Fran O'Sullivan: Whiff of self-interest sours Weldon message

Mark Weldon's assessment of SOE performance was over-egged. Photo / Mark Mitchell

NZX boss Mark Weldon is no slouch when it comes to chastising state-owned enterprise directors (particularly ex-politicians) for the failure of their companies to measure up to his exacting standards.

Weldon's admonitions to a bunch of SOE directors - including at least four prominent former politicians - that their company's predilections for sponsoring "high culture" events, like ballet and the opera with glamorous openings attended by powerful policy mandarins and politicians can simply not be justified on commercial sponsorship grounds, inevitably got backs up on the Wellington cocktail circuit.

Let's face it, anyone who is anyone in commercial life in New Zealand has probably enjoyed some hospitality from the likes of Genesis Energy (NBR New Zealand Opera sponsor) or, Meridian Energy (Royal NZ Ballet) over the years, or, been invited to the Wellington Cup by NZ Post; in much the same way as they have enjoyed the hospitality boxes of listed corporates like Telecom, Contact Energy and Infratil.

But banging on about such side-issues in a room populated by former Prime Minister Jim Bolger (chairman NZ Post and Kiwibank), former Finance Minister Michael Cullen (NZ Post director), former National leader and Reserve Bank Governor Don Brash (Transpower director) and former Trade Minister Jim Sutton (chairman Landcorp) may have been delicious but did detract from the key message that Weldon is trying to get across that it is time to introduce better governance systems at SOEs to ensure better across-the-board financial performance.

It wasn't long before the barbs started flying around the beltway: Why doesn't Weldon deliver the same message to some of the other relative basket-cases among NZ's cache of publicly listed companies who also sponsor high-profile events?

Isn't Weldon just making the case for SOEs to be partially privatised - a step which would substantially boost the size of the NZX and by implication Weldon's performance bonus? In other words, self-interest was to the fore. Not quite the take-out the NZX boss wanted.

The fact that Weldon chaired the Prime Minister's Job Summit and is a member of John Key's kitchen Cabinet also meant it wasn't long before former SOE Minister Trevor Mallard was popping in parliamentary questions to the Ministers of Finance and SOEs.

"Did CCMAU invite Mark Weldon to address SOE board members and did Mark Weldon advise them to prepare strategic plans that allowed for privatisation or partial privatisation in two to five years?"

"Has he made clear to SOE board chairs that the speech by Mark Weldon made to them last Thursday is inconsistent with government policy with regard to asset sales, if so, when, and if not, why not?"

Of course, Weldon's thesis fits exactly with the drum roll the Government is keen to get under way within the business sector to support a wave of partial privatisations after the 2011 election.

But if the drum roll is to get under way - and not be sabotaged by National's opponents - it needs to be better grounded. On this score, Weldon has not been helpful.

The Government's Crown Company Monitoring Advisory Unit (CCMAU) gets speakers in to address the government-appointed directors at annual events in Auckland, Wellington and Christchurch. Weldon's focus was on why SOE governance matters to New Zealand.

The SOEs are a sizeable part of the NZ economy. CCMAU figures show total revenues for the year ended June 30, 2008, were over $10 billion with total assets around $39 billion - a factor the NZX boss high-lighted at the top of his address.

But for Weldon to claim that the performance of the SOE sector was of "serious concern" - because it registered only 2.9 per cent total return on assets and a 2.6 per cent return on equity over the period - doesn't cut the mustard.

Particularly when he bracketed the performance figures with the comment that the Enron saga and recent banks' collapses are proof of what can happen when "good governance is completely absent".

"Good governance is much like obscenity - you can tell it when you see it", Weldon chimed away. "Equally you can see when it is absent."

"The poor economic performance across the SOE sector as a whole would suggest, by its absence, that there are real governance issues at SOEs."

The NZX chief executive used the CCMAU figures to underpin his thesis that the SOE sector is a "drag on national growth and productivity". The table on CCMAU's website showing the financial performance information for the SOEs in the June 2008 period shows hugely varying results.

It doesn't take a genius to quickly pick out the big differences in performance levels posted by Solid Energy (9.7 per cent return on equity and 9.1 per cent return on assets) to Learning Media (negative 80.5 per cent return on equity and negative 38.8 per cent return on assets).

The problem is the overall results are seriously skewed by the inclusion of state rail track operator Ontrack which makes up nearly half of the Government's SOE portfolio on an equity basis ($11.6 billion of the total $23.5 billion) and, accounts for a quarter of the total SOE portfolio on an assets basis ($11.9 billion of $39.7 billion). Ontrack's return on equity was negative 0.4 per cent and its return on assets was negative 0.3 per cent.

CCMAU yesterday produced figures which showed the overall return on equity for the SOE portfolio would have been 4.5 per cent if Ontrack was removed. While this is not outstanding - it is a far way from the headlined return of 2.6 per cent that Weldon highlighted.

It is this glossing over reality that got up the backs of some of those present at CCMAU's soiree - not the overall desire for change.

Weldon is right to single out how the dividing line between shareholding ministers and SOE directors has got blurred in the time since the SOE legislation was passed some 13 years ago.

He is right to highlight the "no surprises" policy which creates the ideal conditions for directors to second-guess the politicians rather than put the company first. Suggestions like publicly benchmarking SOEs' performance are also looked on as on the right track by some high-profile directors canvassed yesterday.

The NZX's standing would be greatly enhanced through a series of partial privatisations. But one thing Weldon must stop doing is over-egging the SOEs' supposed lack of performance. It is tempting to think of how long his own credibility would last if he ran the ruler over NZX members in such a broad-brush fashion.