Face to Face: Andrew Harmos: Taking Stock – Committed to New Zealand

Time spent with Kevin Roberts in New York almost 10 years ago is largely responsible for the path taken by the newly appointed chairman of the New Zealand Exchange. Three simple, yet life-changing questions posed by the former ad man saw lawyer Andrew Harmos return home, move jobs and re-examine longer-term goals.
The son of Hungarian immigrants, Harmos was born in Auckland and, 12 months in New York aside, has lived here all his life. He bypassed the traditional OE and joined law firm Russell McVeagh in 1981 straight out of university (he became partner in 1986 and left in 2002) and has worked in Auckland ever since – except for that year in New York in 1999 with his wife and four kids.
“That had big influence on us because I spent quite lot of time with Kevin Roberts who I admire enormously. We were talking about the future and where to next, and Kevin said ‘ask yourself three questions to determine where you want to go, it’ll take you six months to answer them’. And it took me basically six months to the day to do that.”
The three questions were ‘when are you at your best’, ‘what will you never do’, and ‘where do you want to be in five years’ time’.
The answer to those questions prompted return to New Zealand and formation of his own firm, Harmos Horton Lusk. “After I came back I put another two years into Russell McVeagh, then formed HHL in 2002,” Harmos says.
In the same year he was asked to join the board of about to demutualise NZSE (now NZX). It was busy 12 months for Harmos who grew up with Hungarian as his first language. His father, like many new immigrants, initially drove taxis for living while putting himself through night school to gain an accounting qualification, which he then used for career in teaching. The go-getting gene is evident in Harmos’ willingness to step outside his comfort zone to take on his current role as NZX chair.
“The board asked me to” is his straight and simple answer when asked why he wanted to take on the challenging role. “And having been around the board table for five or six years, I had my own ideas about the direction the board ought to take in support of the organisation and the CEO.”
While he has been on number of boards, he concedes this was definitely step up but one that is very much in line with his life goals.
“Personally I’m very motivated about doing the right thing for New Zealand Inc, New Zealand and NZX. I’ve certainly got some ideas and vision for where I want to help take the organisation. I talked it through very carefully with my partners here and they were very supportive. We’ve always believed in putting something back into the community.”
The country, he says, faces some key economic challenges. These include:
• Cementing our place in the world as an influential economic force in spite of scale;
• Ensuring the savings and investment environment is optimal for maximum New Zealand investor participation; and
• Ensuring New Zealand has vision, and plan against which policy, opportunity and decision making can be benchmarked.
And he has strong views on the role the Exchange should play in the national economy, saying strong capital market is the heart of strong economy.
“NZX forms the core of our markets and sees its role as participating in the drive to ensure New Zealand enhances its competitiveness – and ultimately its relevance – in the global economy.”
While we have reason for optimism in terms of listings growth, Harmos says we are dramatically under-represented on our market by the things that actually drive the economy. “Our markets don’t reflect the strength of our rural sector or the strength and opportunities inherent in our infrastructure sector.”
He believes that being involved with other organisations and helping shape broader policy is one of the most critical roles NZX has to play.
“When NZX was NZSE all it did was run the order matching market, but Mark [Weldon, NZX chief executive] realised very early on that NZX has to be at the core of the capital markets, not solely for it to function well for its shareholders, but because well functioning stock exchange is core to the capital market and good capital market is core to the economy.”
The lack of financial literacy in New Zealand adds to the necessity for NZX to play “non-partisan role” in helping input into government policy, he says.
“You might desire tax policy X and that’s fine, but what are the second order effects of that? Does it mean that companies are incentivised to move offshore or not invest here, or foreigners are incentivised to own 100 percent of their New Zealand subsidiary so they can get tax benefits they couldn’t otherwise access. What are the second-order effects of immigration policy, of savings and investment policy?”
Harmos explains that the role Weldon has with NZX – and one the board is there to support – is much more than the order matching market and growing listings and NZX’s other business lines and initiatives: it’s about encouraging financial literacy, savings and investment culture, it’s interacting with the Reserve Bank, helping the Ministry for Economic Development, and the Securities Commission on regulation and supervision.
“And it’s absolutely about being avail­able to government and saying ‘if you would like us to help you with some analysis or views, we’re here’.”
Not surprisingly for someone who is keen to grow NZX, Harmos also has firm views on listings.
“Listings come and go and the important thing is to make sure the policy settings are right to encourage people to actually list. Listing one’s business has not reached the aspirational status here in New Zealand that is has in the US or in Australia where listing is seen as the pinnacle of business-person’s or an entrepreneur’s career.”
He has no single explanation for why that is but offers up variety of influences: the lack of savings culture; acceptance of branch-office culture; poor national policy settings and late emergence of NZ Inc as national priority; the prominence of cooperatives, private equity funding and high government ownership of businesses.
“There hasn’t been that culture of saving that has enabled people to look at the public market as source of capital to the same extent as they have elsewhere. Kiwisaver changes that.”
And, he says, lot of New Zealand’s great businesses have been formed in the rural sector as cooperatives which haven’t found natural home on an exchange.
“You contrast that to Australia where the mining and resources industry has accessed the capital market extensively. The mining sector which is the core of the Australian market, and economy to certain extent, is represented on the [stock exchange] boards whereas the core of our economy is the rural sector and that has generally remained in co-op structures.”
Harmos says local cooperatives are now recognising that cooperative structure just doesn’t give them stable capital base – and therefore gives them an increased redemption risk when, for example, people want to convert sheep or beef farms to dairy and the co-op has to find money to redeem their shares.
“I’d like to think that those parties will find way to access the public markets if they want to. They need that,” he says. The board appointment of Fonterra chairman Henry van der Heyden in 2005 reflected desire by NZX to gain better understanding of the rural sector as well as bringing global view to NZX.
A move to some form of private/public participation in local authority and infrastructure assets also seems more likely since the November 8 election.
“I’m by no means an advocate of selling [New Zealand’s SOEs] but there is successful partial float model such as Vector used – keep 75 percent in government ownership, put five percent in Kiwisaver, five percent in superannuation and float 15 percent. With that model, you’ll never get foreign domination