KEY POINTS:
Business leader of the year: Alan Bollard
Sound money and sound banks. We all rely on them, and the man tasked with maintaining that vital economic infrastructure in these perilous times is the Herald's 2008 Business Leader of The Year, Reserve Bank Governor Alan Bollard.
It is a tough job at the best of times and this year has been especially challenging.
Bollard has had to contend first with the steepest commodity price rise for decades and then the biggest global financial crisis since the Great Depression, which is now turning into what looks like being the nastiest global recession since the early 1980s.
Westpac chief economist Brendan O'Donovan, a not infrequent critic of the Governor, gives him credit for not being afraid of engineering a recession when curbing inflation and other excesses requires it.
"At the heart of the problem globally is that central banks have been fearful of causing recessions and have tried to avert them at any cost. Well the cost has ended up being enormous. If you keep bailing investors out you just skew perceptions of risk too low," he said.
"But Alan has not been afraid of recession. Last year when we were heading into one he was still hiking rates, saying that is what is required."
Bollard's predecessor, Don Brash, says he has been doing a good job. Brash knows better than anyone that the Governor is not there to win popularity contests.
"An unpopular central bank governor is not necessarily a good one, but a popular central bank governor is almost certainly a bad one."
Brash was in the hot seat during the last two recessions but says the credit crunch is a shock more severe than any he had to face as governor.
"He has been fortunate in one respect, that the banking system, as far as one can see from outside, is completely solvent. We don't have the situation the Americans have got where banks have incurred enormous losses and therefore the Federal Reserve is taking a substantial credit risk on lending to banks," he said.
"But there's no precedent in New Zealand's history, at least in living memory, for the sorts of things that have happened. He has had to be very quick on his feet."
Bollard says banking in this part of the world has been "pretty much vanilla", avoiding some of the more risky and arcane exposures which have laid waste to banks' capital in the northern hemisphere.
The problem is not the quality of the banks' assets but the make-up of their funding, and in particular the country's reliance on imported wholesale credit.
"Our susceptibility - and it is something we have pointed to for a long time now - is that in net terms we borrow, and we borrow foreign and we borrow short-term." The "jamming up" of offshore commercial paper markets has underlined how vulnerable that leaves us. But the banks are able to access the funding they need, he says, just not in what would be their first-choice, most efficient ways.
Maintaining liquidity in the banking system during times when banks have been wary of lending even short term to each other, and maintaining the confidence of depositors when the international news has been full of bank bailouts and guarantee schemes, has required a series of measures from the Reserve Bank.
Its role as the lender of last resort has moved from theoretical to practical with the setting up of facilities like the one under which it lends to the banks against residential mortgage-banked securities.
And the retail deposit guarantee scheme, for all its distortions and problems, did one important thing, Bollard says. "It stopped any fear of depositor flight. We were starting to get very early warning signs."
Most of the time the bank is like a peace-time army, preparing for events it hopes never happen, he says.
"Some of these events have happened. And when they happen it's a little different from what you expect."
During the height of the boom Bollard warned people, in a series of speeches, in effect to go easy on the borrowing, that house prices could fall, jobs could become scarcer and that banks would not always be operating in a world awash with cheap money. But he has not been tempted to say "I told you so".
"Mainly for the reason that we did not have perfect foresight ourselves and because the international financial situation is much worse than we ever thought would happen."
And while Bollard believes the worst of the financial crisis - as opposed to its economic fallout - is over, he is quick to add that he has thought that before and been wrong each time.
He expects the "series of seismic after-shocks" to continue and to be dealt with by governments which realise they have few options but to nationalise risk and loss in a way they would never have considered, even a short time ago.
"And in doing that they eventually stem the damage, but it leaves quite a distorted financial system in place which is very conservative, takes a long time to rebuild its balance sheets and recapitalise properly, and which has to get weaned off the public purse again." That will be a long and tedious process.
"So there will be some lost years in all this before we get back to trend rates of growth. We hope it is going to be a couple of years and not a lost decade like Japan's," Bollard said.
"As a back-of-the-envelope estimate there is probably $10,000 of income per household we might have expected on past growth rates that we won't get over the next couple of years. That's a real hit. That's where the real damage gets done."
The problem the bank's forecasters have is that as the scale of the global downturn rises they have to go further back in history to find something comparable. But the further back they go the less data there is and the more both the New Zealand and global economies have changed since then.
"We thought there were some features like the tech wreck, some features like the East Asian crisis, but it is worse than those two. From an economic point of view it is probably at least as bad as 1991/92.
"But the way it is heading, it is as bad as 1980/82," he said.
"And that means most people working today, including most chief executives, haven't seen it before, at least not in their working lives. So they are flying blind to some extent, and it's the same with our forecasters."
The world economy is much bigger, more complex and more integrated than it was in the early 1980s, with the reintegration of China, India and the former Soviet bloc.
That may be crucial in pulling the world out of a simultaneous recession across the G7 economies.
"For us, the big question mark is over East Asia and in particular China. It is clearly slowing but there are two views on China.
"One says it gets through this in a very managed sort of way with domestic demand replacing American demand. The other says no, it's got bigger downside. The latter would make a big difference to us."
New Zealand went into this period of turmoil with very high nominal and real interest rates.
Bollard has cut the official rate by 325 basis points since July and still has plenty of rate-cut ammunition at hand.
"In many other countries central banks are perilously close to zero on their interest rates and that is not a happy place to be, particularly as one or two of them are just starting to look at the possibility of deflation," he said.
"We have got plenty of room to move and we don't think we have a problem around deflation. In fact we think we would be one of the last OECD countries to get into that position."
While the recession can be expected to vent the inflation pressures which built up during the boom, Bollard is already starting to think about what happens on the other side.
"You have to worry about what 2011 looks like. We do come out of events like this and the deeper they are the more sharply we come out. You can have a period of quite uncontrolled growth ... and more inflation effects further out."
But in the meantime there are more immediate problems.
Do they give him sleepless nights?
"Generally not. But I do remember one bad night, glued to CNN late into the night."
And if he had known it would get this hard, would he have put his hand up for a second term as Governor?
"To be honest yes, because it has been extremely interesting."
The following people were contenders for Business Leader of the Year:
Rob Fyfe
Michael Hill
Paul Reynolds
John Waller
Tony Carter
John Bongard
Rob Fyfe
Air New Zealand Chief Executive
Rob Fyfe was on the standout list well before the crash of one of his airline's planes in France put his leadership to the ultimate test.
It was the worst of all ways to end a very difficult year when the airline was hit first with record high fuel prices, increased competition and now slumping demand as the global economy melts down. Fyfe, now into his fourth year at the top, has stamped his own brand on each situation. The airline makes a lot of being nimble - it has to be as a small player - and Fyfe is the quick mover in charge.
He was up front and available immediately after the crash last Friday, responding with an openness that is characteristic of his dealings with staff and passengers.
He was quick to embrace the alternative fuel push, wise to the need not to displace food crops with biofuel before that became a popular issue and in looking long term has stuck to the mission, despite oil prices falling faster than they went up.
While mass layoffs have been a feature of other airlines' response to the crises facing aviation, Air New Zealand has avoided this - around 200 of 11,000 staff will go early next year.
Fyfe was quick to impose an executive pay freeze as the outlook darkened around the middle of the year and for a company notorious for friction between unions and management there has been an extended spell of co-operation during his watch.
He faces bigger business headaches next year - tourism forecasts are woeful and the spectre of an enlarged Qantas will pose new challenges.
Michael Hill
Michael Hill International Founder and Chairman
Despite tough times in the retail sector, Michael Hill, jeweller, has had a pretty good year.
The stock may be out of favour with investors at the moment - as evidenced by the bargain-basement share price - but the company itself is proving resilient in the face of a global downturn.
It posted a 20 per cent rise in full-year profit in August, despite flat or declining same-store sales across its New Zealand, Australian and Canadian markets.
And while fellow retailers like Pumpkin Patch are curbing their global ambitions, Michael Hill International continues to expand. It added 21 new stores in the past year, giving it more than 200 stores in three countries.
It also entered the United States market, seizing on the opportunities provided by the credit crunch to take over 17 stores in Illinois and Missouri from troubled Whitehall Jewelers.
Hill, whose family interests control about half the company, said at the time that he did not expect the US stores to turn a profit for several years, but the buy enabled the company to enter the market on favourable terms.
Hill is also the Ernst & Young Entrepreneur of the Year. As judging panel chairman David Johnson said: "We picked Michael because, if you packaged up all the ingredients that would make a highly successful entrepreneur, he just about ticks every box."
Paul Reynolds
Telecom Chief Executive
After just 18 months in the top job it is too early to fully assess Paul Reynolds' performance running New Zealand's biggest publicly listed company. But early signs are positive.
The lofty 6ft 7in (2.3m) Scotsman - a former head of wholesale operations at British Telecom - is the perfect leader for a company in a perfect storm. His motto is sound - look after the customer and the share value will improve with it.
Shareholders will look askance at the crash in the value since he took over in June last year. It had already slumped after politicians across the political spectrum passed the Telecommunications Act to neuter the anti-competitive corporate.
Reynolds is dealing with arguably the biggest makeover in the world of telcos. On a practical level he has had to oversee the split of the company into three divisions, introduced local-line unbundling, opening access for competitors to use its exchanges and launched a $1.4 billion capital programme to bring fibre optic cable closer to homes. All while facing new competition.
More fundamentally Reynolds is turning around a company - led from its board - that milked the unregulated industry for strong dividends and left the infrastructure a mess. Beyond turning around this bloated and bureaucratic behemoth, his biggest achievement has been to win the respect of his competitors. The next step will be turning the promise of a new Telecom into new value for shareholders.
John Waller
PriceWaterhouseCoopers Head of Insolvency Team
Like Business Leader of the Year Alan Bollard, standout John Waller of PricewaterhouseCoopers has made his mark, albeit without a lot of fanfare, for his role in managing the financial crisis.
Waller is the chief of PwC's insolvency team and business is booming.
PwC is currently handling the receiverships of Capital + Merchant Finance, Lombard, LDC, Five Star Consumer Finance, Nathans Finance, Bridgecorp, Provincial Finance and National Finance 2000.
Investors funds affected by the receiverships total about $1.4 billion while funds affected by proposed moratoriums or restructuring plans such as Hanover and Strategic are now well north of $500 million.
That's a lot of receivers fees for PwC. It is, as they say, an ill wind...
Waller is careful about what he says publicly about his work but in an interview with the Business Herald last year he emphasised how much it was about trying to restructure stricken business rather than winding them up.
Waller learned this lesson in the aftermath of the '87 crash where he became adept at deflecting pressure for fire sales of the assets of stricken companies on fragile and depressed markets, arguing that a more patient approach would benefit everybody involved.
Waller himself, though, is to leave PwC shortly to take up a permanent role as BNZ chairman.
Tony Carter
Foodstuffs Managing Director
It's not easy fending off a giant Aussie grocery giant - particularly one with a war chest the size of a small island economy - but New Zealand co-operative Foodstuffs has proven a more than formidable opponent.
When Woolworths bought the Progressive Enterprises supermarkets from Foodland in 2005, industry commentators thought the country's only indigenous supermarket chain was dog tucker.
Foodstuffs, with its old-fashioned co-operative structure, was thought to be no match for Woolworths' highly sophisticated distribution channels, and buying power equivalent to half of New Zealand's GDP.
But three years on and the co-op is still winning the battle. And in some instances, it has shown that it is more than capable of firing the first salvo.
Much of that is down to the man at the helm, managing director Tony Carter. In 2006, he rightly anticipated Woolworths' interest in acquiring The Warehouse, launching a lightning pre-emptive bid for a blocking 10 per cent stake in the company.
This year, he dealt a major blow to Woolworths' New Zealand liquor ambitions when Foodstuffs snared DB Breweries' 72 Liquorland stores.
JP Morgan puts Woolworths' Foodtown, Countdown and Woolworths share of the virtual duopoly market at 43 per cent, down from 45 per cent, while Foodstuffs' share has risen to 57 per cent.
John Bongard
Fisher & Paykel Appliances Managing Director
Being a leader sometimes means having to make the hard decisions - and what a hard call John Bongard had to make in April when he told his employees that 1000 of them were going to lose their jobs.
The closure of manufacturing operations in Dunedin, Brisbane and California in favour of sites in Thailand, Italy and Mexico was a culmination of the prolonged difficult environment the iconic whiteware maker found itself in.
The acrimony that ensued was understandable; some had spent their working lives at the Mosgiel factory.
But Bongard needed to make that call in order to keep the company he joined as a 19-year-old purchasing cadet in 1973 an integral part of the New Zealand landscape.
Under his leadership, the whiteware maker has posted record profits as it expanded to markets beyond Australasia.
But high interest rates, the strong kiwi, and increasingly costly raw material prices have hurt it in more recent times.
Rivals like LG and Maytag were already manufacturing in places like Mexico - where labour costs are around a sixth of New Zealand's - and free-trade agreements with China and Thailand have simply made a New Zealand manufacturing base so much more uneconomical.
The tough times are unlikely to go away anytime soon - if at all - but in making that hard call in April, Bongard might have helped ensure Fisher & Paykel remains an iconic New Zealand company for at least a few more generations.
