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CORPORATE GOVERNANCE STATEMENT 2016
>> MERCURY NZ LIMITED Mercury NZ Limited 2016 Corporate Governance Statement
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CORPORATE GOVERNANCE FRAMEWORK At Mercury we have a genuine focus on the long term. This drives the way we do business, our investment decisions, services to customers, development of people and our partnerships with stakeholders. Our corporate governance framework sets out how our Board is accountable to our owners for Mercury’s actions and performance, along with the delegation of responsibilities to the Chief Executive and the Executive Management Team (“EMT”). Through this framework we create the objectives and direction for the business, identify and manage our risks, strengthen our business culture and assess and continuously improve our performance.
WE ARE COMMITTED TO THE HIGHEST STANDARDS OF CORPORATE GOVERNANCE, BUSINESS BEHAVIOUR AND ACCOUNTABILITY. We focus on building trust and confidence from our owners by having: • a clear purpose and responsibilities; • an effective culture built on integrity, honesty and transparency; • a well-balanced and experienced Board; • management accountability; and • effective management of current and future risks.
Shareholders
Human Resources Committee
Nominations Committee
Chief Executive MERCURY PEOPLE Our approach is based on international best-practice corporate governance and is supported by a regular review process. We are committed to maintaining the highest standards of business behaviour and accountability and regularly review Mercury’s governance framework against national and international guidelines to ensure consistency with best practice. Accordingly, the Board adopts corporate governance policies and practices reflecting
Mercury NZ Limited 2016 Corporate Governance Statement
Mercury’s corporate governance practices comply with the NZX Corporate Governance Best Practice Code, the ASX Corporate Governance Principles and Recommendations (third edition) (“ASX Principles”)and the Financial Markets Authority Corporate Governance Principles and Guidelines. We have also reviewed guidelines from the New Zealand Corporate Governance Forum, the International Corporate Governance forum, and the OECD and consider that our practices and procedures substantially reflect these guidelines. Information on how Mercury remunerates fairly and responsibly is contained in the Director and Executive Employee Remuneration section of our Annual Report 2016, also available in the corporate governance section of our website. Mercury’s Constitution, the Charters and most of the policies referred to in this Corporate Governance Statement are available in the Investor section of Mercury’s website.
ENGAGING WITH INVESTORS Our Investor Relations Programme Mercury is committed to communicating effectively and providing comprehensive information to investors and other stakeholders to ensure they have enough information to make informed assessments of Mercury’s value and prospects. The Board has adopted a Stakeholder Communications Policy which sets out the steps Mercury takes to enable this. This Policy is available in the corporate governance section of Mercury’s website.
WE ARE COMMITTED TO COMMUNICATE AND TO LISTEN. WE ARE RICHER FOR THE DIALOGUE WITH INVESTORS AND FROM UNDERSTANDING YOUR PERSPECTIVES.
MERCURY BOARD Risk Assurance and Audit Committee
contemporary standards in New Zealand and Australia, incorporating best practice recommendations issued by NZX Limited (“NZX”) and ASX Limited (“ASX”).
Mercury communicates with its investors through: • • • • • •
the investor section of our website; Annual Shareholders’ Meetings (“ASM”) and webcasts; our annual and interim reports; our regular newsletter; regular information disclosures; and analyst and investor briefings and road shows.
Our Head of Investor Relations runs a programme to build understanding and appropriate measurement of Mercury’s performance among investors and research analysts. The following principles provide the programme’s foundation: • being responsive; • providing clear, accurate and timely disclosures; • providing appropriate access to management and directors; and • providing meaningful insight into the Company and industry.
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Specifically, this is achieved through: • dialogue with the EMT; • briefings for results and announcements that allow analysts to ask questions of the EMT; • visits to Mercury’s premises including operating assets; and • opportunities to meet with directors. Summary records of the issues discussed at meetings with investors and analysts are kept, including a record of those present and the time and place of meetings. These are for internal use. Mercury believes effective engagement with investors will benefit both Mercury and investors. As a result of investor feedback, Mercury’s aim over the next financial year and beyond is to provide clearer communication of our strategic direction, including articulating Mercury’s strategic priorities and how these leverage Mercury’s competitive advantages. We have engaged with investors at a number of levels over this reporting period. Highlights in FY2016 included announcing in early May 2016 our change of name to Mercury NZ Limited, our open day for investors and stakeholders at our Ngatamariki geothermal power station in October 2015 and the purchase of proven capability and technical expertise in solar power with our solar business, What Power Crisis, in March 2016.
Website The Investors section of Mercury’s website contains a comprehensive set of investor-related information and data including stock exchange and media releases, interim and annual reports, investor presentations and webcasts, share price and dividend information, shareholder meeting materials and other material required to demonstrate best practice in investor communications. Shareholders can direct questions and comments through the website or contact the Head of Investor Relations.
ASMs and Webcasts ASMs are held in New Zealand at a time and location which aims to maximise participation by shareholders. The ASM is also webcast to allow participation by shareholders who are unable to attend the meeting in person. Mercury’s fourth ASM since listing on the NZX Main Board and ASX will be held in Auckland on 3 November 2016.
Electronic Communications We encourage shareholders to provide email addresses to enable them to receive shareholder materials electronically. Communicating electronically is faster and more cost-effective. Almost 75% of our shareholders have told us they prefer to communicate in this way. We understand that this does not suit everybody and so hard copy reports are provided on request to shareholders who have not opted to receive documents electronically.
Mercury NZ Limited 2016 Corporate Governance Statement
MERCURY’S BOARD Responsibilities The Board is responsible for the affairs and activities of Mercury, and has approved the delegation of certain responsibilities to the Chief Executive and other members of the EMT. The primary role of the Board is to create long-term value for shareholders by providing strategic guidance for Mercury and its related companies, and effective oversight of management. The Board is accountable to shareholders for Mercury’s performance. The responsibilities of the Board are set out in Mercury’s Board Charter, which is reviewed by the Board as required and at least every two years, and is available in the corporate governance section of our website. These responsibilities include: • establishing clear strategic goals with appropriate supporting business plans and resources; • ensuring there are adequate resources available to meet Mercury’s objectives; • ensuring Mercury’s environmental and health and safety culture and practices comply with all legal requirements, reflect best practice in New Zealand and are recognised by employees and other stakeholders as key priorities; • monitoring strategy implementation and performance; • selecting and appointing the Chief Executive, determining conditions of employment and monitoring performance against established objectives; • monitoring financial performance and the integrity of reporting; • setting delegated authority levels for the Chief Executive and EMT to commit to new expenditure, enter contracts, or acquire or divest businesses and/or assets; • approving transactions relating to acquisitions, divestments and capital expenditure above delegated policy limits; • ensuring that effective audit, risk management and compliance systems are in place and monitored to protect Mercury’s assets and to minimise the possibility of Mercury operating beyond legal or regulatory requirements or beyond acceptable risk parameters as determined by the Board; • approving EMT appointments, remuneration including performance remuneration and monitoring performance against objectives; • reviewing succession and development plans for the Chief Executive and EMT; • establishing and reviewing employment and remuneration practices to ensure that talented and motivated employees are recruited and retained for Mercury’s objectives; • ensuring effective and timely reporting to investors; • setting Mercury’s dividend policy; • ensuring Mercury adheres to high standards of corporate behaviour, responsibility and ethics; • ensuring that Board capability is reviewed and recommendations made for new directors; and
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• ensuring that directors’ Board and committee fees are reviewed and recommendations are made to shareholders. The Chief Executive and EMT are responsible for: • developing and making recommendations to the Board on Mercury strategies and associated initiatives; • managing and implementing strategies approved by the Board; • formulating and implementing policies and reporting procedures for management; • decision making compatible with Mercury’s Delegations Policy; • managing business risk; and • the day-to-day management of Mercury. The Chief Executive and the EMT have employment agreements setting out their roles and conditions of employment. The performance of the Chief Executive and the EMT is reviewed regularly against objectives and measures set by the Board in annual performance scorecards. Further details are contained in the Director and Executive Employee Remuneration section of Mercury’s Annual Report 2016.
Diversity The Board is structured to ensure that, as a collective group, it has the skills, experience, knowledge, diversity and perspective to fulfil its purpose and responsibilities. For further information on Mercury’s view of diversity, please refer to the Diversity and Inclusion section later in this Corporate Governance Statement.
Skills matrix The Nominations Committee has developed a Board skills matrix setting out the mix of skills and diversity of the Board. The skills matrix is also used to identify any “gaps” in the skills and experience of the directors required on the Board both currently and into the future. Attributes are weighted to indicate their relative importance. This matrix is completed by directors regularly and reviewed by the Nominations Committee. If any “gaps” are identified from this review, an expert consultant is engaged to assist in identifying and assessing potential director candidates. The most recent Board skills matrix is set out below.
SKILL/ATTRIBUTE Health and safety experience
Performance evaluations of the Chief Executive and each EMT member took place during the reporting period in accordance with this process.
Retail and marketing experience
Chair
ICT leadership experience (CIO or similar)
Joan Withers is the Chair of Mercury’s Board and was first appointed in 2009. Ms Withers is an independent, non-executive director. Ms Withers’ overarching responsibilities are to provide leadership to the Board and to ensure the Board is well informed and effective. You can read more about the role of the Chair in the Board Charter in the corporate governance section of our website.
Experience of deep organisational change in a mature industry
Board Composition and Director Appointment The Board currently comprises eight directors, being Joan Withers, Mike Allen, Prue Flacks, Andy Lark, James Miller, Keith Smith, Patrick Strange and Mike Taitoko. A brief biography of each director is available in the Leadership section of Mercury’s website.
Brand expertise and experience Digitisation/Technology expertise and experience
Innovation and growth, entrepreneurialism Iwi relationships/connectivity Human Resources experience (incl. through large company leadership or other appropriate committee experience) Business strategy experience M&A experience Risk management experience Commodity or financial markets trading Capital markets/capital structure experience
Selection
Large company leadership experience (CEO)
We have processes in place to undertake appropriate checks before appointing a director or putting forward any candidate for election as a director.
Large company leadership experience (non-CEO)
Nomination The number of directors is determined in accordance with the Constitution. All directors are elected by Mercury’s shareholders (other than directors appointed by the Board to fill casual vacancies, who must retire at the next meeting of shareholders) with rotation and retirement determined by the Constitution. The Board is responsible for identifying and appointing directors to the Board through the Nominations Committee (see the Board Committees section below). The Board may appoint directors to fill casual vacancies. Mercury has a written agreement with each director setting out the terms and conditions of their appointment. A copy of the standard form of this letter is available on our website.
Mercury NZ Limited 2016 Corporate Governance Statement
Electricity industry operational experience Regulatory knowledge and experience Governance experience Listed company experience Government relationships – Ministerial/Senior Official/Opposition Shareholder/investment community relationships International business experience Finance/accounting/audit committee experience Major project experience
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Induction and Development
Independence and conflicts
New directors take part in a comprehensive induction programme for familiarisation with Mercury’s business and the electricity industry. The Board receives regular briefings on Mercury’s business operations from senior managers. Regular Board strategy days are held to consider matters of strategic importance to Mercury. Visits to Mercury’s facilities keep the Board informed in relation to Mercury’s assets, and in particular with respect to health and safety matters. Directors are also encouraged to continue their own professional development by attending relevant courses, conferences and briefings.
All of the directors are considered by the Board to be “independent” directors in that they are non-executive directors who are not substantial shareholders and who are free of any business or other relationship that would materially interfere with, or could reasonably be seen to materially interfere with, the independent exercise of their judgement. No directors have been employed or retained to provide material professional services by Mercury within the previous three years, nor is any director a partner, director or senior executive or material shareholder of a firm which provides professional services to Mercury or a related company. No director is a material supplier to Mercury or has any other material contractual relationship with Mercury or another group member other than as a director of Mercury. No director controls, or is an executive or other representative of an entity which controls, 5% or more of Mercury’s voting securities. The Chief Executive is not a director of Mercury.
It is fundamental to the Board that directors have sufficient time to perform their duties properly and effectively. The Board has considered this issue during the reporting period and is satisfied that, taking into account all of their commitments, each director had sufficient time to perform their Mercury duties.
Directors’ Mercury shareholdings
Tenure Mercury notifies shareholders of their right to nominate a candidate for election as a director by stock exchange notice and by publication on our website. Where any director election or reelection is to occur at a shareholder meeting, the notice of meeting includes all material information known to Mercury on candidates for director election or re-election. The Constitution provides that the size for the Board should be between three and nine directors. At least one third of all directors must retire every year and, if desired, seek re-election. The directors who retire each year are those who have been longest in office since their last appointment or, if there is more than one of equal term, those determined by lot, unless the Board resolves otherwise. The Mercury Board takes director tenure into account in considering the independence of directors.
Director tenure
The Board supports means by which directors’ interests are aligned with those of shareholders and with Mercury’s strategic aims. To improve this alignment, the Board encourages the accumulation by directors, within a reasonable period of time after joining the Board, of shareholdings in Mercury meaningful to each individual director.
Reviewing performance Evaluations are regularly conducted to review the Board’s role, Board processes and committees to support that role and the performance of the Board and each director. This is undertaken using a variety of techniques including external consultants, questionnaires and Board discussion. As at the balance date, the Board was part way through its current full performance review and analysis of Board skills and tenure. The last full Board performance review, with the assistance of an external facilitator, was completed in February 2015. The Board also completed a comprehensive analysis of the skills and tenure of the Board at that time.
Access to advice and Company Secretary 2-4 YEARS 4-6 YEARS
Directors may access such information and seek such independent advice as they consider necessary or desirable, individually or collectively, to fulfil their responsibilities and permit independent judgement in decision making. In particular, they are entitled to have access to internal and external auditors without management present and, with the Chair’s consent, seek independent professional advice at Mercury’s expense.
25%
0-2 YEARS 50%
12.5%
6+ YEARS 12.5%
Name
Originally Appointed
Last Reappointed/ Elected
Joan Withers (Chair) Mike Allen Prue Flacks Andy Lark James Miller Keith Smith Patrick Strange Mike Taitoko
1 August 2009 1 November 2009 1 May 2010 10 July 2014 1 May 2012 1 May 2009 4 February 2014 28 August 2015
7 November 2013 6 November 2014 5 November 2015 6 November 2014 6 November 2014 5 November 2015 6 November 2014 5 November 2015
Mercury NZ Limited 2016 Corporate Governance Statement
All directors have access to the advice and services of the Company Secretary for the purposes of the Board’s affairs. The Company Secretary is appointed on the recommendation of the Chief Executive, and must be approved by the Board. The Company Secretary is accountable to the Board, through the Chair, on all governance matters. As at the date of this Corporate Governance Statement, Tony Nagel is the Company Secretary.
Future Directors Programme The Board supports the Institute of Directors’ Future Directors Programme which offers candidates valuable experience sitting at the Board table of a New Zealand company for 12 or more months. The programme is designed to increase the pipeline of Board-ready younger directors through giving them exposure to real-life governance in action along with valuable mentorship. Our second future director, Nicky Ashton, was selected in June 2016 and has taken the role for the period 1 July 2016 to 31 December 2017. Nicky participates in discussions in all Board meetings but does not participate in decision making.
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BOARD COMMITTEES OUR THREE STANDING COMMITTEES FOCUS ON PARTICULAR AREAS OF THE BOARD’S RESPONSIBILITIES AND TOGETHER STRENGTHEN THE BOARD’S OVERSIGHT OF MERCURY. Overview of the three standing Committees of the Board An overview of the role and responsibilities, membership and meetings of the Board’s three standing Committees is provided in the table below. Committee meetings are scheduled to coordinate with the Board meeting cycle. Each Committee reports to the Board at the subsequent Board meeting and makes recommendations to the Board for consideration as appropriate.
Roles and Responsibilities
Human Resources Committee
Risk Assurance and Audit Committee (“RAAC”)
Nominations Committee
Assisting the Board to fulfil its human resources responsibilities relating to:
Overseeing, reviewing and advising the Board on Mercury’s:
• Mercury’s human resources strategy and plan; • the remuneration and performance of the Chief Executive; and • Human Resources policies and practices.
• risk management policy and processes (which includes oversight of Health & Safety assurance); • internal control mechanisms and internal and external audit functions; • compliance policies and processes; and • financial information prepared by management for publication.
Identifying people with the necessary expertise, experience, diversity and perspectives for selection as potential directors to be nominated for election at the next annual shareholder meeting or to fill a casual vacancy on the Board.
Monitoring and providing guidance to management on human resourcesrelated matters.
Management retains responsibility for the implementation and operation of adequate risk assurance, internal control and audit systems. The Board has delegated to the RAAC the authority to oversee and monitor these activities.
Membership
• providing assurance that the Board has the composition, expertise and diversity of thought to comply with the law, high standards of governance and Mercury’s strategic objectives; • recommending individuals qualified to become Board members and review nominations from shareholders; • recommending to the Board an annual evaluation process of the Board and its committees; • recommending appropriate remuneration of directors; • ensuring that succession plans are in place for the continued effective composition and expertise of the Board; and • recommending induction and continuing education for directors.
At least 3 directors, the majority of whom must be independent.
At least 3 directors, each of whom must be independent non-executives.
At least 3 directors
Current members:
Current members:
• Prue Flacks (Chair)
• Keith Smith (Chair)
• Joan Withers (Chair)
• Mike Allen
• James Miller
• Andrew Lark
• Patrick Strange.
• Mike Taitoko.
Joan Withers is also a member by virtue of her position as Board Chair.
Joan Withers is also a member by virtue of her position as Board Chair.
Meetings
In particular:
Current members: • Prue Flacks • James Miller.
The Board Chair is not eligible to Chair the Committee.
At least three times annually.
At least one member must have an accounting or financial background as that term is described in the NZX Main Board Listing Rules. At least three times annually.
At least annually.
During the reporting period, the Committee met 4 times.
During the reporting period, the Committee met 4 times.
During the reporting period, the Committee met 5 times.
Mercury NZ Limited 2016 Corporate Governance Statement
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Attendance The table below shows attendances at Board, committee and strategy meetings by directors during the year ended 30 June 2016. In addition to the usual meetings of the Board and its standing committees, additional meetings of the Board are convened as necessary to consider particular issues facing Mercury.
Board
Number of Meetings Joan Withers Michael Allen Prue Flacks Andy Lark James Miller Mike Taitoko (appointed 28.08.15) Keith Smith Patrick Strange
Risk Assurance and Audit Committee
10 10 9 10 10 10 8 10 10
4 4 – – – 4 – 4 4
Human Resources Committee
4 4 4 4 4 – 2 – –
Nominations Committee
Company Strategy
5 5 – 5 – 5 – – –
2 2 2 2 2 2 2 2 2
Information on the relevant qualifications and experience of Committee members is available in the corporate governance section of our website.
Committee Charters Each Committee operates in accordance with a written Charter approved by the Board and reviewed as required and at least every two years. The Committee Charters are available in the corporate governance section of our website.
ASSURANCE AND MANAGING RISK Audit Plan and Role of Auditor The Auditor–General is the auditor of Mercury and each of its subsidiaries (together, the “Group”), under the Public Audit Act 2001. The Auditor–General appointed Simon O’Connor of Ernst & Young to carry out the FY2016 audit on her behalf. The NZX Main Board Listing Rules require rotation of the lead audit partner at least every five years. The provision of external audit services is guided by the Audit Independence Policy which is available on our website. Consistent with the Stakeholder Communications Policy, the external auditor attends the ASM and is available to shareholders to answer questions relevant to the audit.
Internal Audit Mercury operates a comprehensive internal audit plan, which takes a holistic view of Mercury’s culture, practices and procedures and includes periodic reviews of relevant areas of Mercury’s operations. The internal audit plan is designed and approved by the RAAC each year in consultation with the Risk Assurance Officer and the Internal Auditor (currently made up of an internal team, Deloitte and a number of other internal audit and process specialists appointed on an outsourced basis) who report on progress and the results of internal audit reviews at each RAAC meeting. The Internal Auditor has access to management and the right to seek information and explanations. The RAAC meets with the Internal Auditor at least once each year without management present.
Mercury NZ Limited 2016 Corporate Governance Statement
During the FY2016 reporting period, one area of focus for the RAAC’s assurance function was a comprehensive, holistic review of our regulatory compliance, in particular: • Mercury’s environmental resource consents, to ensure ongoing fuel supply for Mercury’s generation assets; and • Compliance with the electricity industry’s main “rulebook”, the Electricity Industry Participation Code. Looking ahead to FY2017, a focus of the RAAC will be Mercury’s management and administration of key material contracts.
Timely and Balanced Disclosure Shareholders and Markets Mercury is committed to maintaining a fully informed market through effective communication with the NZX and ASX, our shareholders and investors, analysts, media and other interested parties. Mercury provides all stakeholders with equal and timely access to material information that is accurate, balanced, meaningful and consistent. The Market Disclosure Policy is designed to ensure this occurs in compliance with Mercury’s continuous disclosure obligations under the NZX Main Board and ASX Listing Rules. The Policy is available in the corporate governance section of our website. The Board has appointed the Company Secretary as the Disclosure Officer who is responsible for administering the Policy. The Disclosure Committee (made up of the Board Chair, the RAAC Chair, the Chief Executive, the Chief Financial Officer and the Disclosure Officer) is responsible for ensuring that Mercury complies with its disclosure obligations. The Chief Executive and EMT are responsible for providing the Disclosure Officer with all material information relating to their areas of responsibility. Information which, in the opinion of the Disclosure Officer, may require disclosure is provided to the Disclosure Committee for decision. Proposed disclosures of draft annual and interim results and accompanying news releases and presentations must be reviewed by the RAAC before finalisation by the Board. Once approved for disclosure, the Disclosure Officer is responsible for releasing material information to the market.
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Directors consider at each Board meeting whether there is any material information which should be disclosed to the market.
The Corporate Responsibility Policy is available in the corporate governance section of our website.
Integrity of Reporting
Mercury accepts some commercial risks in order to achieve its strategic objectives and to deliver enhanced shareholder value. These are embodied in Mercury’s Risk Appetite Statement which is set and regularly reviewed by the Board. As part of its current Risk Appetite Statement, Mercury targets a long-term credit rating of BBB on a stand-alone basis from Standard & Poor’s (or its equivalent).
The Chief Executive and the Chief Financial Officer are required each half-year to provide a letter of representation to the Board confirming that: • the Group’s financial statements have been prepared in accordance with generally accepted accounting principles in New Zealand, are free of material misstatements, including omissions, give a true and fair view of the financial performance and position of the Group and the financial records have been properly maintained; • the representation is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; and • Mercury’s risk management and internal control system is operating effectively in all material respects. A letter of representation confirming those matters was received by the Board with respect to the Group’s FY2016 financial statements.
Risk Management Framework Risk management is an integral part of Mercury’s business. Mercury has in place an overarching Risk Management Policy (available in the corporate governance section of Mercury’s website) supported by a suite of risk management policies appropriate for its business, including a Risk Appetite Statement, a Market and Credit Risk Management Policy, a Treasury Policy and a Delegations Policy. The purpose of the Risk Management Policy is to embed within Mercury a comprehensive, holistic, Group-wide capability in risk management which provides a consistent method of identifying, assessing, controlling, monitoring and reporting existing and potential risks to Mercury’s business and to the achievement of its plans and objectives. The Policy sets out the risk management objectives and requirements of Mercury within which management is expected to operate. The Policy applies to all business activities of the Group including Mercury-controlled joint ventures and is reviewed periodically by the RAAC. The Risk Management framework supports a comprehensive approach to risk, encompassing financial, strategic, environmental, operational, regulatory, social and governance risks, from internal and external sources. Mercury works hard to improve the way we incorporate environmental, social and governance risk considerations into our Risk Management Framework, policies and processes. We are also striving to further embed these considerations in our operations. This drive is underpinned by our Corporate Responsibility Policy which sets out the core principles and values that promote ethical and responsible decision making. Under the Policy, we commit to: • • • • • • •
being responsible; sustainable development; respecting the environment; customer experience; community and stakeholders; employment experience; and procurement and supply chain engagement.
Mercury NZ Limited 2016 Corporate Governance Statement
Mercury has a Risk Assurance Officer who has the authority to determine the effectiveness of risk management, assurance and audit. The Risk Assurance Officer has a dual reporting line to the Chief Executive and the RAAC Chair. The RAAC tasks the Risk Assurance Officer to ensure healthy and robust debate and interaction between management and risk assurance and audit providers. Mercury’s management operates a Risk Management Committee whose mandate is to promote risk awareness and appropriate risk management to all employees and to monitor and review risk activities as circumstances and our strategic and operational objectives evolve. Membership of the Risk Management Committee is made up of representatives from the EMT and is chaired by the Chief Executive. The Risk Management Committee meets at least four times each year. As noted above, the RAAC is responsible for overseeing, reviewing and providing advice to the Board on Mercury’s risk management policies and processes. The Risk Assurance Officer reports regularly to the RAAC on the effectiveness of Mercury’s management of material business risks. In addition, the RAAC annually reviews the risk management framework. A review of the risk management framework took place in FY2016.
Key Risks Key risks are that Mercury is unable to generate, buy and sell electricity and related services, or develop projects, thereby adversely impacting its expected operational and financial performance, and Mercury’s value.
Electricity Market Exposure In the short-run, Mercury’s ability to manage its electricity portfolio risk depends upon its ability to purchase and sell electricity in the wholesale electricity market which could be impacted by: • short-term changes in supply and demand; • national fuel conditions based on hydrological conditions; • competitor behaviour; and • constrained transmission and distribution of electricity. In the long-run, wholesale prices are determined by the level of national demand relative to supply from power generation and can be affected by levels of activity in the industrial sector, population size, economic conditions, competitor behaviour and generation build or retirement, technological changes or new sources of energy, and regulatory changes.
Legislative and Regulatory Risks Legislative or regulatory changes, including Treaty of Waitangi claims, may result in Mercury facing direct or indirect restrictions, conditions or additional costs on Mercury’s access to freshwater or geothermal resources and its hydro and geothermal generation activities.
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Regulatory changes imposed on the current wholesale and retail market structure and pricing regimes may affect how Mercury is managing its integrated business model of generating and retailing electricity and could adversely impact the value of Mercury.
Fuel Security and Supply Mercury’s generation depends upon the availability of water for hydro generation and geothermal fluid for geothermal generation. The principal risks include the inability to generate expected levels of electricity due to either temporarily or permanently reduced fuel supplies, or increased costs to secure the necessary fuel, both of which may adversely affect Mercury’s future operating results and/ or revenues.
Power Station Availability Mercury’s ability to generate electricity depends upon the continued efficient operation of its power stations. The viability, efficiency or operability of its power stations could be adversely affected by a range of factors including: • material failure of turbines, transformers, geothermal wells that results in unplanned power station outages which requires replacement or repair; and • catastrophic events such as major earthquake, volcanic eruption, or other natural catastrophes that could cause failure of any or several of Mercury’s power stations.
Generation Growth and Development Risks Growth and development projects are subject to risks that may affect expected financial returns or outcomes: • the outcome of geothermal exploration is inherently risky with any activity highly uncertain due to relatively unknown variables, including underground geology and characteristics that are different for each reservoir; • capital might not be available at acceptable terms restricting access to funding for developments; and • political and regulatory uncertainty and poor economic conditions may limit Mercury’s development choices or adversely affect the viability or costs of future developments.
Key Relationships and Contracts Major contracts and agreements with partners, customers or suppliers could be terminated or not renewed, requiring replacements which may be less desirable or alternative solutions which could adversely affect the operational and financial performance of Mercury.
There is a risk that foreign currency or interest rate movements may impact Mercury’s earnings by increasing the cost for imported goods and services and issued debt.
Reputational, Environmental and Sustainability Risks Mercury’s reputation with investors, stakeholders and the broader community is one of its most significant assets. The following events could threaten that reputation and could lead to negative publicity resulting in the loss of business revenues or reduction in Mercury’s value: • errors in customer connections, billing or general customer communications; • errors by directors, management, contractors or related industry operators negatively reflecting on Mercury; • adverse environmental impact caused by, or perceived to be caused by, Mercury’s operations; • health and safety incidents under the operational control of Mercury; • a reduction in corporate citizenship standards reflecting poorly on Mercury’s reputation. Other material business risks that could impact on the short, medium or long term financial performance of Mercury, including material exposure to economic, environmental or social sustainability risks include: significant reduction or ceasing of electricity consumption by the Tiwai aluminium smelter; political, regulatory, foreign exchange, accounting and other international jurisdiction risks; and catastrophic events. In addition to the risk management processes set out above a number of measures are employed to manage these risks, including employee awareness, incident training, due diligence, financial risk mitigation tools and active involvement in the regulatory environment. For example, Mercury is an active participant in the New Zealand Land and Water Forum, a group bringing together a range of industry groups, environmental and recreational NGOs, iwi, scientists and other organisations as stakeholders in freshwater and land management.
ACTING ETHICALLY AND RESPONSIBLY Our purpose is to inspire New Zealanders to enjoy energy in more wonderful ways. Our Mercury Attitude, together with our Code of Ethics, Corporate Responsibility Policy and governance framework, set out the standards of business culture and behaviour as we deliver our corporate strategy and achieve our purpose.
Financial risks In the event of a severe natural catastrophe, uninsured damages or uninsurable damages to Mercury’s assets may not be fully recovered under the current insurance arrangements, impacting future operational performance and the financial condition of Mercury. Mercury is insured through a comprehensive programme including cover for generation property, plant and equipment and business interruption with a combined limit of $1,000,000,000. A deterioration of Mercury’s financial condition or instability in capital markets could increase Mercury’s cost of capital or eliminate its ability to raise debt, impacting its financial performance and pursuit of its strategic objectives. The Crown’s shareholding and the provisions of the Public Finance Act may limit Mercury’s ability to raise equity capital.
Mercury NZ Limited 2016 Corporate Governance Statement
OUR PURPOSE IS TO INSPIRE NEW ZEALANDERS TO ENJOY ENERGY IN MORE WONDERFUL WAYS Our Attitude A Mercury employee is expected to apply three powerful elements that together form our attitude. These shape our decisions, our actions and our interactions with each other. Our Mercury attitude aligns with our direction to achieve our purpose: • Commit and Own it; • Share and Connect; and • Be Curious and Original.
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Our Code of Ethics and policy framework
Matter
Initiative
Our Code of Ethics requires all Mercury people, including directors, officers, employees and contractors to act honestly and in accordance with the highest standards of integrity and fairness at all times, and to strive to foster those standards within Mercury. The Code of Ethics can be found in the corporate governance section of our website.
Community support
In order to support Mercury’s many communities and more closely connect our people with those communities, we have set up the Employee Community Fund. The Employee Community Fund is an annual fund of $100,000 to benefit and support our communities. Any Mercury person can apply for some help for a community group or organisation they are involved with. The Employee Community Fund has been shared with a range of community groups reflecting the diversity of our Mercury team: schools, sports clubs, groups supporting families and people with unique healthcare needs.
HEALTH AND SAFETY IS A TEAM GAME. WE ALL NEED TO WORK TOGETHER TO MAKE SURE WE ALL GET HOME SAFE TO OUR FAMILY AND FRIENDS AT THE END OF EACH DAY. The Code of Ethics and associated policy framework underpin our ethical and behavioural standards. They support our promises to each other and define our commitment to our customers, our investors and the communities in which we operate.
Mercury has supported the Starship Children’s Hospital and the Starship Foundation for over 15 years. We launched the Star Supporters Club in 2004 and we now have more than 30,000 members who have donated over $8.8m over that time. Discrimination Our workplace does not tolerate any form of
discrimination or harassment. Our Corporate Responsibility Policy puts it simply: We value workforce diversity and treat our employees with respect and consideration, maintaining a work environment free from any form of discrimination or harassment.
Directors are required, in the performance of their duties, to give proper attention to the matters before them and to act in the best interests of Mercury at all times. Our policy framework addresses behaviours in the following key areas:
Our People and Communities Matter
Initiative
Health and Safety
The health and safety of our people and everyone we work with is our top priority. Our Health and Safety Framework is underpinned by the concept of Together, Safe. Everyone at Mercury is involved in reporting hazards and near misses using an online tool and phone app for easy access and timely reporting.
Our Customers Matter
Initiative
Privacy
We are committed through our Privacy Framework to the protection of personal information relating to our people and our customers.
Wellbeing
As providers of an essential service, Mercury takes the health, safety and wellbeing of its customers very seriously, in particular those who are vulnerable and/or medically dependent. This extends beyond legislative compliance. During the Transpower Penrose (Auckland) outage in late 2014, a Mercury team urgently telephoned every one of our registered vulnerable and/or medically dependent customers to check that they were safe. Those that didn’t answer their telephones were visited at their home by a member of the Mercury team.
Energy management and conservation
Mercury has developed the Good Energy Monitor (“GEM”), an online tool that allows customers to know how much energy they are using and how much it is costing them. GEM allows customers to set an energy savings goal, track progress over time and gives tips on how to save.
Mercury is a founding member of Staylive an industry body working to improve health and safety in the electricity industry. Wellbeing
We practise wellbeing in its broadest sense. We reimburse Mercury employees for a free annual health check. We offer free influenza vaccinations and subsidised health, income protection, life and travel insurance. Our online wellness programme, Tracksuit Inc. helps our people to manage and improve their fitness and wellbeing. We also provide a company-wide My Days programme, under which every Mercury employee is given five days a year, in addition to annual leave, to spend time with their communities, their families or simply on a bit of “me time”.
Mercury also developed GLOBUG, the leading prepay power service. Energy freedom Mercury is committed to being customer-led. Mercury and advancing has promoted the benefits of electric vehicles for over technologies
two years as a way to enjoy New Zealand’s home-grown, renewable energy. Mercury has committed to convert 70% of its own vehicle fleet to electric vehicles by 2018. Electric transport is New Zealand’s largest green growth opportunity and delivers benefits to the consumer, economy, healthcare, emissions, provincial employment and the balance of payments.
Mercury has also invested in the purchase of proven capability and technical expertise in solar power. In March 2016, Mercury purchased its solar business, What Power Crisis.
Mercury NZ Limited 2016 Corporate Governance Statement
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Our Governance and Responsible Business Practices
DIVERSITY AND INCLUSION
Matter
Initiative
Conflicts
Conflicts of interest must be avoided. Mercury people are encouraged to discuss possible conflicts with their manager. Mercury takes practical, preventative action wherever possible, for example by substituting project managers in circumstances of possible conflict with contractors and suppliers.
Diversity and inclusion is an integral part of Mercury’s culture. We believe that having a team of individuals with different backgrounds, views, experience and capability working together makes us stronger and better as an organisation. Being reflective of the customers and communities we serve helps us connect more effectively with them, providing products and services that enhance their lives. We recognise the importance of being a good corporate citizen that complies with legislation, challenges inappropriate behaviours and promotes diversity through supply chains and community activities.
All potential conflicts of interest are declared prior to appointment and at each Board meeting, including in relation to specific agenda items if applicable. Bribery
The acceptance of bribes, including gifts or personal benefits of material value which could reasonably be perceived as influencing decisions, is prohibited under Mercury’s Code of Ethics. Under Mercury’s Delegations Policy, donations to political parties are prohibited.
Use of Mercury The Code of Ethics places restrictions on the use of Assets corporate information, assets and property. All persons
covered by the Code of Ethics are encouraged to report any breach or suspected breach of the Code.
Whistleblowing We provide a framework for the protection of employees
wishing to disclose serious wrongdoing. This is described in Mercury’s Employee Rights under the Protected Disclosures Act statement, which was most recently reinforced to employees in July 2016. The framework is overseen by the RAAC. Mercury did not receive any reports of serious wrongdoing during the reporting period. Employees are also encouraged to voice with their manager any concern over ethical or irresponsible behaviour, even if not reaching the threshold of serious wrongdoing.
Trading In Company Securities
Mercury’s Trading in Company Securities Policy sets out the rules and restrictions relating to trading in Mercury securities, including the prohibition on insider trading. The Policy is closely monitored by the Company Secretary and is overseen by the RAAC. The Chief Executive and EMT members are prohibited, by the Trading in Company Securities Policy, from entering into transactions in associated products which limit the economic risk of participating in unvested entitlements under Mercury’s Long Term Incentive Plans.
Market Disclosures
Our Market Disclosure Policy ensures we maintain a fully informed market through communication with the markets, investors and stakeholders and by giving them equal and timely access to material information.
Corporate Responsibility
Our Corporate Responsibility Policy sets out the core principles and values that promote ethical and responsible decision making. Under the Policy, we commit to: being responsible; sustainable development; respecting the environment; customer experience; community and stakeholders; employment experience; and procurement and supply chain engagement.
Mercury’s progressive approach to diversity focuses on gender, age, ethnicity, inclusion and flexibility. Activity is aligned to the following principles: • increasing the diversity of our workforce at senior levels • creating a flexible and inclusive work environment that values difference and enhances business outcomes • harnessing diversity of thought and capitalising on individual differences • leadership behaviours that reflect our belief in the value of diversity and inclusion • attracting and retaining a talented workforce through increasing the diversity of the candidate pool and maintaining a recruitment strategy that is attractive to all candidates. We understand this is an ongoing journey but one that ensures we leverage diverse perspectives and experiences, enabling us to improve and grow. Our commitment to diversity and inclusion starts with our Diversity Policy and framework. Our Policy is available in the corporate governance section of our website. Measureable objectives to achieve gender diversity were established in 2014 to drive our progress towards the challenge set by the Board to increase representation of women at all levels. Over the last three years, Velocity, our talent development programme, has continuously increased the number of female participants. We have reviewed our recruitment and selection processes to challenge potential bias in panels and decisions. In addition, the Board participates in the Future Directors programme, appointing women Future Directors in 2015 and 2016 and Mercury is a signatory to the UN Women’s Empowerment Principles. The representation of women at Mercury is set out in the following table: FOCUS
Total Workforce Leaders EMT Board
30 JUNE 2015 (ACTUAL)
30 JUNE 2016 (ACTUAL)
TARGET BY JUNE 2017
TARGET BY JUNE 2020
36%
37.8%
37%
38%
28% 28% 33%
33% 33% 33%
19.6% 25% 37.5%
25%* 22%** 25%
* Leaders comprise the top four layers of management. This is a larger group than measured in previous years, in line with our focus on growing the leadership pipeline. ** EMT has increased from eight members in 2015 to nine members in 2016 and in both years included two women.
Mercury NZ Limited 2016 Corporate Governance Statement
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At balance date, the proportion of women on the EMT (including the Chief Executive) was 22%, or two out of nine (as at 30 June 2015 this was 25% or two out of eight). The proportion of women on the Board at balance date was 25% or two out of eight, including the Chair (as at 30 June 2015 this was 37.5% or three out of eight). Mercury invests in leveraging and building capability. This includes supporting all ages and life stages, leveraging the unique knowledge and experience we already have and developing new capability aligned to future direction. In 2016, we launched a company-wide foundation management programme, StepUP, with a focus on strengthening our People Managers’ capability to develop and grow their teams. Unconscious bias training is the next targeted programme for all leaders. Part of creating a culture of inclusiveness is to ensure everyone is valued and has a voice. This year our people nominated their peers to be part of a network of change supporters who created opportunities for authentic workforce participation in changes impacting our business. Recognising the importance of flexibility, Mercury provides all employees with five ‘My Days’ on top of annual leave to encourage our people to enjoy what is important to them. In 2016, we introduced paid partner parental leave encouraging partners to spend time with their family after the arrival of a new born. Our annual Workplace Engagement Survey gives our people the opportunity to tell us how we are progressing. The responses from 2016 confirm that our commitment to diversity and inclusion is having an impact: Questions
Mercury
Large Org benchmark
All employees in this organisation are treated fairly, regardless of age, ethnicity, gender or physical capabilities
80.8%
71.9%
This organisation gives me the flexibility to help me manage my personal commitments
86.5%
n/a
The person I report to treats people with respect
88.9%
87.2%
I have the freedom and flexibility to do my job effectively
83.1%
80.1%
I feel informed about this organisation and its activities
81.1%
61.2%
73.4%
62.7%
This organisation encourages ideas and suggestions on how to improve the way things are done
Mercury NZ Limited 2016 Corporate Governance Statement
As part of the Survey we committed to collecting data to understand the ethnic mix of our people. We recognise that while our workforce is diverse, that diversity is not reflected to the same degree in leadership roles. This baseline data provides a starting point for us to measure our progress against:
Asian (54) Indian (55) NZ Maori (37) NZ European/Pakeha (351) Pacific People (50) Other European (45) Other (63) Undisclosed (73)
Survey Population
People Leaders
7% 8% 5% 48% 7% 6% 9% 10%
5% 3% 2% 69% 3% 6% 10% 3%
Mercury acknowledges the important place Maori have as tangata whenua. The 2016 employee engagement survey confirmed Maori employees were the highest engaged ethnic group in Mercury. The average age of our employees is 40 years, against the national average of 42 (Statistics NZ National Labour Force Projections updated August 2012). For this reporting period, the Board believes Mercury has made good progress towards achieving its diversity and inclusiveness objectives and against its Diversity Policy generally.
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Other Information This Corporate Governance Statement was approved by the Board of Mercury NZ Limited on 22 August 2016. The information contained in this Corporate Governance Statement is current as at that date. Some information in the Corporate Governance Statement is expressed to be current at another date, for example the FY2016 balance date of 30 June 2016. This Corporate Governance Statement can be found in the corporate governance section of our website at www.mercury.co.nz, along with other information on our corporate governance framework, our Board, our Executive Management Team and our key policies. This Corporate Governance Statement is signed on behalf of the Board by:
Joan Withers, Chair
Keith Smith, Director
Mercury NZ Limited (formerly known as Mighty River Power Limited) ARBN 162804668
Mercury NZ Limited 2016 Corporate Governance Statement