The evidence? Fewer jokes about the
concept being an oxymoron; the new Centre for Business Ethics at the Auckland University of Technology; the setting up of New Zealand Businesses for Social Responsibility; Business Ethics category at the Top 200 Awards; few successful business people like Dick Hubbard speaking out; and growing realisation among the business community and politicians that the more extreme elements of the market forces philosophy were not working and were, in some cases, quite inappropriate.
Gael McDonald, professor of Business Ethics at Auckland’s UNITEC Institute of Technology says: “Four years ago, when I began this job, there was much more cynicism about business ethics, there was ‘legal compliance is enough’ complacency on the part of many company directors and, in fact, considerable confusion about the difference between ‘corporate governance’ and ‘business ethics’.”
Subsequently, McDonald has noted sea change in the attitude of many companies. “I think there’s greater realisation of the power of consumer opinion and fragility of reputations, an example being the Coopers Creek wine business, and companies are now wanting to talk about how to avoid these sorts of situations,” she says.
Rodger Spiller, who heads AUT’s Centre for Business Ethics, also sees growing awareness of ethical issues in the business community. “This has been reflected in the growing number of requests to address conferences covering the business spectrum from public relations to finance and accounting,” he says.
Brian Gaynor, financial analyst and commentator, agrees that ethical standards have improved during the last decade. The Winebox Inquiry’s tarnishing of reputations has been salutary lesson and the Stock Exchange’s tighter listing requirements have restricted the activities of major shareholders.
The 1987 stockmarket crash in New Zealand was traumatic event for companies, thousands of their shareholders and the professions, with the integrity of large organisations and individual practitioners in doubt, yet there has been, since then, an unhealthy level of denial in the corporate world.
And Labour, then National, captive to simplistic ‘philosophy’ that the self-regulatory power of the ‘market’ would curb the previous excesses and inequalities, have been muted in their response to the irresponsibility of company directors, the poor examples of company CEOs and the lack of ethical guidelines within companies.
Neither did the legal and accounting professions enhance their reputations, particularly as major firms often put growth and business opportunities before professional standards.
What, if anything, is different just over decade later?
At government level, international tax changes in 1988, and later, closed profitable loopholes. In theory at least, the Securities Amendment Act, also in 1988, enabled civil proceedings to be taken against inside traders. The Companies Act 1993 was primarily concerned with abuses arising from the structure of companies, particularly the duties of directors, and there was subsequently much greater disclosure of company information to shareholders. The Financial Reporting Act 1993 established the Accounting Standards Review Board, and set out financial reporting requirements for companies and the consequent responsibilities of directors. The Protected Disclosures (‘whistleblowers’) legislation has languished within the parliamentary system since August 1996; an anti-bribery bill was introduced in August 1999.
The massive increase in overseas ownership — now about 60 percent — of New Zealand publicly listed companies has stiffened the resolve of the Stock Exchange and its nominally independent market surveillance panel to maintain international respectability. Certainly, tougher Stock Exchange listing requirements have made significant difference. In the 1980s, some majority shareholders used companies as their own private fiefdoms, but this is now much more difficult with tighter control of ‘associated parties’ to share deals, shareholder votes on transactions involving more than five percent of capital, and independent appraisal reports to protect other shareholders.
Yet it is widely believed that New Zealand’s company takeover regulations were, and remain, primitive by international standards. The primary purpose of the Takeovers Act 1993 was to establish panel which, in turn, would write and administer takeovers code to much more closely regulate the behaviour of major shareholders and, in particular, require mandatory offers to all shareholders once stake reached 20 percent threshold. Subsequent attempts to have such code adopted have been foiled.
Brian Gaynor believes widespread lack of confidence in the equities market underlines the Stock Exchange’s continuing poor performance — up 6.7 percent in the post-crash decade from December 31 1989 compared with Australia’s 88.6 percent. “Uniquely, New Zealand’s market surveillance panel is operated by the Stock Exchange, with primary allegiance to the companies on its register and the old school tie network,” he says. “Further, with the lack of major superannuation schemes and waning fund management sector, there is not the same vigorous and influential ‘supervision’ of companies by institutional investors.”
Insider trading action
The recently elected Labour Government has promised action. One policy likely to become law later this year is takeovers code based on earlier recommendations. ‘Insider trading’ is another focus of attention and Labour has promised to make it criminal offence. Kerry Hoggard’s recent resignation from the Fletcher Challenge chair for apparently inadvertent insider trading will certainly keep the issue alive.
Gaynor hopes the new Labour Government will translate its pre-election rhetoric into action and address insider trading and minority shareholder concerns. “Paul Swain, the new Commerce Minister, has good understanding of the issues, but he will be under immense pressure not to act,” he says. “On the other hand, I do believe that the influence of once very powerful organisations like the Business Roundtable is waning.”
Feeding the watchdogs
There has been criticism, by more interventionist commentators, of the Commerce Commission, Serious Fraud Office and Securities Commission.
The SFO was reorganised in the wake of the Winebox Inquiry, and review of the Securities Commission in 1998 by the Ministry of Commerce looked at the organisation and its relationship with the government and security market participants. No report was ever written or published but, according to commission chairman John Farrell, the review concluded that the agency was doing good job but was under-resourced in the enforcement area and funding has been beefed up by about 12 percent.
“It is true that we play more of watchdog role than some similar organisations internationally,” says Farrell, “but we’re watchdog with some teeth. For example, the placing of two Wellington investment companies under statutory management just before Christmas stemmed from our recommendation to the Minister.” This action followed an enquiry which showed that about $6 million of small investors’ funds was seriously at risk. commission study of investor behaviour also showed tens of millions of dollars was being lost annually through substantial increase in dubious investment schemes.
Accounting for behaviour
In 1990 Management article John Vandersyp, prominent Auckland business adviser, said that “too high” proportion of New Zealand executives operated outside recognisable, consistent value system and the “ethical leadership” displayed by some politicians, government officials, professionals and business executives did not improve markedly during the 1990s. In the political world ‘accountability’ has often come to mean the opposite, with ministers refusing to accept responsibility fo