Fran O'Sullivan: Watchdogs can be misled

The "top girls" have got the (mostly male) commercial community into a bit of a lather.

Neither Commerce Commission chairwoman Paula Rebstock and Securities Commission head Jane Diplock are the sort to be easily fazed by a few ruffled feathers down at the Northern Club - or even the more cloistered Wellington Club. If anything, the feathers needed a good airing given the clubby way in which their owners used to run New Zealand's so-called "self-regulated market".

But Rebstock and Diplock should take note of the disquiet that is building at senior board level over the methods they are using to bring corporate New Zealand to account.

Let's start with Rebstock and her particular fiefdom.

She has been on a bit of a crusade recently to ram home the Commerce Commission's new get-tough approach to price-fixing cartels. To hear Rebstock - and her Australian counterpart, Graeme Samuels - talk, cartels are one of the worst evils to harm economic efficiency.

Samuels, who has the ear of Australian Treasurer Peter Costello, has succeeded in getting price-fixing criminalised, with legislation planned this year to ensure jail terms of up to five years.

Rebstock has not (so far) got our politicians to follow Costello's lead.

Companies found guilty of price-fixing here face a fine of up to $10 million, three times the gain the cartel member has made, or 10 per cent of turnover, whichever is the larger.

But Rebstock is clearly on a crusade to publicise (and maybe even entice a few more confessions) the commission's new "leniency" policy, which basically offers immunity to the first cartel member who "goes dog" and dumps on other members of the mutual conspiracy to shaft consumers.

Last week, Rebstock used an address to the Institute of Directors in Auckland to talk up the success of the policy - "we received two applications the day after it was launched and a further two shortly thereafter".

Her speech mirrored similar in-house addresses she has given to groups of company chairmen.

What has excited comment on the directors' circuit is not so much her exposition on the evils of cartels - which, as she pointed out, had resulted in ill-gotten gains of about US$55 billion ($74 billion) in 16 large international cases, according to an OECD study - but how cartel-busting works in practice.

There is a risk to innocent parties that their commercial wings might be clipped if a competitor uses the leniency clause to spit on all and sundry, not just those the self-confessed price-fixer has been conspiring with.

Take allegations of price-fixing in the cardboard box industry, where cartel investigations are under way on both sides of the Tasman.

It is widely understood that the board of Australian giant Amcor pulled the leniency plug with Samuels' Australian Competition and Consumer Commission (ACCC) last year after a raid on the premises of four former executives turned up tapes of sensitive conversations.

The quartet had been talking with New Zealand's Carter Holt Harvey, which is a very small fry in a viciously competitive sector dominated by Amcor and Visy Industries. Carter Holt put a "legal stop" on its own documentation after the Amcor revelations broke, but has since been dismayed by the tactics the commission has deployed as it investigates similar claims here.

The company's key gripe is that nearly four months after the commission obtained search warrants from the Auckland District Court, Carter Holt still does not know the precise nature of the allegations made against it in a secret court hearing.

Chief executive Peter Springford wants the court to give Carter Holt access to the commission's application so that it can deal with any allegations. In January the company fronted up to the ACCC for frank discussions and felt sufficiently assured to make a public statement (with the watchdog's tacit permission) that "they have no interest in us at this stage".

Springford clearly does not want to jeopardise the upcoming court hearing, which Rebstock plans to contest. But the situation is clearly Kafka-esque.

The allegations have hurt Carter Holt - a share price dive wiped millions off its value. But the reputational issue is more damaging, particularly Rebstock's repeated insistence that ex parte orders were necessary in this case (and any cartel investigation ) as the commission could not afford to run the risk of document destruction.

When the commission raided the Auckland offices of Amcor, Carter Holt and Visy Industries, it simply cloned the corporate servers. But it also took with it, in Carter's case, legally privileged material that the company wants back.

Springford makes clear he has offered to co-operate fully with the commission, "but we can't get a clear view of what we're facing".

"We've had it from the ACCC in Australia, yet New Zealand seems to have a different view, so we're trying to find out why.

"We've done our own investigation of it. We don't believe there is any evidence, so if there is, please tell us so we can do something about it."

What really bugs Carter Holt - although no director or executive would be foolish enough to make these claims publicly - is the theoretical possibility that Amcor may have seized an opportunity to harm the smallest fish in its market and stop it making headway in Australia while the dominant players were under investigation.

Corporate New Zealand should also take note that the commission intends to crack down on the improper use of industry associations to screw market conditions - the OECD study found most of the 16 cartels had at the centre of their collusive arrangement an industry trade association.

Major sectors of the New Zealand economy - from banking to power generation and publishing - will be vulnerable if Rebstock cracks down on duopolies and industry bodies.

Jane Diplock's Securities Commission - named as one of the Top 20 workplaces last year - takes pride in its positive and vibrant commercial culture. But questions as to just how far the watchdog's vaunted commerciality really extends should be put.

At issue is the commission's approach when investigating potential insider trading, particularly share trades by directors or senior executives.

It is generally accepted that shareholders benefit if such players have "skin in the game".

But the alacrity with which the commission has challenged trades that were approved by the appropriate company board committee has alarmed some.

Now that Diplock has decided to discontinue the probe into acquisitions by former Tenon chairman Sir Dryden Spring - which was launched during the heat of a contentious takeover battle - tensions may diminish.

But again there is concern that opponents will capitalise on the regulator's investigative appetite to diss competitors with trumped-up allegations.