Treasury mum on advice on fiduciary duties of directors

Wednesday 29th February 2012 1 Comment

The Treasury is keeping mum on its advice over the fiduciary duties of government-appointed directors for the state-owned enterprises to maximise returns for minority shareholders.

Secretary Gabriel Makhlouf told the parliament’s finance and expenditure select committee he wouldn’t be drawn on the department’s advice to ministers over whether government-appointed directors in partially-privatised energy companies would have to operate in a strictly commercial basis.

Makhlouf told the committee directors of the partially-privatised companies will continue to have fiduciary duties already covered by existing law, but anything specific to these entities will rely on the legislation being written to allow the sales.

“I think we’re jumping now to decisions the government may or may not make and the legislation that parliament may pass which will set the framework within which these companies will operate,” Makhlouf said. “I’m not going to get drawn on what precisely on what advice we’re giving and on what particular issue.”

That was in response to Green Party co-leader Russel Norman, who questioned whether the model would open up conflicts for directors to recommend the sale of companies’ individual assets if the right offer was put forward.

Makhlouf said the companies will “operate within the framework of the legislation that will be introduced to put this change into effect.”

“So within that context and whatever constraints in the legislation, we would expect them to operate commercially,” he said.

The prospect of tinkering with the directors’ duties adds another layer of complexity to the legislation, which has already seen the government at loggerheads with its support partner, the Maori Party, over existing Treaty of Waitangi obligations for SOEs.

Last week, SOE Minister Tony Ryall said the government will include the concepts of Section 9 in the SOE Act in the new legislation after a round of meetings with Maori tribal leaders.

At last year’s elections, the government successfully campaigned on selling minority stakes in four energy companies and reducing its holding in Air New Zealand, in a bid to free as much as $7 billion for new capital investment.

(BusinessDesk)

BusinessDesk.co.nz

Comments from our readers

On 29 February 2012 at 2:23 pm Siena said:

Has the cat got the Treasury's tongue? The most important fiduciary duty is the duty of loyalty.The concept is simple: the decision makers within the company should act in the interests of the company, and not intheir own interests.The easiest way to comply with this duty is not to engage in transactions that involve a conflict of interest, commonly known as, "self-dealing" transactions.The concept is that the directors are dealing with themselves, and may not reach an agreement that is fair to the company. An alternative, that is accepted in most countries because a flat ban on self-dealing transactions can be impractical, especially for smaller firms, is to have 3 self-dealing transactions approved by anoninterested decision maker. That decision maker can be noninterested directors, noninterested shareholders, or sometimes both. Public companies, in the common case where the company has a majority of independent directors, almost always rely on noninterested directors to negotiate and approve a conflict-of-interest transaction. Partly this is because of the legal consequences and Also, if the independent directors allow interested directors to vote to approve a self-dealing transaction, this is likely to lead to public criticism of the independent directors,as well as a lawsuit that they are likely to lose, where the principal question is the amount of damages.Even if the damages will be paid by the company rather than by the directors, few directors want to accept this sort of public embarrassment.The principal value of independent directors lies in a more careful review of conflict-of-interest transactions and no one doubts that having some independent directors is important, and that a core task for the independent directors is to review proposed self-dealing transactions. Now how difficult was that to say? Mummy indeed! Mr. Treasurer Maklouf.