Mr Bayly’s contribution, which I feel I’ve addressed in some detail already in this committee stage, the National Party, who Mr Bayly is a member of, has said, in their very report, in this very bill, “we agree that there is benefit in corporate leaders taking into account ESG factors” This bill provides clarity and avoids doubt that they are able to do that.

Right, last contribution. This bill has had widespread opposition, and given that it costs $200 a minute to debate any bill in the House and particularly one that results in this level of change—which is virtually nothing—I’m going to close down and stop my contributions. But I just make the point: I think we’re absolutely wasting our time. Virtually everyone who has been a participant in this process believes the same, and has come to the same conclusion.

The question is that Camilla Belich’s amendment set out on Supplementary Order Paper 396 be agreed to.

The question is that Ricardo Menéndez March’s amendment set out on Supplementary Order Paper 399 be agreed to.

Mr Speaker, the committee has considered the Companies (Directors Duties) Amendment Bill and reports it with amendment. I move, That the report be adopted.

Motion agreed to.

Report adopted.