Gains and pains, Brian Gaynor

World Famous in New Zealand: How New Zealand’s Leading Firms Became World-Class Competitors
Colin Campbell-Hunt et al
Auckland University Press, $39.95,
ISBN 1869402499

The reforms initiated by Sir Roger Douglas in 1984 gave New Zealand businesspeople a wonderful opportunity to take a leadership role in the economy and create wide-spread wealth. They have not grasped this opportunity, and the performance of many of the country’s largest companies has been extremely disappointing. A major reason for this is the ownership structure of New Zealand companies.

Business theorists believe that the best form of steward-ship is when an organisation has long-term shareholders whose interests are fully aligned with those of the corporation. Unfortunately, the New Zealand sharemarket has been characterised by controlling shareholders focussed on the short term, who have put their own interests ahead of the listed entity.

In the 1980s a large number of investment companies, including Brierley Investments, Chase Corporation and Equiticorp Holdings, bought controlling stakes in icon New Zealand companies and in effect ran these organisations. These investment companies had neither the industry nor the management skills to fulfil this role, and the acquired companies were usually managed with the view to being onsold at a higher price. As the icon companies were flicked back and forth amongst investment groups, they never had an opportunity to develop long-term business strategies that would allow them to grow and prosper.

The 1987 sharemarket crash proved that this business model was hopelessly flawed. After the crash, the Labour Government promised to introduce a Takeovers Code. This Code would bring a sense of order to the sharemarket and ensure that an investor could not achieve effective control of a listed company by purchasing a 25 to 35 per cent stake. A Code encourages the long-term, stable ownership of listed companies although it also facilitates the takeover of an organisation that does not perform.

Numerous attempts were made to introduce a Code but it failed to make its way through the political process, mainly because of fierce lobbying by a number of influential organisations. These included the Business Roundtable, the New Zealand Stock Exchange and large investor groups. In the absence of a Code, many large New Zealand companies have been controlled by shareholders with a short-term bias and a strong emphasis on self-interest at the expense of the corporation. By contrast, most developed countries have takeover codes and their successful companies are usually governed by shareholders who have a strong interest in the long-term prosperity of the organisation.

A Takeovers Code finally became law in New Zealand on 1 July this year but it was 17 years too late. There is little doubt that the New Zealand business sector, and the national economy, would be in a much stronger position today if the reforms had occurred under a regime that encouraged the long-term, stable ownership of our major companies.

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World Famous in New Zealand, which has been written by seven academics from Victoria University of Wellington and Massey University, deals with the issues of ownership and leadership. The authors have highlighted ten successful New Zealand companies: The Criterion Group, Formway Furniture, Gallagher Group, Kiwi Dairies, Montana Wines, Nuplex, PEC, Scott Technology, Svedala Barmac and Tait Electronics. One has no idea why these were chosen because no individual export and profitability statistics have been supplied.

Only three of the companies, Montana Wines, Nuplex and Scott Technologies, have been listed on the Stock Exchange. Sir Angus Tait of Tait Electronics and Bill Gallagher of Gallagher Group have both rejected stock exchange listing because they believe sharemarket investors are too focussed on the short-term. They both agree that the best option is to have long-term share-holders. Shareholders are important, but Bill Gallagher takes a broader view of the corporation. He is quoted as saying:

If you look after your customers and you look after everybody in the line to the customer, then you generate wealth. Money is number three. Satisfaction really, it is fun and exciting, that is number one. Number two is the people thing: the people you work with, the customers, the distributors. And then generally wealth, that’s a scorecard.

 

Neither this topic nor the issue of ownership is fully developed or analysed in World Famous. This is where the publication fails. The title gives the impression that it may be a cheerleading exercise for New Zealand business, but the preponderance of dense and impenetrable text makes it difficult for the general reader to find much to cheer about.

The World Famous approach, which relies on a series of case studies, is fraught with danger because a successful company at the time of writing may be in trouble shortly after publication. The most obvious example of this was Theory K: The Key to Excellence in New Zealand Management, which was released in a blaze of publicity in 1986. The authors, mainly University of Auckland staff members, picked 50 excellent companies but many of them were bankrupt within a few years. Amongst those chosen for their excellent management were Chase Corporation and Equiticorp Holdings, which became two of the country’s most spectacular corporate collapses.

The New Zealand business sector would greatly benefit from an academic analysis of its performance that is aimed at a general audience. Unfortunately World Famous in New Zealand does not fulfil this role. It is a difficult read because it contains too much technical language and will appeal only to a specialist audience.

 

Brian Gaynor is an Auckland business consultant and commentator.

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