Liam Dann: From backyard to boardroom life isn't fair

Players like the NZX and Stiassny are concerned about public perception of a market which needs the support of ordinary New Zealand investors more than ever. Photo / Paul Estcourt

Here is the true story of a business transaction which took place last Sunday in an Auckland backyard.

A six-year-old girl and her four-year-old cousin were playing water fights with an old trigger-topped plastic bottle.

After a while, they started squirting the window panes of the ranchslider doors.

Their caregiver - a cynical business editor - saw an opportunity (not so much for getting clean windows, but for keeping two children quietly occupied) and handed them each a sponge.

The two spent the next half hour happily cleaning the windows. As they neared completion, of their task they started chatting and came to a profound conclusion: they should be getting paid for this work.

"We can get pocket money for this, can't we?" declared the financially savvy four-year-old.

Readers familiar with the cold, hard reality of the business world will see where this is going and will already be visualising the two crestfallen little faces as the caregiver explained their problem.

Having completed the work without at any stage engaging in discussion about payment- let alone doing a deal on pricing - the pair now had no bargaining power with which to make demands.

The disappointment and outrage they felt on realising this probably reflected, in some small way, the kind of hurt and anger that someone might feel when it's revealed that they have unwittingly sold their shares for half their market value.

Knowledge is power. Which is exactly why brokers and investment bankers invest so much time and money in research.

When you gain access to relevant knowledge only after a financial transaction has run its course then, naturally, you feel that such a transaction is grossly unfair.

This has been the case for investors who found themselves unwittingly exposed to risky property investments through finance companies that advertised themselves as safe bets.

Likewise, the story of Bernard Whimp - the business man who has made more than a million dollars mailing low-ball offers to shareholders - highlights the difficultly of legislating for fairness.

Life is not inherently fair. Even defining the term "fair" is difficult. It is highly subjective.

Most of what is enshrined in law is a reflection of broad and long-standing social convention.

It's not illegal to make an unsolicited offer for goods or services and it's difficult in a free market economy to legislate the price that can be offered (just take a look at the mess of the telecommunications industry).

And the idea that free markets can and do transfer wealth from the stupid to the smart is borne out by example every day.

Nearly every business transaction has a winner and loser, or at least an imbalance in the value returned to each party. The winner usually had better information than the loser. Ascribing unfairness to the transaction is easy with hindsight. But at the time, it's possible neither party was aware who had the edge.

The unsatisfactory part of the Whimp transactions is that, despite being legal, the imbalance of knowledge between the buyer and the seller seems too large and the degree of unfairness too great to stomach.

Certainly it has been too much for Vector chairman Michael Stiassny, a man considered one of the toughest and most experienced businessmen in the country.

After 300 Vector shareholders sold to Whimp. Stiassny went on the attack and has found technicalities which could give a number of those who sold into the deal the chance to back out.

Other companies are now following his lead.

The NZX has supported a law change which would require letters of this type to include information on the current market price for the shares. That's how they put an end to this kind of thing in Australia.

It seems like a pragmatic solution which would not remove the seller's freedom of choice or the buyer's right to try his luck.

Players like the NZX and Stiassny are concerned about more than just the individuals who have sold to Whimp. They are concerned about public perception of a market which needs the support of ordinary New Zealand investors more than ever.

There's another reason to back a change. Life isn't fair but it's nicer to live in a world where naivete is not exploited.

So of course the kids got their pocket money in the end.

And of course the public have a right to be protected from cynical low-ball share offers.