A frank exchange with Mark Weldon

By Karyn Scherer

It's no surprise that Mark Weldon uses a sporting analogy to explain what's wrong with New Zealand.

The problem, he insists, is that too many businesses think like the Black Caps - they simply don't expect to win. If only they were more like our triathletes, and had higher expectations, then we might not be fretting about our ranking in the OECD.

For too long, he grumps, we have been deluding ourselves that it will all come right.

"Well, everything is not all right. If you look at our GDP per capita, we're becoming a poor country. You look at whatever metric you want to look at, and you can find something to be quite depressed about, and I really don't think the 'it's all okay' attitude is going to serve us particularly well."

It's the sort of comment you'd expect from a former Olympian, and someone whose reputation certainly preceded him when he was appointed head of the New Zealand stock exchange some five years ago.

Where others might be a bit more tactful, this 39-year-old wunderkind prefers to call a spade a spade. And he doesn't seem to be particularly concerned that he might cause offence, even to a sports hero like Stephen Fleming.

If Fleming was that way inclined, he might be tempted to hit back. You can imagine the retort: "If I was being paid millions of dollars, I might be a little cocky, too. And as for the incredible shrinking NZX, could the last one out please turn off the lights?"

Some days you almost wish you were in Australia, where they say those sorts of things out loud. But this is New Zealand, land of the long white shroud, where speaking your mind is regarded as thoughtless.

In Weldon's case, of course, his mind is of the steel trap variety. Between endless laps of Olympic-sized swimming pools, he managed to complete several degrees in law, commerce and the arts from Auckland and Columbia Universities. He has worked as an attorney and management consultant in New York, and in 2005 received a Sir Peter Blake leadership award.

When not slagging off the media, or getting offside with the Securities Commission, Weldon has most recently been getting stuck into his rivals in the capital markets. He has offered his views on how the country's monetary policy needs to be overhauled (a capital gains tax on investment properties would be a good start); and claimed, somewhat overconfidently, perhaps, that dodgy finance companies couldn't survive on the stock exchange because of its rules about continuous disclosure.

We know from previous interviews that in his next life he would like to be a cartographer. And his favourite foods are oysters, garlic snails, steak tartare and blue cheese.

In Shortpoppyland, otherwise known as Aotearoa, all of this makes you a prize wanker. So it comes as a slight surprise that he can also be utterly charming, and even show humility.

On a cold, grey Wellington day, in the swanky new offices occupied by what it is now known as the NZX, he admits it was a difficult decision to turn his back on a high-flying career in New York and come home.

Perhaps it's the recent honeymoon in Mexico with his new wife, Contact Energy publicist Sarah Elliot, which is the source of the sparkle in his eye. But he seems to be pretty happy where he is. So far, he says, no other opportunities have seriously tempted him.

"I had a job offer about six weeks before this one, and it was for a shitload more money than this one - about six or seven times more, at least. It was a lot of money, but that was the only plus in the job. It would have been a miserable life, in a city I didn't like - I don't like London at all, I hate the food there. It would have been a culture that was mercenary, and the only reason to do it would have been money. Having gone through that, and decided I'm not going to take a job for money, makes you look at things a little bit differently."

Which is a little ironic, surely, given the recent debacle over his bonus package. Weldon admits the public furore over the initial package offered by the board was bruising - especially for staff, and for Sarah - and is naturally relieved it's now all over.

Last week, the board confirmed that it would give him an interest-free loan to buy up to 1.4 per cent of the company if earnings per share grow by at least 15 per cent a year over the next three years. Given that he already has a 5.2 per cent stake, his total holding could eventually be worth around $15 million at current share prices. And that's on top of his salary of just under $1 million a year.

The previous deal, which was criticised for having targets that would be too easy to achieve, could have seen him end up with an even bigger stake, possibly worth more than $22 million at today's prices.

Interestingly, the latest deal appears to lock him in for another four-and-a-half years, rather than the three years originally proposed.

GPG boss Tony Gibbs admits he's still uncomfortable with Weldon having such a significant stake in the company, given its role as a regulator. And he rejects claims by some that he is a hypocrite, given his own generous remuneration.

"No one in GPG has 5 per cent of GPG. I've been working for GPG for God knows how long. Sure, we've got options, but we've now got a business that's capitalised at nearly $3 billion. NZX is nowhere near that big."

Not only is it not that big, but the sharemarket itself has been gradually shrinking as a percentage of GDP over the past decade. After peaking at about 56 per cent in 1993, it is these days closer to 45 per cent.

That said, if NZX weren't a regulator, he couldn't care less about Weldon's pay, Gibbs insists.

"I don't think it's right that any executive of a regulator should own 10 per cent of a regulator. Can you imagine if Jane Diplock had 10 per cent of the Securities Commission?"

But most other critics, including Fisher Funds, which is the exchange's largest shareholder by far, say they are now happy. The New Zealand situation is hardly unique, they say - but nor is it widespread.

Fisher Funds' chief investment officer, Warren Couillault, says his company's 10 per cent stake in the NZX - the maximum allowed under current rules - speaks for itself. "We don't take big positions in companies unless we like a lot about that company."

Certainly, there wasn't a lot to dislike in its latest half-year result. While turnover was down on all its exchanges, its operating profit doubled to just over $7 million, largely thanks to the market information businesses it has acquired. Weldon's master plan appears to be working well.

"First of all was fixing it up," he explains. "Second was building a robust, resilient, core franchise that can stand any short-term swings and roundabouts on the capital market and give people confidence that it will be around for the long term. At the same time, we had to establish some options and opportunities outside that core franchise for growth purposes, and to position it as a business in a market ahead of what you would have to believe is convergence between New Zealand and Australia."

Which sounds straightforward, but in fact it's been a fairly hard slog, he says.

"I tend to enjoy life most when I'm dealing with big challenges, but I have to say that I probably hadn't done sufficient due diligence on exactly the level of challenge. I'd assumed some things - like the technology platform - were actually okay, and they weren't. If I'd been a bit more robust about it, I might never have taken the role."

He is joking, of course. But not everyone is impressed. "The things that he's done are all the sensible things you do with a monopoly. But you can only push pricing so far, so having done all those things, it's pretty hard to see what the next trick is," says one critic, who would only speak on condition of anonymity.

But Couillault disagrees. By broadening out into financial services, exchange-traded funds, the Link registry service, and a bigger involvement in the debt market, NZX has demonstrated a strong growth strategy, he says.

And Weldon has more challenges ahead of him. He hopes to complete an infrastructure upgrade in the first quarter of next year "which is a very hard to explain piece of the business, which is clearance and settlement, where all the money and product gets moved around. Then we'll have that and put that together with the trading system, and then you can do anything with it - you can do carbon, you can do energy, you can do options, derivatives, water, wool. Currently we can't, because we're technologically constrained. But we've also now got people skills and the organisational confidence to launch those types of things, whereas previously it would have been more than a bit of a punt."

In fact, in a fairly short space of time the exchange's market value has grown from around $36 million to $280 million, he notes. And interestingly, it trades on much the same earnings multiple as much bigger exchanges such as the ASX in Australia, and the NYSE in New York.

"It's interesting because it means the market expects it to grow at the same rate as those larger stock exchanges. People out there who are reasonably clever think we are going to grow a lot, so they obviously believe a lot in the New Zealand capital market story and also some of those other things which would also be quite fun to deliver."

But what about data published this year that showed the NZX way behind most of its rivals? The figures, provided by Datastream, showed it had posted a comparative total return since June 2004 of 127 per cent - less than half as much as some of its peers. The ASX, for instance, posted a return of 216 per cent. The London Stock Exchange posted 260 per cent. In fact, out of 15 exchanges analysed, the data showed NZX came 13th.

The comparison annoyed Weldon. He believes the figures were deliberately manipulated to show the exchange in a poor light. "Actually, it's the worst example I've seen of picking a piece of data in a particular point in time and making someone look as bad as they can."

A 12-month comparison, instead of two years, would have shown the NZX as number one in the world, he insists. And a three-year comparison would have shown it in the top quartile.

Which just goes to show, perhaps, what happens when you're not afraid to speak out.

Weldon is barely able to conceal his dislike of brokers, in particular. One of his more mild criticisms is that, unlike in the United States, their shopfronts are hard to find here.

"You walk down Park Avenue in New York and there are lots of brokerages," he enthuses. "You walk in and they're friendly - they invite you in - whereas most of our brokers are on the 21st, 32nd or 38th floors."

Indeed, but you could also say the same about the NZX. Its new offices in Cable St, on the outskirts of the capital's CBD, are not exactly easy to spot from the outside.

And for all his championing of competition, Weldon hasn't exactly welcomed Unlisted, the over-the-counter market that competes with the NZX's alternative, and not particularly successful, NZAX exchange.

On that subject, he concedes more may need to be done to spark interest in the market's minnows. He notes that many exchanges have been forced to close their alternative markets, so the NZAX can't be regarded as a complete failure. But nor has it been anywhere near as successful as London's AIM, for example.

One way of putting a blowtorch under the NZAX would be to revise some of its rules, so it's less like the main board, he says, "but that's a conversation to have more broadly with the public".

But isn't it also a bit rich for the stock exchange to be lecturing other companies about continuous disclosure when its own record in that regard has come under fire?

It's not just journalists who have noted this, either. As Institute of Directors chief executive Nicki Crauford politely points out, it wasn't exactly a good look for the NZX board to offer its chief executive a bonus package that didn't require shareholder approval.

The board has since won plaudits for admitting its error and revising its plans, but Weldon's own detractors are not so easily placated.

None of his critics would go on the record, but most brokers are furious at the fee hikes they have had to endure from a virtual monopoly. Many are also unhappy at the amount of compliance they are now subjected to.

Such self-interest is understandable, and utterly predictable. But some in the industry still fret about the long-term future of the exchange.

"If you're a shareholder, you have to say it's done bloody well," concedes one prominent observer. "It just seems to me that it's racing towards a brick wall ... The biggest company is getting smaller, and there's a few others we're likely to lose over the next few months. I'm a bit staggered the stock price is up there - it looks like a terminal business to me."

The same person is sceptical about other possibilities for growth. The ASX, they predict, will simply drop its prices to match any competition, and as for carbon trading, well, who knows whether that will really take off?

Indeed, says Couillault. But the NZX would be remiss if it wasn't pursuing such opportunities.

"It's impossible to predict the outcome," he agrees, "but you want them to pursue these things."

And Weldon is at a loss to know what more he could possibly do. He believes he's done his best to create a suitable environment for companies wanting to list, and to encourage businesses to give it a go. And the NZX has certainly paraded more than a few potential candidates in front of brokers, he insists.

"You can't force a broker to take a company on. And believe me, we've put a number of companies in front of brokers and the companies have walked away reasonably disappointed. So there's a point at which our ability to do things, or indirectly influence things, disappears."

That his critics prefer to remain anonymous speaks volumes in itself, says ABN Amro's head of equities, James Miller.

"Talk is cheap and you will get a lot of people in this industry prepared to throw the odd grenade, but not prepared to back it up," he says.

Miller describes Weldon as "pretty driven" and says that's exactly what's needed. While he concedes that market conditions are currently "relatively challenging", he remains optimistic about the longer term outlook, given the pool of money that will soon be looking for a home thanks to KiwiSaver, and other taxation and investment initiatives.

Couillault agrees. While he's not putting all his faith in KiwiSaver, given that the NZ Super Fund wasn't a silver bullet either when that started up, he does remain optimistic that more companies will turn to the sharemarket to raise money in the future.

"I don't fret and say all the companies are disappearing, and therefore we're going to have nothing to invest in. We will still get companies come along like Delegats and Rakon. Those companies didn't need to list. They could have gone to private equity or a trade sale, but it's the attitude of the vendors and you've got to applaud that attitude."

Even now, with credit contracting fast, private equity firms might be forced to offload some of their assets, or at the very least, be less competitive when it comes to potential investments, he says.

Meanwhile, the market is awaiting news of the NZX's proposal to set up an electronic communications network, to be known as AXE ECN, in competition with Australia's exchange. It had hoped to get the joint venture with five investment banks up and running last month, but is still awaiting regulatory approval.

The network will handle "crossings" - off-market trades between a buyer and seller that until recently made about A$18 million ($21 million) for the ASX.

Couillault is relaxed about the delay, believing it is to be expected in the circumstances. But the latest rumour - that the NZX is considering teaming up with IRESS, a technology company which supplies most stockbrokers with their sharemarket information - may make the Australians even more wary.

Says investment analyst and Herald columnist Brian Gaynor: "If anyone else suggested that you'd laugh at it, but with Weldon there's the possibility he could bring it off."

Weldon himself seems optimistic that economics, rather than politics, will prevail. The most efficient capital markets in the world are characterised by competition, he notes. "The best outcome for New Zealanders, and probably Australians as well, is probably one seamless capital market and two pretty strong institutions competing with each other."

The ASX does seem to be taking the threat seriously. It has already slashed its own crossing fees by 75 per cent in response to the proposal.

Its managing director, Robert Elstone, was once chief financial officer for Air New Zealand and presumably has a good understanding of transtasman issues. Elstone, whose own package is reported to be up to A$17 million over three years, did such a stellar job of running the Sydney Futures Exchange that he tipped the ASX's previous managing director out of a job when the two exchanges merged. According to his PR man, Matthew Gibbs, he did not want to be interviewed for this article "given the sensitivities attached to the NZX and their ambitions in Australia".

Weldon is not quite so shy. "I don't think I'm flavour of the month with the ASX, but that's okay, isn't it?" he grins.

Indeed. His relish at the political aspects of his job have inevitably led some to wonder if he might be wooed by Parliament. In fact, he was tipped as a likely National Party candidate last year, although he insists he has never been approached "by either political party".

Would he be persuadable? "I certainly wouldn't be interested right now," he replies. Then, realising this is standard double-speak for ambitious prime ministers-in-waiting, he clarifies: "You never want to rule out anything in your entire life, but I currently have absolutely no ambition in that respect."

While it's probably too early to wonder about what he might do next, he has given the subject some thought. "Beyond this, the ideal job for me at some point is to take a New Zealand company that is significant globally and make it massively substantial globally. That is the single thing I would like to do most after this one."

Maybe in the meantime, he'll work on his diplomacy. Or maybe not. As he sees it, he is simply saying publicly what needs to be said.

His handling of the media is a case in point. Whereas most businesspeople see it as being in their interest to at least pretend to get along with journalists, Weldon has made no secret of his view that the business press has a negative bias. Invited to speak at the official launch of The Business 18 months ago - a publication that proudly celebrates tall poppies - he used the occasion to get stuck into business journalists, upsetting almost everyone who attended. His sullen presence put a damper on what was intended to be an upbeat occasion, and nearly resulted in fisticuffs with a senior media executive.

He remains unrepentant. "I do think that to some extent there are probably not enough businesspeople in New Zealand who do speak out. But I tend to lag business opinion rather than lead it. There's very few people going to take the risk and say to journalists, 'Here's the deal', so what better place to do it than in a room full of journalists?"

That being so, he says he still talks to journalists he doesn't personally like, as that's part of the job.

Brian Gaynor has never personally witnessed Weldon being abrasive, but is certainly aware of his reputation.

"He's changed the stock exchange from being a hopeless organisation into being a really good organisation, but he does have a personality that does rub people up the wrong way," he observes.

However, he believes Weldon is often misunderstood. Part of the problem is that he is so smart that people often think he is being condescending, says Gaynor. And Kiwis do tend to confuse debate with personal animosity.

Unlike many of his peers, Weldon is completely his own man, and unlikely to sort something out over a game of rugby or a beer.

"I've seen other guys in New Zealand who have been similar to him who've also got the same kind of treatment," says Gaynor. "I think it's a flaw in us, not him. He is rather blunt with people. It's a much more American approach."

Of course brokers are bitter, he says, given that Weldon has completely changed the exchange's business model, and hiked fees. And it's no surprise that they still feel disenfranchised, even though they supported the demutualisation process. Many were keen to flog off their shares, and no doubt many are now regretting having done so.

Gaynor believes it's also unfair to hold Weldon responsible for New Zealand companies being only too happy to be takeover targets. And it's not as if the NZX hasn't been trying to encourage new listings. There would hardly be a company in the country that hasn't had a visit from NZX's head of market products, Geoff Brown, he notes.

In fact, says Gaynor, Weldon is an "exceptionally talented" individual whose views and ideas for the stock exchange are "just amazing".

He would not be surprised if Weldon's successor was a more conciliatory type. But whoever it ends up being will have a very hard act to follow, he believes.

"I find it extraordinary the number of people who say to me, 'I don't like that guy', because I wish there were more Mark Weldons around. I'd prefer to see someone who has good and bad patches than someone who does nothing and is a very nice person. We don't need the whole country full of Mark Weldons, but you do need a few Mark Weldons."

The Black Caps, of course, may beg to differ.

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