Dialogue: Political involvement in TV a recipe for decline

By BARRY SPICER*

I read with interest the Dialogue exchange between David Irving and Ross Armstrong regarding the role of TVNZ. Their exchange and the release of a draft charter for TVNZ by the Minister of Broadcasting on September 19, 2000, raise a number of important issues relating to TVNZ but also address what the future holds for New Zealand's SOEs.

Irving raised the question of what is the predominant objective of TVNZ? He asks: "Is the prime responsibility of TVNZ to be a successful [commercial] business or is it to reflect our identity and culture and to encourage New Zealand programmes?" Mr Irving argues that it is clearly the former because to do otherwise would be to reduce shareholder value.

Ross Armstrong, TVNZ's chairman, responded that the answer to Mr Irving's question is not an either/or but rather "It is both, as stated in state-owned enterprise legislation."

Mr Armstrong introduces the notion of a "caring" SOE that attempts to balance social responsibility with commercial imperatives. This he compares to fully commercial SOEs "stampeding like Panzer divisions across the Low Countries early in the Second World War." While colourful analogies, they add little to the debate.

To set the record straight, it is useful to look at a few of the key principles under which the SOEs were formed and how these were incorporated in the State-Owned Enterprises Act 1986 by the Labour Government of the day.

First, managers of SOEs were to be given a main objective of running them as successful business enterprises. This principle was given expression in Section 4(1) which provides that SOEs are to operate as successful businesses that are as profitable and efficient as comparable businesses not owned by the Crown and, to this end, to be good employers and exhibit a sense of social responsibility. Thus the successful business requirement is the predominant objective placed on all SOEs.

Second, responsibility for non-commercial functions was to be kept separate from SOEs. Implementation of this principle meant that SOEs would be held accountable only for meeting commercial objectives and not for meeting social or non-commercial objectives. If the Government wished SOEs to provide social goods or services it would buy them.

In the case of the broadcasting SOEs, the Government used the Broadcasting Act 1989 to establish a Broadcasting Commission (now known as NZ on Air). Its specific objectives are to advance the Government's social objectives in broadcasting by buying programmes that promote New Zealand identity and culture and cater for minority and special interests.

Before being established as an SOE, TVNZ was part of the Broadcasting Corporation of New Zealand. From 1979-1989 the BCNZ consumed the entire broadcast licence fee (over $350 million), paid no income tax and only $7.2 million in dividends to the Government.

Since becoming an SOE in 1989, TVNZ has paid hundreds of millions of dollars in dividends and income tax. It is within the Government's powers to direct an amount equal to the dividend and taxes it receives from TVNZ to NZ on Air to buy local programming that promotes New Zealand identity and culture. That it has not chosen to do so is a reflection of the Labour Government's spending priorities.

TVNZ is not precluded from producing, acquiring and screening local programmes that promote New Zealand's identity and culture provided it does so for commercial reasons. However, it would be contrary to the provisions of the State-Owned Enterprises Act if the board and management of TVNZ were to undertake activities or to acquire programmes that have no commercial purpose simply because they thought it desirable and in the public interest.

Third, under the SOE Act, managers and boards were to be free to make commercial decisions without political interference but would be held accountable for the results of their decisions as reflected in the commercial performance of the company. As Mr Armstrong's article makes clear, this will no longer be the case for TVNZ as he intends to see that the company places greater weight on achieving "the social and cultural responsibilities that are inherent in the Government's broadcasting policies."

The result will be to return TVNZ to a mixed-objective model that encompasses both commercial and social objectives. The resulting organisation will best be described as a "super" Government department which retains the outward trappings of an SOE such as corporate form, a board, a chief executive and a statement of corporate intent, but any semblance of an arm's-length relationship with Government ministers will be lost.

The appointment of Marian Hobbs as Minister of Broadcasting, with responsibility for overall broadcasting policy under the Broadcasting Act, and as shareholding minister, with responsibility for the performance of TVNZ under the State-Owned Enterprises Act, will create confused performance measurement and governance. These conflicting responsibilities along with the draft charter for TVNZ, which lays down programming requirements for the company, will simply add to the accountability muddle the Government is creating.

As a consequence, political involvement in the policies and operations of TVNZ (and the other remaining SOEs) is likely to become commonplace. Commercial objectives will be confused and mixed up with non-commercial and political considerations. This, in turn, can be expected to have direct effects on the strategies, internal organisation and cost structures of SOEs and the motivations of boards and managers. Boards and managers will build political considerations into their decision-making, and hesitate to take commercial risks. The result will be a significant loss of accountability and control over the performance of SOEs.

Before corporatisation, Government-owned enterprise in New Zealand suffered from mixed and muddled objectives and the intrusion of politics into board appointments and day-to-day operations. As Mr Armstrong's article makes so abundantly clear, this is precisely the situation in which TVNZ Ltd now finds itself.

The result is foreseeable. Over time, the company will lose shareholder value as TVNZ moves to directly subsidise "social" programming that does not have a commercial purpose and is unable to pursue a fully commercial strategy with respect to fast-moving technology.

In a world of global competition driven by the rapid convergence of broadcasting, telecommunications and computing technologies, this is a recipe for decline.

In reality, Mr Armstrong and the Government are engaged in a form of "back-door" privatisation of broadcasting as, over time, the commercial capabilities of TVNZ are eroded and private broadcasting and telecommunications companies gain at the expense of a constrained TVNZ.

A similar future awaits other SOEs that remain in Government ownership.

* Professor Barry Spicer is dean of the University of Auckland Business School, and co-author of The Remaking of Television New Zealand.

TVNZ draft charter