At their worst, related party transactions are toxic, involving the transfer of shareholders money to insiders. At all times they need very close scrutiny and complete disclosure.
If we forget this lesson of history, we'll be doomed to repeat it.
This is why ANZ's undisclosed house sale, to the family of their most senior executive, is so concerning.
ANZ management must have known that selling a house they own to the wife of the CEO, under any circumstances, would be very sensitive.
The current chief executive of ANZ was a director of the company that sold the house, and to the wife of her boss at the time. Is that a potential conflict of interest that should have been disclosed to shareholders?
The Hiscos' house at 269 St Heliers Bay Rd, Auckland. Photo / Google
But the ANZ are clearly aware of the issues here, as the principles documented in their internal Code of Conduct include:
• #2. "We act with honesty and integrity" • #4. "We identify conflicts of interest and manage them responsibly" • #6. "We do not make or receive improper payments, benefits or gains" • #8. "We immediately report any breaches of the Code, the law or ANZ policies and procedures"
Thus, the fact that the ANZ chose to do this transaction and not disclose the sale, speaks to their conduct and culture, something the FMA and Reserve Bank investigated earlier this year. That the auditors signed off on it raises serious questions for them too. It took a whistleblower to make this public and we have virtual silence from their board.
This is very concerning and begs the questions, what else are they hiding and what don't we know?
The reason we are so concerned about getting the regulatory response is the precedent it sets. The FMA have confirmed it was a related party transaction. They've asked the accounts to be restated, and informed other regulators. If their final message is 'report it properly this time, and don't do it again', we question if this will change any behaviour.
We must be able to trust our financial institutions, and it can't ever be okay to bury related party transactions. This particularly matters when the companies are already custodians of billions of dollars of our KiwiSaver savings, a number that should quadruple by 2030.
That's why this ANZ transaction is Key (pardon the pun).
If the consequence for the ANZ is a regulatory equivalent of a wet bus ticket, it will be a green light for future malfeasance by corporate NZ. Whether they want it or not, this is an acid test for our regulators, because this particular transaction smells so bad, and the hiding of it seems so clearly wrong.
What regulators do about it sends a very clear message to boards of directors nationwide. This is not a small New Zealand business struggling to make a profit, this is our biggest bank and most profitable company.
Sir John Key, chairman of ANZ Bank New Zealand. Photo / File
The fact that it took a whistleblower to expose this begs the question, do the regulators have the resources and tools to do the job? They are staffed by quality people, but there are too few of them. In this case the FMA have the power to investigate the transaction for breaches of both the Companies and Crimes Acts, and they should.
The NZ regulatory environment has been a relatively light and polite one, which reflects our New Zealand culture.
But we are proud of our lack of corruption and the honest, open and transparent commercial environment, and we need to protect that at all costs.
Overall confidence in our regulators is increasing, but any reversion to a traditional Kiwi 'play nicely' and 'don't rock the boat' response will not serve us well.
Regulators need to have the teeth that more resources would bring, and they have to use them. Finance industry participants should pay higher levies for a better resourced FMA, and any call from the regulator should create genuine concern. Current ANZ behaviour seems to demonstrate a lack of accountability and an abundance of hubris.
It all reminds me of the Emperors New Clothes. It's a shame it took a whistleblower to point out our biggest bank looks naked here. But now they've been exposed, the regulators must do something about it.
- Sam Stubbs is the managing director of Simplicity.
