Fran O'Sullivan: Time to put the spin into practice with SOEs

Economic Development Minister Trevor Mallard wants to teach state bosses to tap-dance to an old tune to help him feather the Government's nest.

He is firing up the State-Owned Enterprise bosses to expand more, invest more and retain more of their business earnings to do the same again, all aimed at effecting an economic transformation of New Zealand.

But he won't make the changes that would make a real difference: push the SOEs into overseas investment and export-led growth as well as fuel a quick expansion by floating down a minority stake on the sharemarket.

The Mallard agenda is making the news only because it is a restatement of the status quo before Labour came to power in 1999, not a bold new step.

Let's just say it's about time the SOE bosses were let off the leash as they sit on assets worth more than $13 billion. Count in strategic investments such as the Crown's holding in Air New Zealand; various Crown companies and the Crown research units and there's a sizeable asset base from which to spawn a raft of exciting new businesses that will help this country's economic transformation.

But that won't happen unless the Cabinet lets them put the spin into practice. If ministers simply take fright when SOE directors want to make investments in so-called risky areas, which is where the growth dividend is higher, then the game is well and truly lost.

The ambitious Mallard is also on the right track by wanting to ensure New Zealand has sufficient sizeable companies out there to help drive economic growth and expansion.

If New Zealand is to become, and then remain, a vibrant focus for investment and growth, more of our companies need to spread their wings.

But Mallard is wrong to suggest that it's just farmer co-ops such as Fonterra or the Government's precious SOEs that are of sufficient magnitude to make a substantive impact on this country's future.

Wrong, too, to claim that the local company offshoots of foreign owners (why can't he just say he means Australian) are not of sufficient critical mass to ramp up their own businesses here to make a bigger New Zealand-sourced contribution, and wrong again to imply that big gains can't come from smaller players.

He knows only too well that such a change could occur quite quickly if the Government introduced the right commercial incentives such as a competitive tax rate on returns for New Zealand-sourced exports, offered greater tax deductibility for investments overseas; introduced research and development incentives on a par with countries such as the United States or changed the rules so that small to medium-sized enterprises could combine forces under a private sector umbrella to tackle overseas markets without falling foul of restrictive world trade rules.

I'm willing to reserve judgment until the Government's Business Tax Review is published and, more importantly, see if the Cabinet has the guts to implement a bold agenda. But, so far, there's little emerging from the Mallard agenda that goes beyond ideology.

Let's face it, the reason the SOEs have been constrained is because the Clark Government put errant chairmen and their uppity CEOs in chains in the first place.

SOE chairmen were briefed to their political masters' dazzling new tune at a special meeting a couple of weeks back.

But, just four years ago, they had their wings clipped by the very same Labour Government which took exception to the entrepreneurial spirit some chairmen and CEOs were exhibiting.

Back then, the Government didn't like SOEs such as the Airways Corporation getting above its (Labour's) boots by tendering for overseas management contracts. There were others.

But nowhere in Mallard's subsequent Brave New World address was there any mention of the misguided 2002 Government dictate.

Dressed up as a statement of expectations, the brief put out by the Government's Crown Company Monitoring Agency was little more than the type of mind-numbingly dull list of instructions you might have expected to have tacked up around the old-style Government departments of the late 1970s and early 1980s.

But directors who had been appointed under the SOE Act to run boards of various Crown commercial enterprises in an independent fashion were in no doubt who was now boss.

The shareholding ministers would step in if there was a risk to the Crown's ownership interests. It would be the shareholding ministers who would exercise constraints on the bounds under which their companies operated if they had specific economic efficiency or welfare concerns.

The SOE bosses could like it or lump it. A no-surprises policy was part of the package.

In essence, this meant SOE boards had to make damn sure that if they wanted to hold on to their jobs they informed their ministers well in advance of everything considered potentially contentious in the public arena.

Directors were expected to understand the wider Government policy issues as part of their decision-making and be aware that the Crown had interests that were wider than those of ordinary shareholders in a private company.

There was more. They must be aware of the potential implication of company-specific issues on the Crown or its balance sheet. They had to be sensitive to the reality that the shareholding ministers were held directly accountable by taxpayers for Crown company operations and advise ministers of issues that were controversial or likely to be discussed in the public arena.

The upshot was an inordinate amount of second-guessing of the Government's political intentions at boardroom level rather than a full-out concentration on the business.

But the story gets worse. Mallard now points out that his advisers warn about widening the scope of SOE businesses given that they operate under weak capital constraints and are not under constant takeover threat.

Then he refuses to countenance what the owners of other large companies do; float down a portion and keep a majority or control stake. He told SOE bosses he's not giving them a blank cheque to indulge in flights of fancy.

They will only get a Government tick if they are expanding into adjacent technologies, products and markets; if their new activities had spillover effects that would help enhance the competitiveness of other firms and industries, if the diversification could be financed off the existing balance sheet (easy, Trevor, just float shares) and any expansion was accompanied by robust evaluation procedures that enabled the Government to pull the chain on the investment if it wasn't going anywhere.

But the Government will be wrong to cry victory if the only investments that emerge are the ones that have been sitting in the pipeline for months waiting for ministerial approval.

If Television New Zealand's new digital future is promoted as evidence of Mallard's new policy in action, when TVNZ has until now been stymied by shareholding intransigence, then you get the picture.