A practical explanation of ethics as a good corporate governance principle in South Africa and New Zealand -A case study

Abstract

This article uses two case law examples (New Zealand and South Africa), to illustrate how a questionnaire could be developed in practice as a method to identify a breach of ethics with reference to King IV, the FMA handbook and the NZX code. These two cases use terminology as found in relevant corporate governance codes and illustrate how to interpret those terminologies correctly, i.e. in terms of honesty and integrity. Relevant literature is reviewed in reference to the two case law examples. To interpret a corporate governance term properly, reference should also be made to appropriate legislation, e.g., the Companies Act when drafting a questionnaire. To understand corporate governance codes a holistic view should be adopted by the board of directors when drafting a corporate governance questionnaire. Such a questionnaire could provide the necessary insight as a method to prevent unethical business behaviour in future.

Full text

2020 | https://doi.org/10.19108/KOERS.85.1.2465 Page 1 of 10
Original Research www.koersjournal.org.za
AUTHOR:
Cornelius (Neels) Kilian
https://orcid.org/0000-0002-2890-9350
AFFILIATION:
North-West University
CORRESPONDENCE TO:
corneliuskilian@gmail.com
POSTAL ADDRESS:
Private Bag X6001, Potchefstroom
Campus, North-West University,
Potchefstroom, 2520, South Africa
DATES:
Published: 20 Feb 2020
HOW TO CITE THIS ARTICLE:
Kilian, C., 2020. A practical explanation
of ethics as a good corporate
governance principle in South Africa
and New Zealand – A case study.
KOERS — Bulletin for Christian
Scholarship, 85(1). Available at: https://
doi.org/10.19108/KOERS.85.1.2465
COPYRIGHT:
© 2020. The Author(s).
Published under the Creative
Commons Attribution License.
A practical explanation of ethics
as a good corporate governance
principle in South Africa and New
Zealand – A case study
ABSTRACT
This article uses two case law examples (New Zealand and South Africa), to illustrate how a
questionnaire could be developed in practice as a method to identify a breach of ethics with
reference to King IV, the FMA handbook and the NZX code. These two cases use terminology
as found in relevant corporate governance codes and illustrate how to interpret those
terminologies correctly, i.e. in terms of honesty and integrity. Relevant literature is reviewed in
reference to the two case law examples. To interpret a corporate governance term properly,
reference should also be made to appropriate legislation, e.g., the Companies Act when
drafting a questionnaire. To understand corporate governance codes a holistic view should be
adopted by the board of directors when drafting a corporate governance questionnaire. Such
a questionnaire could provide the necessary insight as a method to prevent unethical business
behaviour in future.
Keywords: corporate governance; integrity; honesty; director; ethics; King IV; NZX code;
corporate culture
1. Introduction
In South Africa, corporate governance is regulated by the King Report, commonly referred
to as King IV. This is applicable to both listed and unlisted companies in South Africa, and
King IV replaced King III on the 1 November 2016. A listed company is dened as a company
listed on the JSE Ltd, previously known as the Johannesburg Stock Exchange Ltd. In New
Zealand listed companies are regulated by the NZX corporate governance code while
unlisted companies could also follow the NZX corporate governance code voluntarily. In
New Zealand a listed company is listed on the NZX, a common abbreviation for the New
Zealand Exchange Ltd. In New Zealand corporate governance could also be regulated
by the FMA handbook or Financial Markets handbook. In South Africa there are no such
separate handbooks on corporate governance; the corporate governance text is simply
referred to as King IV that is also relevant to close corporations as a business entity. In
this article we will only be focusing on the rst principle of corporate governance, namely
ethics (King IV, the FMA handbook and the NZX code contain the same rst principle,
namely ethics) and on how it relates to relevant court judgments in both jurisdictions in
terms of identifying a breach of ethics (Rossouw, 2002; Gully,2017).
2. Principles of ethics – South Africa
What is interesting about South Africa’s corporate governance code is the denition
section. King IV denes ethics as follows (King IV, 2016):

2020 | https://doi.org/10.19108/KOERS.85.1.2465 Page 2 of 10
Original Research www.koersjournal.org.za
Considering what is good and right for the self and the other, and can be expressed
in terms of the golden rule, namely, to treat others as you would like to be treated
yourself. In the context of organizations, ethics refers to ethical values applied
to decision-making conduct, and the relationship between the organization, its
stakeholders and the broader society.
In addition, integrity is dened as follows:
In the context of governance and ethics, integrity is the quality of being honest and
having strong moral principles. It encompasses consistency between stated moral
and ethical standards and actual conduct.
Besides the above, King IV also denes “may” and “should”, where the former is simply
voluntary compliance while the latter denotes mandatory compliance with the essential
code principles of King IV (King IV, 2016). Instead of code, King IV uses the term “policy”
as a compliance standard document to establish whether the company is complying with
King IV, or not. Part of the policy is intended to promote transparency, to grasp when a
business decision has been honestly made and how it relates to integrity (Ackers, 2015).
Policy and transparency are also dened in King IV; they play an important role in identifying
honesty and or ethics in establishing good corporate governance principles in addition
to King IV. The reporting on good corporate governance practices could be contained in
nancial statements, websites, social media, audit or any other ethics committee reports
(generally only relevant to companies which are subjected to audited nancial statements),
compulsory nancial sustainability reports and or any other material which could enhance
transparency (King IV, 2016).
3. The “should” and “may” of ethics for listed and non-
listed South African companies
The principle of ethics stipulates when a company must follow an ethical code irrespective
of its nancial circumstances (Further, 2007). In this article we do not focus on the
corporate governance requirements for close corporations as a business entity in South
Africa. The corporate governance code relevant to close corporations is simply just a brief
summary of the ethics principle; i.e. it lists principle 1 without any “should” or “may” (King
IV, 2016). Besides the latter sentence, these “shoulds” for listed or non-listed companies
are non-discretionary in their nature and must always be followed by the company or be
implemented by the board of directors of that company (Nxumalo, 2016). For example,
the directors of a company must abide by the following conduct characteristics which
explain ethics in practice: directors must act in good faith and in the best interests of the
company, they should avoid conicts of interest and should act with ethics beyond mere
legal compliance (Botha, 2009; King IV, 2016). In addition, the directors must act with care,
skill and diligence and must always take reasonable steps to be informed of the facts
relevant to management decisions (Padayachee, 2017). What is interesting is the fact that
company directors must be well prepared to conduct company meetings, preferably to be
well prepared before attending such a meeting (King IV, 2016). Besides the latter, all the
principles relevant to ethics as explained in King IV could be contained in a simple checklist
format; in South Africa it is not a requirement to draft a separate code or policy of ethics or
that a company must monitor its own code of ethics by making use of a checklist. In total,
King IV could be used and generally it provides for at least 53 checklist questions applicable
to ethics only or to identifying breaches of ethical leadership and ethical citizenship (King IV,
2016). In other words, these 53 questions can be worded in such a manner to require only
a yes or no to identify compliance with ethics without the company devising a separate code
or policy. A no could indicate non-compliance with these 53 ethics principles and could be
relevant to either listed or non-listed companies (Rossouw, 2002). An example of a checklist
question could be:

2020 | https://doi.org/10.19108/KOERS.85.1.2465 Page 3 of 10
Original Research www.koersjournal.org.za
a) A director avoids conict of interest yes no
b) A suspended director attends board meetings yes no
c) A director has sucient working knowledge to complete his or
her tasks yes no
d) The company has an additional ethics code yes no
It is also required that in the event of additional ethics policies/codes being drafted by a
company, those policies are also circulated to the employees of the company as well as
to other companies or organizations doing business with that company (King IV, 2016).
The implication of the latter point is largely to stipulate the circulation of additional ethical
codes as a method to promote future transparency in greater detail during the decision
making process of that company (King IV, 2016; Van Niekerk & Olivier, 2012). Any breach
of the additional codes (or King IV’s “should” statements) could lead to disciplinary actions
being taken by the company, i.e., disciplinary hearings based on the remedies/principles
of the code available in the Companies Act 2008 relevant to directors who are in breach
of their duties (Klopper, 2013). It is therefore possible that an additional code or policy of
ethics could also be drafted by the company to such an extent that normal employees of
the company (employees who are not directors) should also act in the best interests of
the company and in good faith (King IV, 2016; Terraraz, 2008). The eect of the latter is
also a duciary duty for employees, and any breach thereof could lead to a disciplinary
hearing, which will be very unique from a South African perspective based on employee
duciary duties (Du Plessis, 2010). Generally, King IV only regulates a duciary duty for
directors and the consequences of a voluntary additional code for employees could require
such duties of all employees at the same standard as that of a director because King IV is
exible in permitting the drafting of additional codes or policies (Botha, 2009). It is also
therefore possible that close corporations may contain duciary duties for their members/
employees, although King IV does not require the latter as a “should” (King IV, 2016; Awad
& Hegazy, 2016).
4. The relevance of King IV to Court Judgments in South
Africa
As was observed earlier, King IV is not mandatory in its application; companies may make
use of King IV voluntarily but if they do decide to make use of King IV then they must observe
all the “shoulds” (King IV, 2016). In practice it is not always straightforward to grasp the
duties of directors (care and skill or otherwise) or to comprehend honesty or the duciary
duties of directors (Chepkemei, Biwott & Mwaura, 2012). In the following case, the court
referred to King IV as a tool to identify a breach of director’s duties, i.e. a non-disclosure of
conict of interest. In Mthimunye-Bakoro v Petroleum Oil and Gas Corporation of South Africa
(SOC) Ltd [2015] ZAWCHC 113; 2015 (6) SA 338 (WCC) the High Court of South Africa, Davis
J, referred to the duciary duties of directors to act honestly and in the best interests of
the company. Besides the latter, the court also gave a brief summary of the duties of care,
skill and diligence, which are simply the actions expected of a reasonable director. The
applicant in this matter was Mthimunye-Bakoro (chief nancial ocer) of the Petroleum Oil
and Gas Corporation of South Africa who argued that she (as the chief nancial ocer) was
not directly linked to any of this company’s nancial losses, totalling R15b (South African
currency). The respondent argued that the applicant should take voluntary leave since
her behaviour could prejudice further company investigations into her business decisions
made previously on behalf of the respondent (Novick and Another v Comair Holdings Ltd
and Others 1979 (2) SA 116 (W)). Also, her conduct during oce hours might provoke an
opinion amongst some or all employees that the respondent was not serious in suspending
unethical directors for failure to comply with the relevant codes and standards of the
company, i.e. in suspending an employee during investigations and or in re-employing the
employee after conducting an investigation or disciplinary hearing. The applicant argued

2020 | https://doi.org/10.19108/KOERS.85.1.2465 Page 4 of 10
Original Research www.koersjournal.org.za
that she had to be at work and could not be suspended. The court simply held that under
these circumstances there were serious breaches of corporate governance codes. The mere
fact that the company had suered nancial losses of R15b was a clear indication that such
a person should discontinue her duties as a director/employee immediately to prevent any
further nancial losses. The court held that to suspend the chief nancial ocer was part
of the duciary duties of the board of directors since it would be in the best interests of the
company to suspend this ocer and await the outcome of her disciplinary hearing. On the
other hand, a suspension could be contrary to good corporate governance principles (South
African Broadcasting Corporation Limited v Mpofu and Another (2009) 4 All SA 169 (GSJ)). The
court referred to the Mpofu case saying that part of their duciary duty is that all directors
should be well informed of the facts to be discussed at board meetings and all directors
should be present during any meeting to enable the board of directors to take proper
decisions. To exclude a director, i.e. the chief nancial ocer, who allegedly committed a
breach of duciary duties, is contrary to the Mpofu case’s reasoning. It was argued by the
chief nancial ocer’s attorney that the applicant could not be excused from any board
meetings after making a full disclosure, to the company, of her conict of interest. To allow
the chief nancial ocer to attend the duration of the meeting after full disclosure, is
also part of the principle of integrity, and integrity should always be observed by a board
of directors. In other words, the board of directors has a collective responsibility not to
excuse a director for an alleged breach of duciary duty (after disclosure was made) so as
to emphasise the integrity of their meetings or follow-up meetings. In addition, to take a
decision without the presence of the chief nancial ocer could be interpreted as a breach
of King IV and the Companies Act 2008. However, Davis J argued that in order to establish
whether the integrity of a decision will be breached, it is important to focus on the relevant
provisions of the Companies Act 2008 of South Africa (section 75(5)(d)) which require that a
director should leave a board meeting immediately after disclosing any breach of duciary
duties to the board. Therefore, to declare that such a decision to suspend her in her absence
is contrary to King IV was disallowed by Davis J since her presence was not required at the
meeting to vote in favour of her suspension or not. If the directors voted in favour of a
suspension then it would be extremely dicult for the applicant to argue on the basis of
the Mpofu case why her non-presence in following up board meetings would be in breach of
integrity. This case illustrates the importance of King IV in establishing a breach of duciary
duties and the relevance of the Companies Act 2008 in putting integrity into perspective i.e.
to reject the reasoning of the Mpofu case. Therefore, King IV should always be interpreted
with reference to the Companies Act 2008 in order to identify any unethical behaviour of
the board of directors (Diplock, 2004).
5. Principles of ethics – New Zealand
5.1 Background
In New Zealand, two sets of corporate governance documents are available: the FMA
handbook and the NZX code. In brief, the FMA corporate governance handbook’s principle
on ethics diers from ethics in the NZX code as explained in the paragraph below. The FMA
handbook for companies who want to list on the NZX in the future states on page 5 that the
principles mentioned in the handbook should be followed voluntarily by prospective listed
companies. On page 5 the guidelines relevant to good corporate governance are discussed
in a separate paragraph on the following page 6, which also contains commentary. The
guidelines are merely used to explain a principle more clearly and or to guide the compliance
ocer or auditor or director to refer to the comments relevant to the given principle, for a
better grasp of how to comply with the principle in practice, but such a principle could be very
dicult to understand from a legal perspective (Legg & Jordan, 2014; Kabir, Su & Rahman,
2016). Guidelines could take the form of examples and the comments in this FMA handbook
explain why it is important to report on a relevant guideline voluntarily (FMA, 2018). On
page 7 it is clearly stated that companies are not required to report in detail the guidelines
relevant to ethics but instead on how a company applied ethics in practice for reporting

2020 | https://doi.org/10.19108/KOERS.85.1.2465 Page 5 of 10
Original Research www.koersjournal.org.za
purposes. The principle relevant to ethics simply says in brief, that directors should set high
standards of ethical behaviour when making business decisions (Arunachalam McLachlan,
2015). A practical example could also be that a director should at least know the industry
in which the company operates, in order to make sound business decisions. The guidelines
on page 8 of this FMA handbook simply explain what ethical decisions are, by requesting
the board of directors to draft an additional code of ethics where honesty could be further
explained. It is also possible that the additional draft code could dene honesty or ethics
since the FMA handbook contains no denitions. A component of the guidelines relevant
to ethics is to include integrity and to emphasise that integrity is also important during the
making or executing of business decisions (Kabir, Su & Rahman, 2016). The commentary
on page 9 illustrates the importance of employing a compliance ocer who will audit the
ethics code or any supplementary codes on an annual basis as a method to continuously
develop the company’s ethics code (Lotzof, 2006; Kabir, Su & Rahman, 2016). Compliance
could generally take the shape of a checklist which the company could draft and which in
general contains yes or no answers to identify a breach of ethics; similar to the checklist
example provided above for South Africa.
The question whether the FMA handbook is relevant to listed companies, was subject to a
recent circular or discussion document namely “Review of Corporate Governance Reporting
Requirements within NZX Main Board Listing Rules” in November 2015. This proposed
that FMA guidelines or commentary should become part of the reporting mechanisms of
a listed company in addition to a NZX code for listed companies (Gully, 2016). As a result a
revised FMA handbook (in its present format it is more focused on unlisted companies) was
released on the 28 February 2018 by the Financial Markets Authority or FMA. The new FMA
handbook states clearly that it does not overlap with the existing NZX code and that the NZX
remains the primary source for listed companies as regards good corporate governance
reporting (Arunachalam & McLachlan, 2015). The NZX code for listed companies is similar
in style to the FMA handbook owing to the fact that both issues contain guidelines and
commentary, and these documents remain voluntary. The NZX code came into eect on
1 October 2017 and includes international best practices as well as some of the guidelines
stated in the FMA handbook (Simpson, 2017). This code is not law, and listed or unlisted
companies must indicate in their nancial statements or on their websites if any breaches
of ethics have occurred. It is also possible to state in the nancial statements whether a
company possesses a comprehensive code for corporate governance principles. Since the
King IV has no technical history concerning the implementation or the relevance of other
codes or documents pertaining to corporate governance in South Africa, we will compare
the following principle of ethics relevant to the new FMA handbook and new NZX code. Even
though the FMA handbook is not relevant to listed companies it nevertheless explains the
relevance of additional corporate governance principles.
6. Principle of ethics in the NZX code
The NZX code remains a exible document allowing listed companies to explain why
a particular principle as explained by a recommendation is not relevant to a particular
listed or unlisted company (Gully, 2017). The only requirement is that the company must
explain why, in its opinion, the recommendation for a principle is irrelevant and listed or
unlisted companies are free to determine suitable corporate governance practices for
their businesses (NZX, 2017). Instead of disclosing corporate governance compliance in the
nancial statements of a company, a company may make use of its website to disclose
compliance practices with respect to this code. In other words a recommendation is
subject to compliance and or to an explanation why the company is unable to implement
the recommendation, but the commentary in the code remains voluntary compliance
disclosure in either the nancial statements or on the website of companies (Arunachalam
& McLachlan, 2015). Principle 1 states that there is a duty upon the board of directors to
maintain high ethical standards and the board is liable to maintain this principle throughout

2020 | https://doi.org/10.19108/KOERS.85.1.2465 Page 6 of 10
Original Research www.koersjournal.org.za
the company; i.e. this is also relevant to employees (Arunachalam & McLachlan, 2015). The
commentary requires a code of ethics to be drafted by the company, and these ethics
should be universally applied to both directors and employees. The code should also be
easy to read. Any breaches of the code of ethics could be voluntarily be disclosed by the
company without stating whether any person (director or employee) should be subjected
to internal disciplinary committees, etcetera. However, the reporting of a breach of ethics
is mandatory, the management of breaches is mandatory, everyone should act honestly,
everyone should take proper care of company business information, everyone should act
in the best interests of the shareholder, stakeholder or otherwise, disclosure of gifts is
mandatory, as are procedures relevant to whistle blowing and the like (NZX, 2017). The latter’s
mandatory disclosure examples of ethics would provide for transparency in the company
dealings with other companies or when furnishing information or business information to
other companies (Arunachalam & McLachlan, 2015). What is interesting about the code is
that it does not stipulate denitions for particular words. Some of the words contained in
the NZX code sound very simple; however they remain highly technical and only relevant
case law should be consulted to comprehend, for example, honesty and the best interests
of the company (Du Plessis, 2010; Lowry, 2012; Havenga, 2000). Generally the latter is part
of the duciary duties of directors; in this code this duty seems to be relevant to employees
as well and could be highly controversial when one focuses on relevant legal examples
(Legg and Jordan, 2014). In other words, employees should exercise honest acts towards
the company on a level similar to that of directors in order for these acts to be considered
ethical (NZX, 2017). On the other hand, the court may also refer to legislation other than the
Companies Act 1993 in New Zealand to identify honesty. Thus, the same case law could be
relevant to directors and could also be applicable to employees to establish their breach of
duciary duties when one observes recommendation 1.1 of the NZX code.
7. The relevance of the NZX code to court judgments in
New Zealand
In the matter between NZX Ltd v Ralec Commodities Pty Ltd [2016] NZHC 2742, it is a
complicated judgment, consisting of approximately 172 pages, dealing with the selling of
grain on the New Zealand Exchange by making use of an independent company’s trading
platform (Clear Ltd) to record the transactions. It is impossible to give a precise scope
of the relevant details of this case within a single article, since this case contains claims
and counter-claims from both parties; the one side accused the other side of wrongdoing
and vice versa. In brief, the relationship between the applicant and the respondent was
identied as one of misrepresentations, incorrect information which was supplied relevant
to projections made during a due diligence report by NZX (Hughes, 2012). These claims were
made against Ralec, while Ralec in turn accused two NZX directors of deceptive conduct. For
our purposes, we will only be focusing on the respondent’s (Ralec) misrepresentations and
incorrect information that are relevant to principle 1 of the NZX code. In this case the High
Court of New Zealand did not make reference to any corporate governance code, i.e. the
FMA handbook or the NZX code. The court relied on legislation only to identify any form of
dishonest acts. As an example, the court made reference to section 6 of the Contractual
Remedies Act of 1979 (CRA) of New Zealand which states the following:
(1) If a party to a contract has been induced to enter into it by a misrepresentation,
whether innocent or fraudulent, made to him by or on behalf of another party to
that contract—
(a) He shall be entitled to damages from that other party in the same manner and
to the same extent as if the representation were a term of the contract that has
been broken;
The High Court focused on the term misrepresentation, and, in short, held that this term was

2020 | https://doi.org/10.19108/KOERS.85.1.2465 Page 7 of 10
Original Research www.koersjournal.org.za
not dened by CRA. In this regard, the due diligence report was based on future projections
of the grain harvest and the question the court had to answer was whether such projections
could be labelled as dishonest acts. Although the future is uncertain, the court held that a
projection could be made honestly even though the end result could dier from the actual
projection’s result (Spiller, 2004). To know when such a projection is honestly made, it should
be supported by a reasonable person’s evidence, which is an objective test i.e. the number
of grain growers, per ton per grower per annum etcetera (Deloitte, 2014). Although the NZX
code does not dene honesty, one can indicate an act of dishonesty by focusing purely on
the trading platform’s purpose – to connect an unknown number of grain growers to sellers
via the electronic platform. Should a platform be used without knowing who the growers of
grain are, this could be interpreted as risky business, as was held by the court, especially in
relation to a reasonable projection of grain to be sold in the future. An example to identify
an honest projection could entail the following checklist (Arunachalam & McLachlan, 2015):
a) Number of seller/growers of grain identied yes no
b) Projection is based on number of sellers and their average
grain crop per annum to be traded on the platform yes no
c) The company has an additional ethics code to regulate grain
projections yes no
Therefore, to make suitable projections about the future production of grain or projected
trade on the electronic trading platform, it is important to know how many growers/sellers
will participate on this platform and besides the latter, whether they are all willing to give
their permission to trade on that particular platform (Arunachalam & McLachlan, 2015).
The court held that the projection of trade was indeed misrepresented without making
reference to either the FMA handbook or the NZX code or whether the company in question
had implemented a corporate governance code etcetera, to illustrate at least the willingness
to disclose transparency in its projection calculations (Spiller, 2004). The problem with Clear
Ltd was that only two directors and shareholders of Clear knew the business of trading grain
on any electronic platform and were consequently dismissed on the basis of inghting.
The respondent, Ralec, was aware of this circumstance yet never disclosed the dismissal
of two key directors to NZX. The court could have analysed the above circumstances with
reference to the nancial statements/websites of Clear and Ralec as regards their voluntary
compliance with corporate governance principles as a method to identify any relevant
transparency in their dealings, i.e. Clear had no director who understood an electronic
trading platform, to illustrate possible aws in the integrity of the said platform. Although
the NZX code was published in 2017, it is still relevant to our discussion since principle 1 in
this instance was breached - clearly the board of directors could not act honestly and in the
best interests of Clear if the two key individuals had been dismissed (H Timber Protection Ltd
v Hickson International plc CA, 17 February 1995). Clear could also have used the following
checklist to identify voluntary compliance with its ethics code or to establish ethical business
behaviour – the same applies to Ralec:
a) All directors know the business operations of the company yes no
b) A director could be replaced with another with same level of
expertise yes no
c) The company has an additional ethics code to regulate the
decisions of the board where there is no expertise available yes no
d) Any consultants available to assist the Board with the making
of decisions yes no
The above checklist could immediately establish the presence of ethical behaviour and an
auditor could, for example, declare in the nancial statements that the board of directors
lacked certain expertise to promote transparent business dealings etcetera (Pryce, 2012;
Deloitte, 2014; Spiller, 2004). This would allow another company an opportunity to decide

2020 | https://doi.org/10.19108/KOERS.85.1.2465 Page 8 of 10
Original Research www.koersjournal.org.za
whether to continue with its business negotiations or not, as part of good corporate
governance principles. Or in such an event Clear could make use of consultants who know
the grain industry to comply with the requirements of an electronic platform relevant
to buying and selling grain as a method to comply with any corporate governance code
(Demidenko & McNutt, 2010). To keep doing business without the required consultants or
two key individuals or non-disclosure of dismissed directors could be interpreted as making
unethical business decisions (Kabir, Su & Rahman, 2016). The whole reason why principle
1 of the NZX code is important to corporate governance principles is to require responsible
actions in the economic sphere and to build investor/stakeholder condence by being
transparent. It refers also to nancial projections, that principle 1 in 1.1 requires integrity
in “all actions” of the board of directors and their employees. “All actions” is a very wide
phrase which merely denotes that a projection should be supported by actual evidence
to promote the integrity of the projection (even if the future is uncertain), irrespective of
whether a director or company employee had drafted the projection. Principle 1 of the
FMA handbook does not require employees to act in the best interests of the company;
therefore in terms of this handbook, a director should personally be responsible for drafting
a projection of the selling of future grain. In the FMA handbook, principle 1 requires fair
dealings with customers and it can be argued that no fair dealings could be possible if a
company dismissed two key persons. To take decisions or business decisions without the
input of these two key persons could be labelled as unethical decisions in terms of the FMA
handbook. In this regard, the High Court did not refer to the principles associated with
good corporate governance principles and also did not make any mention of any ethical
or unethical business decisions based on the NZX code (or its predecessor) or the FMA
handbook.
8. Conclusion
Although corporate governance principles are more complicated in New Zealand, it is
possible to identify breach of corporate governance principles by making use of a simple
checklist questionnaire. Such a checklist contains either a yes or a no and would allow a
company to identify possible breaches of ethics before, during or after taking business
decisions. A practical example could be a checklist based on the NZX Ltd v Ralec Commodities
Pty Ltd [2016] NZHC 2742 case, which would have prevented litigation in the High Court
of New Zealand if Ralec or Clear had devised appropriate ethics codes. Such a checklist
would have immediately indicated that Clear had no knowledgeable directors pertaining
to an electronic trading platform for grain, which is unethical business behaviour. It is also
possible that Ralec could have disclosed the latter fact to NZX to promote transparency
pertaining to the trading platform etcetera, as a method for the two entities to promote
fair dealings with each other. It is also possible to create a checklist to identify future
projections as being honest or dishonest. Such a checklist would not only promote the
integrity of business projections but it would also be able to identify a possible breach of
ethics, i.e. the unknown number of grain growers used in the projections. Legislation in
New Zealand or court case references where legislation has been interpreted could also be
used by companies to identify when an act is dishonest, i.e., part of misrepresentation of
the relevant facts. The very same rationale was followed by the South African High Court
in Mthimunye-Bakoro v Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd [2015]
ZAWCHC 113; 2015 (6) SA 338 (WCC) to identify the integrity of board meetings. To prevent a
nancial ocer from attending board meetings after her suspension is not contrary to good
corporate governance principles. In fact, it promotes the integrity of such meetings since
the nancial ocer who was responsible for severe company losses cannot participate in
any future business decisions of the company. In addition, certain terms contained in any
corporate governance code – integrity, honesty, duciary duties and the like – are extremely
dicult words to understand in practice, but a checklist with a simple no or yes remains a
good start in identifying a possible breach of ethics (Du Plessis, 2010; Lowry, 2012; Havenga,
2000).

2020 | https://doi.org/10.19108/KOERS.85.1.2465 Page 9 of 10
Original Research www.koersjournal.org.za
References
Ackers, B. 2015. Ethical considerations of corporate social responsibility – a South African perspective.
South African Journal for Business Management, 46: 11-21. https://doi.org/10.4102/sajbm.v46i1.79.
Arunachalam, M. & McLachlan, A. 2015. Accountability for business ethics in context of nancial markets
authority’s corporate governance principles, New Zealand. Journal of Applied Business Research, 13:
19-34.
Awad, IO. & Hegazy, IR. 2016. Reviewing the implications of corporate governance, corporate social
responsibility on corporate failure in the literature: Developing countries. Journal of Emerging Trends
in Economics and Management Sciences, 7: 22-30.
Botha, H. 2009. Corporate governance, leadership and ethics. Management Today, 25: 55-57.
Chepkemei, A. Biwott,C. & Mwaura, J. 2012. The role of integrity and communication ethics in corporate
governance: a study of selected companies in Uasin Gishu county, Kenya. Journal of Emerging Trends
in Economics and Management Sciences, 3: 40-944.
Diplock, J. 2004. The Diplock-principles. New Zealand Management, 51: 4-5.
Du Plessis, J.J. 2010. A comparative analysis of directors’ duty of care, skill and diligence in South Africa
and Australia. Acta Juridica, 263-289.
Deloitte. 2014. The Company Act, Australian ‘Centro-Case’ conrms duties of all directors. https://
www2.deloitte.com/content/dam/Deloitte/za/Documents/governance-risk-compliance/ZA_
CentroCaseConrmsDirectorDuties_24032014.pdf.
Demidenko, E. & McNutt, P. 2010. The ethics of enterprise risk management as a key component
of corporate governance. International Journal of Social Economics, 37: 802-815. https://doi.org
/10.1108/03068291011070462.
Furter, E. 2007. Edifying morality: corporate governance. Enterprise Risk, 1: 32-35.
FMA. 2018. http://www.fma.govt.nz/assets/Reports/_versions/10539/180228-Corporate-Governance-
Handbook-2018.1.pdf.
Gully. 2016. https://s3-ap-southeast-2.amazonaws.com/nzx-prod-c84t33un4/comfy/cms/les/les/000
/002/269/original/Bell_Gully-_29Feb_2016.pdf.
Gully. 2017. Bell Gully releases guide to the NZX corporate governance guide. https://www.bellgully.
com/publications/bell-gully-releases-guide-to-the-nzx-corporate-governance-code.
H Timber Protection Ltd v Hickson International plc (unreported, Court of Appeal, Wellington, CA 113/94,
17 February 1995).
Havenga, M. 2000. The business judgment rule – should we follow the Australian example? South African
Mercantile Law Journal, 25: 25-37.
Hughes, S. 2012. Finding the sweet spot: The future for kiwi future market regulation. Finance, 126:
44-45.
Kabir, H. Su, L. & Rahman, A. 2016. Audit failure of New Zealand nance companies: an exploratory
investigation. Pacic Accounting Review, 28: 279-305. https://doi.org/10.1108/par-10-2015-0043.
King IV. (2016). https://c.ymcdn.com/sites/www.iodsa.co.za/resource/resmgr/king_iv/King_IV_Report/
IoDSA_King_IV_Report_-_WebVe.pdf.
Kloppers, H.J. 2013. Driving corporate social responsibility (CSR) through the companies Act: an
overview of the role of the social and ethics committee. Potchefstroom Electronic Law Journal, 16:
165-199. https://doi.org/10.17159/1727-3781/2013/v16i1a2307.
Legg, M. & Jordan, D. 2014). The Australian business judgment rule after Asic v Rich: balancing director
authority and accountability. Adelaide Law Review, 34: 403-426.
Lotzof, M. 2006. Compliance in Australia has continued to evolve over the last 20 years. Journal of Health
Care Compliance, 8: 73-77.
Lowry, J. 2012. The irreducible core of the duty of care, skill, and diligence of company directors:
Australian Securities and Investment Commission v Healy. Modern Law Review, 75: 249-274. https://
doi.org/10.1111/j.1468-2230.2012.00898.x.
Mthimunye-Bakoro v Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd [2015] ZAWCHC 113;
2015 (6) SA 338 (WCC)
Novick and Another v Comair Holdings Ltd and Others 1979 (2) SA 116 (W).

2020 | https://doi.org/10.19108/KOERS.85.1.2465 Page 10 of 10
Original Research www.koersjournal.org.za
Nxumalo, S. 2016. Prioritising good corporate governance: Investing. MoneyMarketing, 10.
NZX code. (2017). https://nzx-prod-c84t3un4.s3.ap-southeast-2.amazonaws.com/tudMMcsVc86yCu5k
vAPgmPta?response-content-disposition=inline%3B%20lename%3D%22Corporate_Governance_
Code_2017.pdf%22%3B%20lename%2A%3DUTF-8%27%27Corporate_Governance_Code_2017.
pdf&response-content-type=application%2Fpdf&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-
Credential=AKIAJABUQTI7JQTRAXGA%2F20190305%2Fap-southeast-2%2Fs3%2Faws4_request&X-
Amz-Date=20190305T084357Z&X-Amz-Expires=300&X-Amz-SignedHeaders=host&X-Amz-Signatur
e=d74fbc55eac1d8a09f1d9b5e9c6620fd1b842fb01b4b30dd34df092677b6f7.
NZX Ltd v Ralec Commodities Pty Ltd [2016] NZHC 2742
Padayachee, V. 2017. King IV is here: corporate governance in SA revisited. South African Journal of
Social and Economic Policy, 17-21.
Terraraz, M. 2008. Workplace ethics 101: Corporate governance. Enterprise Risk, 2: 36-37.
Van Niekerk, T. & Olivier, B. 2012. Enhancing anti-corruption strategies in promoting good corporate
governance and sound ethics in the South African public sector. Tydskrif vir Christelike Wetenskap,
48: 131-156.
Rossouw, G.J. 2002. Business ethics and corporate governance in the second King report: Farsighted or
futile? Koers Bulletin for Christian Scholarship, 67: 405-419. https://doi.org/10.4102/koers.v67i4.380.
Simpson. 2017. New NZX corporate governance code – what listed companies need to know. https://
simpsongrierson.com/articles/2017/new-nzx-corporate-governance-code-what-listed-companies-
need-to-know.
South African Broadcasting Corporation Limited v Mpofu and Another (2009) 4 All SA 169 (GSJ).
Spiller, R. 2004. Investing in Governance. Chartered Accountants Journal, 83: 12-15.