Tall poppy status has to be earned

By BRIAN GAYNOR

New Zealand's leading business people are held in low regard because of their poor performance over the past 15 years.

The lack of respect is not due to envy or the tall-poppy syndrome. Respect has to be earned, and the top end of the business community has eroded its support over the past decade and a half.

It was a very different story in the late 1970s. There was the occasional rogue businessman at the time but most - they were all males at the time - were highly respected.

The leading figures 20 years ago included Sir James Fletcher (Fletcher), Sir Henry Kelliher (DB), Sir Jack Newman (Transport Nelson), Sir Russell Pettigrew (Freightways), Sir Robertson Stewart (PDL), Sir Ron Trotter (Challenge Corporation) and Sir Roderick Weir (Crown Corporation).

Businessmen were so highly regarded that Ron Brierley was widely criticised for rocking the boat and trying to replace the post-Second World War generation with a new wave of baby-boomer directors.

When the new generation finally arrived, they were granted hero status. Ron Brierley, Allan Hawkins, Bruce Judge, Bob Jones and Colin Reynolds were media stars, and New Zealanders rushed to invest in their companies.

In February 1987, the most widely-held listed companies were Brierley Investments (105,500 shareholders), NZ Forest Products (58,500), Fletcher Challenge (51,000), NZI (41,900), Chase Corporation (32,800), Rada (30,400) and Equiticorp (28,600).

These companies, with the exception of Brierley Investments and Fletcher Challenge, were savaged by the October 1987 sharemarket crash. Most of their problems resulted from poor and naive business decisions.

NZ Forest Products, which was noted for its conservatism before the sharemarket boom, spun off Rada and Prorada to its shareholders.

At the time Rada was New Zealand's biggest company float, but it collapsed in spectacular fashion after the crash.

After the 1987 collapse, New Zealanders either deserted the sharemarket or invested their money in a number of well-managed and conservative companies. Brierley Investments, Fletcher Challenge and Robt Jones Investments were considered well-run companies at the time.

Money flowed into these groups, and four years after the crash the companies with the largest number of shareholders were Brierley Investments (178,700), Fletcher Challenge (70,800), Robt Jones Investments (56,400), Carter Holt Harvey (55,900), Goodman Fielder (45,500), Bank of New Zealand (33,600) and Air New Zealand (25,600).

Brierley Investments, Fletcher Challenge and Robt Jones Investments (now called Trans Tasman Properties) have had dismal performances over the past decade. Carter Holt acquired NZ Forest Products and is trading well below its five-year high. The Bank of New Zealand was sold to the public at $1.75 a share and was taken over by National Australia Bank for less than half that five years later.

Air New Zealand shares were issued to the public at $2.40 in 1989. They are now trading below the original issue price, although there have been several rights issues in the intervening period.

It is easy to understand why our leading businesspeople are not widely respected. The NZSE40 Capital Index is still well below its September 1987 high of 3969 and BIL, Fletcher Challenge, Robt Jones Investments, Carter Holt, BNZ and Air New Zealand have destroyed a huge amount of value for their 421,000 shareholders.

In 1999, Contact Energy attracted 225,000 shareholders and has struggled to reach its $3.10 a share issue price.

In November, former Prime Minister Jenny Shipley wrote in the Herald: "It's hard to imagine a New Zealand entrepreneur topping any local opinion poll. We don't celebrate those who succeed. We envy them."

Her assessment is totally incorrect. New Zealanders do respect business people, but this respect has to be earned. The criticism of our business leaders is because of poor corporate governance and the pathetic performance of many leading companies. It has nothing to do with envy.

In the United States, business people are held in high regard because they create investor wealth and widespread prosperity. The Forbes 400, which lists the richest individuals in the United States, contains business people who have created extremely successful companies.

These businesses employ a large number of people and have developed services or products that are in strong demand.

At the top of the 2000 list were Bill Gates, Paul Allen and Steve Ballmer of Microsoft, Larry Ellison (Oracle), Warren Buffett (investor), George Moore (Intel), Philip Anschutz (Qwest Communications) and three members of the Walton family (Wal-Mart Stores).

By contrast, the New Zealand rich list contains only two businessmen - Doug Myers and Stephen Tindall - who have created substantial businesses and widespread prosperity.

In the past 15 years many of our wealthiest businessmen have been associated with companies that have either collapsed or performed badly on the sharemarket.

At the top of the 1987 rich list were John Spencer, Allan Hawkins, Bruce Judge, Malcolm McConnell, Colin Reynolds, Michael Fay, David Richwhite and Colin Herbert.

All were connected with poorly performing sharemarket companies.

The general standing of the business community is bound to suffer when leading businessmen, as defined by the rich list, have a big influence over companies that destroy significant shareholder value.

Another reason there is a lack of respect for business leaders is the attitude of some individuals, particularly members of the Business Roundtable, towards small investors.

Many leading business people claim to create value while ordinary shareholders are freeloaders. This argument is used to support the view that all shareholders should not be treated equally, particularly in a takeover.

National Government ministers Ruth Richardson and Sir William Birch accepted this argument and vetoed the introduction of a takeovers code when it was promoted by Justice Minister Sir Douglas Graham.

When one looks at the performance of Brierley Investments, Fletcher Challenge, NZ Forest Products, Robt Jones Investments and the others, it is ridiculous to claim that our leading business people are wealth-creators and that small shareholders freeload on their expertise.

Finally, the public believes there is a cavalier attitude towards insider trading and the disclosure of share transactions among a small group of directors. In the past few years Colin Herbert, Sir Michael Fay, Eric Watson and Kerry Hoggard have either settled allegations of illegal share-trading out of court or made a payment to aggrieved parties.

Although no one has been found guilty of insider trading, there is a widely held belief that insiders can take advantage of our light-handed regulatory regime.

In the 1980s, people showed they were willing to put our business leaders on a very high pedestal. This respect has been eroded because of poor performances, not because of envy or the tall-poppy syndrome.

In 2001, business leaders would be advised to spend less time blaming the Government and more energy on improving their own performance.