Dialogue: State-owned business in confusion

By DAVID IRVING*

The Hawkesby episode at Television New Zealand, while simple in itself, ignited a number of questions which have the governance of state-owned enterprises at their core.

Is the prime responsibility of TVNZ to be a successful business which is as profitable and efficient as comparable businesses not owned by the Crown, or is it to reflect our identity and culture and to encourage New Zealand programmes?

The Government has certainly questioned the degree to which functions carried out by Government entities have become businesslike in their performance. The shift from social service to commercialism is being as quickly challenged today as it was quickly adopted by the Labour Government of the 1980s.

We have only to see the results of the Hunn report into Work and Income and criticism of an outward-looking Airways Corporation for further evidence of today's rejection of business practices in the public arena.

The storm of comment around the Hawkesby episode called for readdressing the extreme. TVNZ supposedly had gone business-mad. It was time for it to reflect good New Zealand character in our Government-owned media business.

Further to that, the Government owner would postpone any technology plans while a new board put the appropriate moderate practices in place and let us watch good New Zealand television.

So is the predominant role of TVNZ to be a good business or to produce good New Zealand television?

Auckland University professors Spicer, Emanuel and Powell addressed this question at length in their books The Remaking of Television New Zealand and Transforming Government Enterprises.

Their account reminds us of the clarity of roles sought by the Government of the day as the functions of the old Broadcasting Corporation were transferred to TVNZ and to the Broadcasting Commission, later to become New Zealand On Air.

The clarity being sought was between commercial and social priorities. TVNZ, as a state-owned enterprise, was directed by the provisions of the 1986 State Owned Enterprises Act, which stated that the main objective of every such enterprise was to operate as profitably and efficiently as comparable businesses not owned by the Crown. This clearly directed TVNZ to be a commercial entity, first and foremost.

NZ On Air was given clear responsibility for meeting the social responsibilities of the broadcaster. It would become a specialist agency of social responsibility, funded by a television licence fee to buy New Zealand programmes and to ensure coverage reached all parts of the country.

In practice, the requirements of the SOE Act meant that social objectives were to be subordinated to commercial objectives and should be permissible only if they were consistent with the successful business practices.

The placement of commercial first and social second is quite consistent with the practice of private enterprise. Companies will certainly pursue good social practices but the practice will be expected to add to the commercial worth of the enterprise.

Indeed, increasingly, companies are saying commercial and social rather than commercial or social. High standards of empathy and care within communities do add wealth to enterprise value but it must have the proper business economies and fundamentals in place first.

TVNZ has applied its business formula well. After-tax profit grew from $26.7 million in 1989 to $70.5 million in 1998, while dividends in the past 4 1/2 years have totalled $250 million. This revenue has been welcomed by successive ministers of finance. The relevance of this cash generation should not be lost in the context of the present challenge for TVNZ to become more socially and New Zealand conscious.

A government concerned about lack of New Zealand content has only to take a proportion of the dividend generated and put the funds required into NZ On Air for the purchase of additional locally made programmes.

This simple choice available to the owner of TVNZ (the Government) has the excellent benefit of leaving TVNZ and NZ On Air focused and accountable for their separate roles. TVNZ's objectives would not be blurred and a ready market for excuses for poor performance not provided.

The Government, however, shows no appreciation of these separate roles. The danger of its confusion is that TVNZ will earn less than a comparable business because non-commercial objectives are pursued and the shortfall of funding will have to be made up out of taxes.

But putting aside all the confusion of roles, there can be no doubt that the most telling challenge for the Government, as owner of TVNZ on behalf of all New Zealanders, is one of maximising value. That will not come from changing the emphasis of the programmes to reflect New Zealand character, but from getting the technology decisions right.

TVNZ is now part of the fastest-changing technology in the world. The changes are not minor. They will completely change the business system of media. Such major changes can have a colossal effect on the value of the enterprise.

To do nothing as a businessman is a crime - no owner of an enterprise can be forgiven for ignoring industry change and thereby destroying value. The role of the owner of a media company today is to align its position relative to changes in the global communications industry and take whatever steps it judges best to optimise value.

The SOE and Broadcasting Acts provided a clarity to which the Government is paying little regard. The risk is of lost wealth, political interference and higher taxes. This confusion and intrusion limits the performance possibilities of state-owned businesses.

It's happening in other places. The Airways Corporation is part of a worldwide industry in which national boundaries are irrelevant. New Zealand Post finds itself internationally competitive and, as is the wont of business, it looks to grow. Perhaps all three of these Government-owned businesses are in the wrong hands.

* David Irving is adjunct professor of enterprise and management at the University of Auckland Business School.