Posts Tagged ‘Smellie Sniffs The Breeze’
Monday, May 24th, 2010
Remarkable in the tidal wave of approval for Bill English’s second Budget is the irrelevance of the Opposition Labour Party.
Such effective Opposition party behaviour as could be discerned around the Budget involved the dissident member of the government’s own coalition partner, Hone Harawira of the Maori Party.
While Harawira’s blast at the GST increase was reported as if Hone had broken ranks “yet again,” no one really blamed the Maori Party if it let Hone off the leash after the betrayal of the apparently reasonable expectations of Tuhoe.
Thanks to the Budget, that is now last week’s issue.
The Budget was a blinder – a document for the times. Encouraging of risk-taking in a fragile environment, and creating a bit of hope on the home front with meaningful cuts to tax rates in the “middle” New Zealand household, where the bread-winner may be bringing home $40,000 a year.
And at the same time, keeping government debt levels within completely acceptable parameters. The government’s plan works best if the economy grows, but with net debt peaking at below 30% of GDP in the near future, there is a bit of room for slippage on the public debt front.
In a ground-breaking paper drafted last December before the Greece bailout, “Growth in a Time of Debt” by Harvard and Maryland University academics Kenneth Rogoff and Carmen Reinhart suggests that public debt is only a big problem above 60% of GDP, and you only fall off a cliff at 90%.
If New Zealand can keep core government debt to around 30% of GDP, and falling – very respectable compared to Greece’s 115% public debt to GDP ratio – that’s a very good place to be, especially because New Zealand’s mainly private foreign debt, at around 130% of GDP, is way higher than is safe.
That high external debt, in turn, drives the Budget forecasts for a current account deficit stuck over the next four years at around 7% of GDP; uncomfortably high. But the Budget aims at that problem too. If other tax policy moves encourage domestic savings other than housing, a larger pool of private savings could start reducing private sector dependence on foreign sources of debt and capital.
The cut in the corporate tax rate is right for the times, too, and it matches the sensibilities of a right-leaning government that’s keen on mining, just as much as tourism or the arts. For the many businesses out there looking for the economic recovery, but with no expectation that pre-2008 margins are on their way back, knowing we’ll be at a 28% tax rate ahead of the Aussies from next April is a fillip timed for election year warm fuzzies.
To prove it, business lobbyists have switched from saying the government isn’t bold enough to now saying it’s not only bold, but even “radical”, which might be a tad over the top.
Bold has turned out to mean rational tax reform that takes the tax system back to something that looks much more like it did in 1989, when the company tax rate was last 28% and Roger Douglas and David Lange were in the course of tearing Labour apart. The top tax rate was last 33% as recently as 2001.
So these reforms are perhaps less bold moves than obvious ones. But even obvious moves need someone to decide to make them, and that has thankfully happened.
What these reforms don’t do, though, is fix the big problem that economist Gareth Morgan called “the big Kahuna” and which Douglas tried to fix in 1987 with the flat tax package and a thing called the “Guaranteed Minimum Family Income”.
That is the effort-sapping way the tax and benefit system immediately penalises beneficiaries who return to work, by double-taxing them.
At a certain point, the more you earn, the more you lose your benefit. It’s a double-whammy because you’re still paying tax on the income that’s killing your benefit. For you, for part of your income, you could be paying 65 cents in the dollar or more, yet be poor. That’s why it’s called a “poverty trap” – the sort of thing a relevant Labour Party might care about.
These high effective marginal tax rates paid by people a benefit and paid employment remains the great unsolved puzzle in tax reform.
It is the problem that some government, some time, should try to address if they wish to be regarded as making truly radical changes to the tax system.
Perhaps Key would be bold enough to give it a go in a second term National-led government. He has proven adept at handling a wealth redistribution argument with this Budget – the “envy” headlines of earlier this week are gone, replaced by a predominantly supportive media reception to the Budget.
The Tax Working Group approach is a model for bringing the public along with a complicated argument.
But it is a big ask. The government has so many political bases covered now, why would it bother to go into such treacherous territory which has already crippled one otherwise functional administration in the late 1980s?
It would take a desperate kind of adventurer to head there. Perhaps as desperate as an irrelevant Opposition looking for something more compelling for voters than a compromised anti-mining platform and a legacy as the party that last raised GST by 2.5 percentage points.
In reality, it will never happen, but what a powerful call to old Labour values it would be to cloak something like the Big Kahuna in a package to capture the imagination of the traditional low-to-middle-income Labour constituency by removing elements of the tax system that conspire to keep them poor.
Infometrics economist Gareth Kiernan says in Budget commentary this afternoon: “The government’s biggest missed opportunity …. has been to take a more substantive change to the benefit system and its interaction with the tax system.
“The monolithic Working for Families system and the independent earner tax credit (IETC) both deserve to be scrapped. These policies are guilty of unnecessarily complicating the tax system and skewing the incentives to work.”
As legacies of the Clark Labour government, it is undoubtedly a bridge too far for Labour under Phil Goff to scrap these programmes.
But the reality remains that Labour is grasping to look relevant in the wake of a Budget that, with or without a strong recovery, entrenches the government’s reputation as a competent economic manager, and capable of delivering what Bill English always said would be a “fair” tax package – a test that it seems to have passed.
For Labour, its period in Opposition is about finding new, defining opportunities. Opposition is all about looking harder and being willing to rethink its own actions.
Until that happens, John Key remains a shoo-in.
Friday, May 21st, 2010
Teflon Johnny might just have done it again.
Just when he was up to his neck in a Tuhoe cooking pot, the Prime Minister’s Budget has changed the political conversation, drawing words like “bold” and “radical” from, gasp, the business community, which keeps harping on about the whole “boldness” thing.
Even Business Roundtable executive director Roger Kerr, a man whose job description might include being disappointed by Budgets, gave it six out of 10. High praise, indeed.
Granted, the most excitable comment has come from accountants, who have spent many a boring three hours in the Budget lock-up with no tax policy to speak of and are now suddenly in the thick of it.
Which is not to say they are wrong. Tax is a scary, sometimes boring matter. But no one disagrees that it matters like hell when that assessment notice comes in from the IRD.
And in the constrained world of MMP politics, it must just about count as radical to manage a return to a corporate tax rate of 28%, which was last seen at the end of the First Age of Rogernomia in 1989, and the top tax rate only went above 33% in 2001.
What makes the Budget particularly strong is the extraordinary state of the Crown accounts. If net Crown debt is to peak at less than 30% of GDP after the most wrenching debt crisis ever to hit the developed world, then we’re looking in reasonable shape.
If it weren’t for the fact that the Budget economic forecasts still have current account deficits at around 7% of GDP for the foreseeable future, there would be an argument that English could borrow a bit more and get the place really going.
But with total private and public foreign debt standing at closer to 140% of GDP, that luxury is not available.
Instead, we hang onto the recovery and hope like hell that Spain, and Portugal, and Italy, and the US, Japan and all the other big debtor nations can keep it together in the meantime.
Monday, May 17th, 2010
Remember where you heard it first. (Which I admit may not have been here). The recovery is on the way.
Economic, that is. “Texas T,” if you’re old enough to get that Beverly Hillbillies reference, and to realise that Energy and Resources Minister Gerry Brownlee understands you only get rich fast once, but why not now with the minerals that New Zealand clearly possesses? Let the hard work follow.
Every other country is doing the same thing to the extent they can and, climate change be damned, why should New Zealand be holier than thou?
Greece’s financial crisis be damned, too. Europe is the old world and we in New Zealand got locked out of that world 30-plus years ago thanks to EU protectionism.
New Zealand makes food, and the rich world that we’re not part of is committed to protecting its farmers. We are locked out.
We shouldn’t target European markets for high-grade dairy products – we already know they won’t take our camembert.
So let’s value what’s high-value to people who don’t have much money – yet - the world we’re close to: Asia, South America, and southern Africa. Throw in the obsessively cheese-eating Arab world for good measure and pray for peace and prosperity in Iraq, Iran, and Afghanistan.
Hundreds of millions of increasingly wealthy Arabs, Sri Lankans, Vietnamese, Chinese, Nigerians and others are partial to a spot of nice kiwi cheese – and the rest of the excellent food we make – with not an import barrier in sight. As they get richer, which they will, we will make more of it. So who’s complaining?
This is the new New Zealand opportunity.
Born of the global financial crisis and the unexpectedly swift fall of the motherland UK, Europe, Japan and the US as the arbiters of global direction, in favour of the “global south,” New Zealand qualifies.
That’s why Trade Minister Tim Groser gets invitations to Beijing that the Aussies would die for.
Meanwhile, our banks are sound. Our most important markets are, if anything, over-heated. Both Australia and China have kept New Zealand afloat during the GFC and both are showing signs of slowing, albeit for different reasons.
Australia has put the brakes on with its super-tax on minerals, which might just be one way of discouraging China from investing in Australia, while China just needs to slow down, and knows it.
These are not so much long-term negatives as pauses in the long-term growth trend, to which New Zealand is close by.
Monday, May 10th, 2010
There would be few people who could lay claim to being described in the Southland Times as “an abject figure.” I am one of them.
When working as the PR guy for Contact Energy, a reporter once caught me on the phone in a shop, and asked if Invercargill power prices were about to rise. The standard reply: “annual review blah, blah, prices must rise over the medium term, blah blah, no immediate plans to change prices in Southland.”
A worried Bill Boyd from the retail team came up a day or two later to tell me he’d seen the clipping and there was just such an increase coming. There was nothing for it but to ring the Southland Times and confess. In proffering this gaffe, “Pattrick Smellie makes an abject figure”, boomed the editor, Fred Tulett, an old chief reporter of mine from years before. Contact’s CEO, Steve Barrett, decided I was still useful and would not be let go. Phew.
Then there was the time in 1986 when I leaked the Budget – but why go over old ground?
There was the time in 2006, when Australia’s Origin Energy was trying to get foolishly resistant New Zealand shareholders of Contact Energy to hitch their star to Origin Energy in a merger – a deal that would have enriched them already but didn’t suit the Kiwi “top end of town” and was panned.
One day during that time, we had to make a carefully timed statement to the NZX. The clock was ticking down and all signs were that the Australians didn’t realise NZX Listing Rules are the same as ASX Listing Rules in Australia. They are obeyed, whether or not we are two to three hours ahead of them and a lot smaller.
The timing was so touch and go that a PDF version they sent us went out to media with visible “tracked changes” if you had a particular version of Adobe Acrobat. Luckily, the only reporter to receive that version was an old mate who rang me and kept it to himself.
You’d think the lessons had sunk in by now, but last week, I made a Charlie of myself again.
Thankfully, I had help.
On Thursday morning, NZX Ltd, which regulates day to day compliance with the stock exchange Listing Rules and will continue to do so under the super-regulator, pushed out seven separate PDF attachments to its own disclosure platform, http://www.nzx.com/, relating to ” Disclosure of Directors and Officers Relevant Interests” (sic).
It’s always worth keeping an eye on whether the directors are selling, especially with NZX chief executive Mark Weldon owning 6.5% of NZX. His exposure to the fortunes of the struggling local exchange is weighty, commensurate with his bold plans to revive it. If he sells a big parcel, that’s news. So you check the disclosures.
One schedule in the announcement was headed “Issue of Bonus Shares pursuant to NZX’s 2010 Profit Distribution Plan,” which allowed shareholders to take bonus shares in lieu of dividend.
In other words, “this is how many shares they got”.
It gave a total for Weldon of 6,457,837 ordinary shares in a column marked “Number, Class and Securities to which this disclosure relates”.
The second of two pages of schedules was headed “Directors Ongoing Disclosure – Sale of Bonus Shares” etc. and disclosed for Weldon a total of 6,241,220 shares.
Everyone who has looked at this page – and I’ve hawked it around this week – thinks Weldon sold 6 million-plus bonus shares. It’s lucky I’m here to put them straight, because nothing of the sort occurred.
He disposed of the difference between those two totals above, cashing in precisely $405,679.30 worth of ordinary bonus shares, being the value of 216,617 shares issued :”pursuant to NZX’s 2010 Profit Distribution Plan”.
I only know this because the NZX blew its stack when I reported it wrongly and they sent an email after midday today explaining it, and which has yet to be posted on the NZX disclosure platform.
If you were a mind-reader and weren’t expecting top notch disclosure from the holier-than-thou stock exchange operator, you might have been able to work this out.
If you were some dumb-cluck NZX shareholder in the provinces, or a journalist in Wellington relying on the numbers from the market operator, you’d get it wrong.
What NZX announced this week was disclosure, but it wasn’t information.
How anyone as sensitive as Weldon to his public image could have allowed this to happen beggars belief.
Monday, May 3rd, 2010
This week’s announcements on securities law reform by Commerce Minister Simon Power are profound for New Zealand capital markets after years of serial failure by both the makers and enforcers of laws to protect the gullible from bad investments.
Bringing everything currently covered by the Securities Commission, the disciplinary tribunal at the NZX, Companies Office vetting of offer documents, and something unexpected involving the Government Actuary under the wing of a new Financial Markets Authority is probably a good idea.
The FMA will be a clean slate and will have a very clear brief to engage in “visible, proactive and timely enforcement” – the thing that seems to have been missing so far. The search has been under way for some months to find the first CEO of the FMA and it must be assumed, he or she will need to look like one mean mofo, as it were.
The politics looks activist and it allows various small town rivalries between the Securities Commission and the NZX to be set aside maturely, not to mention that improved compliance is likely.
It also allows an orderly exit for the chairwoman and CEO of the Securities Commission, Jane Diplock, whose time is up anyway in September next year. Diplock is arguably more sinned against than sinning, given that legislation did not allow the commission to police in the way you’d expect when it came to finance companies’ marketing and disclosure. But her credibility is irreparable within the timeframes of a government moving at speed to try to restore trust in local investment options outside housing.
Her missing rules have apparently been created, and a tighter regime is certainly taking shape place for Mum and Dad investors from December this year, when all financial advisers need to have registered.
Power did bend a bit this week and gave a six month extension for advisers to be trained and gain the new qualification that the law requires. A sizeable sub-group of old codgers who’ve been giving financial advice their own way for years, thanks very much, are kicking up a stink and many will leave the industry when they realise they can’t avoid sitting the professional equivalent of re-sitting their driving licence.
Meanwhile banks, in particular, are breathing a huge sigh of relief over this extension, since the regulations the Act will engender are not even finalised yet, bespeaking yet another deficiency in the legislative process that led to the Financial Advisers Act being passed in 2008 by the new government with a bunch of glaring problems.
The politics are murky, because Power and his opposite number in Labour, Lianne Dalziel, agreed on most of this stuff when Power was in Opposition and chair of the commerce select committee and Dalziel was the Minister.
That cross-party unanimity may have acted against a willingness to hear new problems arising, but Power has now listened.
A special fix-up Pre-Implementations Adjustment Bill was before the commerce select committee already because of a lot of other problems identified, there is one Supplementary Order Paper already attached, and more to come as obvious but substantial reforms are decided almost on the hoof.
Arguably Power’s biggest announcement this week was to concede that more work is needed on an area where the Financial Advisers Act threatened to derail the conduct of high finance, corporate dealings and other activity involving lawyered-up parties who should be able to look after themselves.
Tucked away in the blizzard of other changes, Power hinted at a behind-the-scenes scramble to get advice on changing the way the Act treats “wholesale clients, generic advice often issued by institutions rather than individuals, and how the regime deals with group corporate structures.”
In other words, what was a Sydney banker going to say when their New Zealand exporter client rang to organise a futures contract and was asked whether he was registered as a financial adviser in New Zealand? Apart from laugh.
It was going to get silly.
But there’s an extra worry here, and one that goes to the heart of the deeper issues for New Zealand’s thin and isolated investment markets.
It’s to do with scale.
It took New Zealand lawyers, accountants, corporates and banks a surprisingly long time to realise the deep problems with the Financial Advisers Act. It seems extraordinary that it’s only now, getting on for two years since the Act was passed, that fundamental errors are only just being acknowledged, let alone rectified.
This is a sign of how thin the specialist skills can become in an economy that has lost its head offices to Australia, Singapore, Japan, the US and Europe, as is the amateurish rather than shabby law-making on display here too.
And a sign, too, of how small and thin New Zealand’s capital markets are becoming. The best rules in then world – and we don’t have them yet – might assist liquidity, but they won’t create it the way volume will.
In that sense, the incentive to join as well as catch Australia becomes more compelling by the day.
Monday, April 26th, 2010
A long time ago, a bloke called Stephen Rowe applied to be a press secretary for Jim Bolger, who was then Prime Minister.
Bolger attended the final job interview and asked Rowe which newspapers he read? The Herald, The Dominion, the Sunday and business weeklies, Rowe replied confidently.
“What about The Press?” asked Bolger, referring to Christchurch’s daily morning paper, still one of the jewels in the crown for the Fairfax group in New Zealand. Good point, thought Rowe.
Bolger’s basic point: don’t forget the South Island.
The current Prime Minister looks to be in danger of doing exactly that or, perhaps even more unwisely, assuming that the desire of a lot of well-connected, rural, National Party types aligns in some perfect way with the remarkably testy politics of the city once called The People’s Republic of Christchurch.
For a government that spent so long wavering on Resource Minister Gerry Brownlee’s proposals for mining on conservation land, allowing the waves of anger currently intersecting over the handling of Canterbury water looks almost careless.
Perhaps there was unjustified confidence because similar waves of anger crashed, apparently harmlessly, when it announced the Super-City plan for Auckland. The comparison would be mistaken. Auckland politics and Canterbury politics are not the same.
In the end, Aucklanders know their city should be a single entity. North Shore’s Phantom Piddler, Mayor Andrew Williams, makes the case most eloquently just by being himself.
But Christchurch is different. It’s older, it’s whiter, it’s more politically active and community-minded. It’s the sort of place that saves electricity during national savings campaigns even when it’s cold and Aucklanders are barely bothering. It has a remarkably strong volunteer and philanthropic ethic. It is cultured. There are rich people from old families who still somewhat run the place. It’s traditional, in ways both good and bad. There are a lot of Presbyterians and Anglicans.
As a result, actions such as stripping away local democracy have the capacity to become cause celebres, and the front page of The Press in recent weeks suggests the sacking of Environment Canterbury regional councillors is becoming a powerful rallying cry.
Even Alec Neill, the Bolger era MP and outgoing chair of ECan seemed pretty grumpy about it all. And everyone assumes he was well across the government’s plans for ECan after rolling the previous chair and one-time Labour Speaker, Sir Kerry Burke.
Yet with a straight face he helped carry the coffin of local democracy out of the council chamber after ECan’s last meeting this week.
Nor is there any sign that the government has organised its few, but powerful supporters.
Where are the Canterbury mayors who called for ECan’s disbanding? Having clubbed together, lobbied the government and got the report that wrote the regional council’s death warrant, there seems remarkably little effort now from the same mayors to back this politically difficult, highly arguable call that the government has made.
There is another group who stand to benefit from the latest moves, especially the amendment under Urgency and without select committee hearings of the way Water Conservation Orders apply in the Canterbury region.
As a result of this change, Fish and Game must apply to restart the WCO process it was already engaged in, while the promoters of the Hurunui irrigation scheme can continue with their resource consent applications.
It is a clear win for the irrigation lobby, which the government has been saying for months now it supports. More irrigation in Canterbury is important for agricultural productivity, and it can be achieved, with the same sorts of compromises as would allow mining on conservation lands currently protected under Schedule 4 of the Crown Minerals Act.
This is how we catch Australia, by looking again at the national resource base and making new choices about its use. As the New Zealand Institute of Economic Research put it on the mining issue: “To do this, requires moving away from the notion that once land is acquired for conservation it is closed for all future development other than the most low-impact tourism or recreation uses that are deemed compatible with conservation.”
Exactly the same issues are playing out now on water – the first world-beating resource nominated by Finance Minister Bill English when answering questions at a pre-Budget speech for the Wellington Chamber of Commerce this week.
Another source of potential support is companies wanting water on the Canterbury Plains, where the agricultural potential is huge as long as enough water’s available.
A roll call of relevant influence gives the flavour: Jenny Shipley, Don Brash, Ruth Richardson through interests such as private dairy company Synlait, David Teece, the hugely influential and wealthy Kiwi-cum-American academic against whose land the dam on the south fork of the Hurunui River would be built. That scratches the surface.
At some stage, the Auckland-backed Mackenzie Basin shed-farming proposals will re-emerge. And in the background are Genesis, Meridian Energy and TrustPower, all of whom rely for hydro-electricity on the Waitaki and other rivers. Both Meridian and Trustpower have big combination schemes involving both hydro and storage. There is big money at stake.
But this is not their issue to fight, at least not publicly. So far the ministries of Economic Development, and Forestry and Agriculture are doing a great job unpicking aspects of the last 20 years of new environmental regulation which they’ve always felt stifled economic growth.
And this is a government that wants economic growth and is unashamed to pursue it. Its cheerleader is another kind of Cantabrian – pro-development, let’s use it, what’s wrong with a few roads anyway – in the driving seat. Minister of Economic Development Gerry Brownlee is the Member for Ilam, but he is not visible on water.
Instead, poor old Environment Minister Nick Smith is poked out on a stick in front of the TV cameras to deal with feisty 90-year-old ex-councillors threatening a rates revolt, while swallowing Cabinet decisions on Canterbury water management, which it appears he barely agrees with.
It’s clear now, from the papers released to Forest & Bird under the Official Information Act, that there was a concerted stream of advice from about September last year from MAF and MED, two power central government agencies, to find ways to wind back the ability of Water Conservation Orders to stymie new water storage and allocation projects.
The argument is there to be made, but this time, the government has moved at great speed to achieve a sea-change which could upend the way WCOs operate throughout the country.
The debate on mining conservation land, despite some shaky political management, has found that half the population is broadly supportive – a result which was probably more surprising to Resources Minister Brownlee than anyone else.
When he first let the cat out of the bag late last year, he started waiting for the sky to fall. It may have clagged in a bit, but it hasn’t fallen yet.
By contrast, the Canterbury water issue looks cloudier by the day.
Monday, April 19th, 2010
When was the last time you bought yourself something nice?
Too long ago, according to the latest retail sales statistics.
February’s retail sales were “dire”, said one bank economist. They certainly punched another big hole in any idea that the New Zealand domestic economy is “bouncing back” from the double whammy of its own 2008 recession, followed by the global financial crisis.
It’s a grim possibility that some retailers who thought they’d weathered the storm last year are in for a nasty few more months. Not all will make it. In a country that has had a fright and is willing now to save more and spend less, that’s the harshness of the real economy at work.
With the shallowness of the recovery becoming clear, international investors continued to sell the kiwi off this week as higher interest rates and a more interesting Australian economy attract the interest of many who previously traded both trans-Tasman currencies.
Meanwhile, New Zealand exports look ever more competitive, especially to the country’s largest, most valuable market in Australia. The falling dollar is delivering a textbook fillip to the tradeable sector. Hence the comparatively rosy-looking Performance of Manufacturing Index figures from Business New Zealand this week.
Tradeables are where a real recovery has to come from after more than five years of export sector recession that somehow nobody noticed on Labour’s watch.
So the Big Adjustment grinds on. New Zealand’s experience is a microcosm of the Western world, as credit crunch, ageing population and health-care cost issues coincide nastily in Europe, the U.S. and Japan – still the engine-room economies of the world for all the rapid rise of China and the other BRIC nations.
The Americans, for example, are looking for the same weak dollar export kicker as New Zealand.
That’s why the U.S. and China are shadow-boxing over when and how to revalue the yuan, which by some accounts is 40% weaker than it should be against the American dollar, and needs to rise. This stands to reason: nations that get richer beget stronger currencies and China is definitely getting richer.
Since the Lehmans meltdown and a suddenly weaker West, China has fanned out agressively in the world to buy resources, both valuable and distressed, ranging in our neck of the woods from Australian mining giant Rio Tinto to the Crafar farms. In Australia, note, the government stepped in – Rio Tinto was a strategic asset and the sale stopped.
But Australia is a country with choices and Rio Tinto is a very big company. New Zealand’s ability to stand on ceremony when it comes to the wallets of others is far more limited and it’s a stretch to call the Crafar farms nationally strategic assets on their own. If anything, they seem to be a bit of a liability.
Speaking of which, this week’s Securities Commission actions against Lombard and Nuplex Industries are their own echo of the global financial crisis.
In both cases, the sudden worsening in global economic conditions was critical to their own accelerated commercial headaches. It was uncharted territory. Knowing what to do was far from obvious.
Now that they’re being sued for their judgement during that period, professional directors and former Cabinet Ministers not only face reputational ruin, but will be fighting tooth and nail in court to pin as much of any blame as is going on their professional advisers.
Former Commerce Minister Doug Graham, who once had oversight of the Securities Commission, may have hoped his enumeration of the legal, accounting and other advice on which the Lombard directors relied would be seen as an appeal to reason. And that will be the basis of his defence.
The attack on that will be that directors are there to make judgements based on advice, and that their decisions were wrong.
As a result, the outcome of these cases will constitute critical guidance not only for company directors, but also for all manner of professional advisers, including PR flunkies, but thankfully not at this stage journalists.
It will also guide boards of the future on what they have to tell the market and when. Nuplex directors will argue strongly that they were exercising good judgement by renegotiating their breached banking covenants and that until the negotiation was complete, there was nothing to disclose and great risk to the company from acknowledging the process.
If the courts reject that, there will be a new benchmark for disclosure obligations. After all, the reason for continuous disclosure rules is to prevent accumulating disasters from being hidden “for the sake of the company”. That’s why Millennium & Copthorne hotels is being open about the disaster that has befallen their Chinese joint venture, where some local guy they had managing things has gone and sold about two-thirds of the assets without authorisation. Whether they get a cent back will be a guide to the application of the rule of law in China.
There was also a bit of “blame the advisers” detectable in the opening salvoes from former Feltex directors in the Auckland District Court, also this week.
On the sidelines, some are saying that the Securities Commission is only now getting aggressive because it has been stirred to action by years of prodding and mockery. Others point out that the commission only recently became able to pursue solvent directors rather than insolvent companies.
Either way, the fact remains that the global financial crisis has also changed the landscape for company directors and professional advisers in ways that make the lease on the yacht look quite vulnerable.
For that reason, we can be sure that most of the legal stoushes that kicked off this week will make it to the Supreme Court in the end, and that’s maybe five or six years away.
That was just about enough time for a full economic cycle in the old days.
Monday, April 12th, 2010
Down in Christchurch, for the last 20 years, the Family Help Trust has beavered away creating one of the best early childhood intervention programmes in the country, creating futures for families that the statistics would normally be first to write off.
They are doing God’s work. If anyone should thrive under Whanau Ora, it’s committed, innovative, independent organisations like this which have survived more in spite than because of government efforts in the same fields.
The Trust’s focus has been ruthless, which is a big part of why it’s been effective. It will help no child older than five, but it likes to get hold of them before they’re born – their mothers and fathers self-identifying for their poverty, drug or alcohol abuse, criminality, family violence, and social isolation.
They have often decided against applying for government funding when the guidelines would have required them to change what they were proving worked best.
For those first five years of the infant’s life, the Family Help Trust wraps itself around this family unit, treating the infant rather than the parents as its client, and all the influences on the infant as its job to help the parents cope with.
Its success is measured on simple, effective things like reduced rates of smoking in the home, increased involvement of neighbours and wider family members, and on the big issues like reduced family violence, addiction, and criminal recidivism.
In its latest university-backed study, the Family Help Trust was able to prove it has lowered rates of family violence from 40.5% to 6.8% among client families. High levels of reoprted “partner psychological abuse” have also plummeted. The Family First crowd mightn’t like it, but this is happening partly because Trust, among other things, gives the abused adult in a violent relationship the confidence to leave and improve their lot.
The result? Far less violence towards the children of a violent parent as well. Fewer Bailey Kurarikis out the other end. Fewer prisons too, that wasteful expense being dollied up now as a public-private partnership investment opportunity for rental property investors nervously looking for new places to park their money.
About half the Trust’s clients are Maori children, and they have Maori among their staff who have been encouraged to develop a “kaupapa Maori” approach to their services for years. They are not, however, a Maori organisation.
Recently, glacial changes in public funding have delivered a small but important stream of funds from Child, Youth and Family.
That has only come because the Trust, led by the indomitable and visionary Libby Robins, had to go out and find funding for an academically rigorous epidemiological study to prove it was doing anything right before any government agency would fund anything it did.
Ignore for a moment the fact that such a rigorous focus on actual achievements for society’s most vulnerable families has never previously been required of early intervention programmes run by government agencies themselves – amazing as that may seem.
Indeed, one of the best things about the Whanau Ora policy released this week is that – if it works properly – caring about the outcomes will be the absolute primary focus of any funding awarded.
No wonder Finance Bill English thinks Whanau Ora can be funded from current budgets rather than needing new ones. If Whanau Ora works, it should lead to a dramatic cut in wasted funds on current programmes that we know, without a university study to prove it, don’t work as well as they need to.
For English, this is an exciting opportunity. He is doing this as a National Party Minister. He knows if the policy was Labour’s, it might be deemed something like “radical communitarianism”. Under a National-led government, it risks being slagged as no more than “reform”. Such was English’s experience with similar experiments in health reform when he was a Minister in the 1990′s Bolger Government.
And that’s where the Maori Party is useful, because if there’s one thing the Nats and the Maoris jointly believe, it’s the importance of a spot of tino rangatiratanga on the home front. What greater unit of self-determination could there be than the family as a building block of society?
So the Family Help Trust, and a myriad of other, dedicated, non-government agencies living the same experience all over the country – may Maori, many not – should take heart from the intent of this week’s Whanau Ora policy announcements.
The proof, however, will be in whether they benefit, and especially whether merit rather than ethnicity will really win out where the dead hand of bureaucracy has previously been a barrier to success. And if the Family Help Trust does not benefit, how could we not say that the Maori children and families that the Family Help Trust saves have not been the subject of discrimination?
Monday, March 22nd, 2010
Like deluge from a dirty drain, a whole pile of news landed on the dairy sector at the end of last week.
No sooner had the Clean Streams Accord annual review reported that, thanks to dairy farming, streams were actually getting dirtier in many areas, than Fonterra was leading an effort to clean it up, and Federated Farmers was whinging about it.
So far, so normal as far as who stood where. However, none of that alters the fact that the Clean Streams Accord outcome for 2009 is very disappointing, and a blow to the focus Fonterra places on sustainable practice in New Zealand, albeit that they keep cows in sheds in China.
Agriculture Minister John Carter’s unequivocal ticking-off to the dairy sector, and the “every year audit” policy announced by Fonterra in a well-managed piece of damage control, show this is a serious challenge to New Zealand’s ability to claim valuable margins for products made by “natural” farming methods.
Many media have bought that argument too. The tabloid instinct would be to call shed-based dairying a kind of “factory” farming, but with almost no PR pressure, the nebulous but perhaps more palatable concept of “cubicle” farming has become embedded as a media descriptor. Most journalists are patriots too, and everyone knows that giving New Zealand food a bad name offshore is just voting yourself poor. Imagine the field day they’d have in Europe or the damage it could do in China, where Fonterra’s San Lu tainted milk scandal taught our only multi-national how to deal with issues involving catastrophic risk.
The cubicle farming promoters themselves talk of keeping the cows in “stables”, which sounds almost genteel, while producing twice as much milk as traditional pastoral dairy farming. They also claim far greater control over the whole effluent outflow from the herd than a farm based on nitrification and other pollution occurring anywhere in a field as cows crap and pee all over the countryside.
Indeed, one of the reasons the Clean Streams Accord report was bad was that it measured effluent getting into waterways from under-road tunnels and the concrete pads where cows stand during milking.
From that point of view, these McKenzie Basin blokes may have a point.
Their bigger real problem is that they want to do all this using water diverted from the Southern Alps which then flows into Canterbury, the most over-stretched water resource in the country, which the government has now decided is also the most badly managed.
Any day now, a commissioner will be appointed to replace the regional council, Environment Canterbury, and probably move to set up a new special agency to manage the Canterbury water resource ahead of the mid-year reportback from Smith’s consensus-building Land and Water Forum.
There is some speculation that former Prime Minister Jenny Shipley is in the frame for the commissioner’s job. Her Ashburton roots make her an appropriate choice, were it not for the fact that she is also chair of Genesis Energy – about to inherit the Lake Tekapo hydro scheme under electricity reforms, and with an active interest in local dairy ventures.
Just down the road is her former Cabinet colleague Ruth Richardson, who is a director of Synlait, an ambitious example of Kiwi cleverness seeking to make money from milk in ways that the monolith Fonterra will always find hard to replicate. A little further down that road is former National Party leader, Don Brash, with an interest in another Canterbury irrigation scheme. And chairing ECan as it prepares its own execution is former National MP Alec Neill.
It looks as though the government is taking a principled approach at a policy level, while seeking enablement from a coterie of old mates, some of whom arguably have conflicts of interest.
At the very least, water lobby participants will be breathing a sigh of relief that the McKenzie Basin proposals are out of the picture for now. If they haven’t already, these plans threatened to tar all water users with the environmental wastrel brush.
Now, a calmer national discourse on water management can occur.
At the heart of the McKenzie Basin issue is a concept that is becoming rooted in the New Zealand national story, and feeds the “100% Pure” tourist branding. One agricultural ideas man calls it “Pasture Harmonies”. It’s the underpinning idea that drives a company like NZ Farming Systems Uruguay, although that firm’s recent problems may make it a less-than-persuasive example.
This nationally recognised idea allowed Environment Minister Nick Smith to describe the proposal for McKenzie Country cubicle farming as “a completely foreign farming style to New Zealand”.
And on that basis, he argued, the promoters rather than the taxpayer should pick up the tab for getting permission to do it, especially when the $2.6 million they are being asked to spend on their idea would be expensed against a business forecasting $30 million annual turnover.
In a week when the tide turned and proposing careful mining in conservation lands started looking like vandalism, the dairy issues were an unimpeachable opportunity for the government to show the right stuff when it comes to the national brand.
Monday, March 8th, 2010
As a bouncy young Minister in 1992, Simon Upton dismembered the Department of Scientific and Industrial Research and created the Crown Research Institutes, to various shrieks of heresy and with perhaps too much the idea they should act like private companies.
In 2010, today’s somewhat backroom-y Science Minister, Wayne Mapp, has presided over the first major review of the CRIs since then, and concluded they’re fit for purpose, apart from the top-heavy way they’re governed.
First, says the taskforce headed by venture capitalist Neville Jordan, it advises allowing these potential engines of big answers and wealth to do their jobs themselves, with a good board of directors, overseen by only one set of regulatory, let alone political masters. Unlike today.
How can any organisation, let alone one charged with discovering knowledge, pursue a strategy when MoRST, FoRST, the Treasury, and probably MAF, MED and MfE, are all breathing down your neck with quasi-governance roles? Just keeping track of the acronyms would be hard enough, let alone the conflicting signals that exist for CRIs at present.
It’s amazing no one’s acted on it earlier.
Other proposals will also be music to the ears of a generation of scientists run ragged by competing like lab rats for contestable funds. Instead of a quarter of all funding being contestable, scientific inquiry needs longer term certainty, the taskforce says, echoing the findings of an OECD officials review in 2007.
It suggests only around 10% of all funding should be fought over – that would be a big change. It would keep some skin in the game for competitive tension, but remove an over-emphasis on short term value creation, to the potential detriment of breakthroughs and much greater wealth and benefits if projects are nurtured for longer. Science is a product of autism as well as fast talking, and too much loquacity has won out just lately.
As to the profitability spur, the taskforce says: let government-funded science prove financial viability and long term national value rather than annual profits.
“This emphasis encourages CRIs to deliver $1 million to their bottom lines rather than $100 million to New Zealand as a national benefit,” says the taskforce in a moment of rare and unscientific hyperbole.
Working out exactly what long term measures should look like is a challenge. You could end up having to keep the faith for a long time while fearing you’d backed the wrong horse. On the other hand, if boards have responsibility and international reviews remain part of the puzzle, the likelihood of big disasters is small.
And if science is innovation, then failure must be tolerated, even if the cost is hard to measure in advance.
Since Upton’s reforms nearly 20 years ago, scientists have experienced a period of shock, change both good and bad, an increase in form-filling, maddeningly unrealistic demands about capital returns and an unspectacular but credible rate of patentable discoveries.
In other words, in the face of adversity and also some chances, they’ve kept on doing a good job.
If they hadn’t, there would have been no Prime Ministerial launch this week of the centre for agricultural greenhouse gas emissions research involving Massey University – still tops in animal and plant science nationally – AgResearch and various other elements of the sometimes confusing landscape of local scientific institutions.
Equally, there would be no New Zealand-led global effort to create a global research coalition to focus on our most problematic greenhouse gases – methane and nitrous oxide from pastoral farming – which just happen to be a big issue in the Third World. Without that credibility, International Climate Change Negotiations Minister Tim Groser would not be hosting a two-day international conference in Wellington, in May to set that coalition off and running. This is a New Zealand contribution to global climate change action, far more meaningful than bandying percentage reductions across a negotiating table in Copenhagen.
Nor are the CRIs the only game in town. New Zealand science also happens in universities, which were untouched by the CRI taskforce that reported this week, along with occasional outposts of independently rigorous science, such as Nelson’s Cawthron Institute for fisheries research.
Even in the private sector, to a woefully limited extent, science happens in New Zealand.
So what the CRI report says about science and innovation policy is only part of the story.
Elsewhere, the Prime Minister’s Chief Science Adviser, Peter Gluckman, is corralling opinion and, no doubt, exerting his own uniquely persuasive influence in his support for most of what the taskforce has said, plus a few things.
He has a deep view on New Zealand’s natural advantages – like the nimbleness of a small population of clever people when put to the test.
The CRI taskforce report may have landed with barely a background thud for the mainstream media this week, but its implications – and those of the policies in science and innovation being shaped ahead of the Budget – are potentially profound.
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