Poor governance means few big listed businesses have gone the distance.

Rod Drury's resignation as Xero's chief executive this week was a huge surprise, as was the appointment of outsider Steve Vamos to replacement him.

The NZ Shareholders' Association (NZSA) quickly linked the Vamos appointment to Fletcher Building's problems, as the new Xero CEO is also a director of the building and construction group.

An NZSA release stated: "Mr Vamos has indicated that he intends to continue with his directorships of both Fletcher Building and Telstra Corporation as well as taking on his new role. While NZSA has no questions about his abilities, it is concerned that Mr Vamos may be unable to properly discharge his responsibilities to all three complex roles".

The shareholders' advocate group argues that Xero is on a strong growth path in multiple countries and the new CEO is likely to have to undertake a large amount of travel, in addition to his normal CEO activities.


The association wants Vamos to resign from the Fletcher Building board and it plans to vote against his reappointment as a director of the Auckland based group if he doesn't step down.

The NZSA's willingness to challenge the governance structures of our major listed companies is a welcome development because the performance of this group of businesses has been extremely disappointing over the past 25 years.

The accompanying table lists the 20 largest listed companies, by sharemarket value, on the ASX and NZX at the end of 1993.

Several observations can be made about these companies:

Only four NZX companies remain listed — Telecom (now called Spark); Air New Zealand; New Zealand Refining; and Sanford — while 12 of the 20 Australian companies have remained ASX listed. These are: BHP; National Australia Bank; Westpac; ANZ Bank; Amcor; CSL; Commonwealth Bank of Australia; Boral; Lend Lease; Coca-Cola Amatil; Woolworths; and Brambles.

The total value of the four remaining NZX companies has fallen from $13.2 billion to $13.1b since December 1993. The $13.1b figure includes the current value of Chorus as it demerged from Telecom.

Spark, including Chorus, and NZ Refining are worth less than they were nearly 25 years ago, while Air New Zealand has been the best performer, with its market value increasing from $1.7b in December 1993 to $3.6b at present.

The total value of the 12 remaining ASX companies has soared from A$92b to A$656b since the end of 1993, with all 12 companies at least doubling in value, with the notable exception of Coca-Cola Amatil, which has gone from A$3.5b to A$6.5b.


The Australian banks have been the standout performers, with a current market value of A$397b compared with a mere A$32b at the end of 1993. The NZX would be a far stronger market today if our four major banks were listed on the domestic bourse instead of being 100 per cent Australian owned.

The total market capitalisation of the NZX has increased from $46b to $129b since the end of 1993, while the ASX's capitalisation has soared from A$293b to A$1932b. The latter figures reflect the strong growth of the ASX's largest companies.

Why don't our largest NZX companies remain listed and what lessons can we learn from the past 25 years?

Carter Holt Harvey was taken over by Graeme Hart, while Fletcher Challenge fell apart, partly because of poor governance, including a major personality conflict between chairman Sir Ron Trotter and managing director Hugh Fletcher. Its pulp and paper assets were sold to Norske Skog in 2000 and at the company's final annual meeting in November 2000, one shareholder called on the board to resign because it was "an abject disaster". This plea was rejected and directors were re-elected by huge majorities.

The following year, Sir Ron Brierley's GPG and Mark Dunphy's Peak Petroleum tried to stop the sale of the group's energy assets to foreign interests. However, 98 per cent of Fletcher Challenge's shareholders voted in favour of the sales.

Brierley Investments (BIL) had a particularly poor governance structure and is now majority Singaporean owned, while Sir Ron's next company, GPG, had similar characteristics. The rise and fall of BIL and GPG clearly demonstrates that some of our business leaders never learn.

Goodman Fielder moved to Australia, delisted, re-listed again, came under the control of Graeme Hart and is now Hong Kong/Singaporean owned.

Lion Nathan was acquired by Japanese interests, while Fletcher Challenge Forests' main asset, the Central North Island Forest Partnership, went bust.

Fernz moved to Australia, Wilson and Horton was taken over by Irish interests and Natural Gas Corporation was acquired by Vector.

Whitcoulls was acquired by Graeme Hart in 1996, then sold to Blue Star. It was purchased by the UK based WH Smith, then sold to private equity interests and finally purchased by Anne and David Norman's James Pascoe Group.

Independent Newspapers, Macraes Mining, Progressive Enterprises and St Lukes Group were all purchased by Australian interests.

Fisher & Paykel Industries was predominantly F&P Appliances in 1993, with the appliances company later sold to Chinese interests. Fisher & Paykel Healthcare, which has been a great success story, is the offspring of Fisher & Paykel Industries.

Finally, Ceramco was acquired by Bendon Group in 2000.

Most of these companies, and/or their major assets, were purchased by foreign interests or Graeme Hart. Their history indicates that we are much more inclined to flick on companies rather than have the patience and discipline to develop long-term growth strategies.

By contrast, the four Australian banks, CSL and Woolworths are excellent examples of sustainable growth. Commonwealth Bank's sharemarket value has surged from just over A$4b in December 1993 to A$134b at present, Westpac from A$8.3b to A$102b, ANZ Bank from A$6.5b to A$83b, National Australia Bank from A$16.2b to A$82b, CSL from A$4.3b to A$74b and Woolworths from A$3.3b to A$35b.

No New Zealand company has achieved anything like this, partly because of our relatively weak governance structures. Most of the successful Australian companies replace outgoing CEOs with internal candidates who have considerable expertise and experience. This reduces the risk associated with major leadership changes.

By contrast, Telstra appointed American outsider Sol Trujillo as CEO in 2005, with a media headline calling this "The Trujillo shambles that haunts Telstra".

The more successful NZX companies, including Ryman Healthcare, Mainfreight, Fisher & Paykel Healthcare and Port of Tauranga, generally appoint internal CEOs and their directors have significant sector experience.

A major challenge for New Zealand companies is to develop executives with CEO potential and find board members with industry experience and expertise.

This begs the question: how many directorships should an individual have, particularly the CEO of a major company?

Corporate governance advisers believe that a CEO can have up to a maximum of two external directorships, but Steve Vamos' position is different for a number of reasons including:

Xero is a fast-growing global business and it will take the new CEO some time to fully understand its culture, strengths and weaknesses.

Fletcher Building and Telstra must be time consuming as they are large organisations facing huge challenges.

New Zealand businesses have an extremely poor long-term growth record and growth objectives can be more difficult to achieve if a CEO has several significant external commitments.

The NZSA's comments on Vamos and Xero are astute but, unfortunately, most New Zealand companies are stubborn and pay little attention to outside advice, including advice from shareholders and shareholder advocacy groups.

Brian Gaynor is an executive director of Milford Asset Management which holds shares in Xero and most of the other companies mentioned in this column.