Tenth Anniversary Conference

A Day in the Life of an Expat Chief Executive in New Zealand

Wayne L Gilbert

Ten years on and it's great to be back. There are a few familiar faces who were at that inaugural meeting of the Society at the Countrywomen's Association premises in Toorak 10 years ago.

In a few moments I'll play for you a short video which is an ABC 7.30 report programme filmed in New Zealand late last year which contains a number of New Zealanders talking about business issues in New Zealand and gives some indication of some of the things I am going to talk about and share with you.

But first of all I think, for whatever reason, it is desirable that I try and sweep away some of the Trans Pacific myths that have strangely enough developed. I say strangely enough because with the closer economic relations between Australia and New Zealand, and the very large and growing extent of Trans Tasman tourism and business interests, it seems extraordinary that so many of the myths pervade. I am forced to conclude that they have been successfully pedalled by Australians who want to keep their fellows shielded from the obvious New Zealand successes.

I have come across views in Australia that suggest that New Zealand is crime ridden, full of racial tension, subject to extensive poverty, with limited choice of consumer goods, quaint old English cars or clapped out Japanese cars with exorbitant petrol prices, excessive property values, low living standards, shady business practices and antique government run television. To that list you could probably add (in Melbourne at least) besotted with an extraordinary version of football.

So for just a moment I'll tell you what I think about these issues, and you must bear in mind that this is based on a customer survey of one, and the customer surveyed has been a resident for slightly more than two years.

It seems to me that the incidence of crime is, if anything, somewhat less in New Zealand than in comparable parts of Australia. Across the whole community there may or may not be more crime, certainly in the parts of the community in which I'm involved, both residentially (an affluent area) and commercially (a suburban, retail, high density area), the incidence of crime is slight. The newspapers are, however, full of crime stories, in much the same way as they are here. Crime rates in poorer areas are elevated, and I have no reason to believe that it would be any different in equivalent areas in Australia.

The racial issue is certainly more obvious in that the Maori and Pacific Island community represent a much more significant part of the community than the Australian Aborigine does in the Australian community. Having said that, there is obviously an immense and growing pride by the Maori in their background, there is also a greater awareness in the European community in New Zealand of issues of sensitivity. In terms of running a reasonable size business, I need to be aware of areas of sensitivity, but have not found that racial issues are an impediment to doing business.

It is probably true to say that the unemployed and those at the lower end of the income scale in terms of employed people are more harshly treated by society in New Zealand than in Australia.

There is, in some specialist categories, less of a choice of consumer goods in New Zealand than in Australia. This, I believe, is more determined by the size of the market, and it would probably be true to say that, given that say Auckland and Brisbane are of approximately equal size, there would not be much difference in choice between what is available in those two cities, and each of those cities would have a somewhat lesser range of choice than in Sydney or Melbourne.

Quality property values in Auckland are higher than Brisbane or Melbourne---lower than Sydney, and have always been. Auckland prices are volatile and at the upper end are double those of Wellington and Christchurch. Hong Kong immigrants are said to be the current cause, but this doesn't explain the longevity of the syndrome.

I'm more inclined to the view that it is caused by the combination of a high population growth rate---Auckland is No 2 in the South Pacific after Brisbane with migration from the Pacific Islands (Auckland is the largest Polynesian city in the world) (a bit like Melbourne and Greece a few decades ago), migration from the rest of New Zealand and from the rest of the world, and the relatively compact geographic spread of the town which is largely constrained within two harbours.

The cars and petrol are an issue on which everyone seems to be expert. The availability of second-hand imported cars from Japan has meant that the incidence of car ownership in New Zealand is high, probably equal to that in Australia, the quality of cars is probably a bit lower in that New Zealand is not as far advanced with getting rid of vehicles that don't meet appropriate standards. Second-hand cars are considerably cheaper in New Zealand. Having said that, the price of new vehicles in New Zealand is less than that in Australia, being a reflection of the lower rate of duty. On the other hand, petrol at just under $1.00 New Zealand, say 87 cents Australian, per litre is higher than Australian costs.

There are approximately 10 TV channels in Auckland, including five Sky subscriber pay TV which has been in New Zealand for a number of years.

Putting the whole package together it seems to me that for people in employment there is not much difference between the living standards in New Zealand than Australia. Certainly if you compare cities of like size, or communities for that matter of like size, it is hard to say that there is any material difference between the two countries, each have their respective advantages and each have their respective disadvantages.

From my own perspective, which is of course atypical, as no doubt is the perspective of most of you, I find my living standard in Auckland is higher than the living standards I previously enjoyed in Sydney and Brisbane. In the circles in which I move, the people are more friendly and more caring, there is, in my judgement, a somewhat more laid back approach to business, and commercial morality is fully up to the standards that I was used to in Australia.

Talking now about my impressions that are strictly related to my experiences at Mercury and to talk for a moment about employment and unemployment. In terms of those who are employed, I can tell you that Mercury is a medium sized business, and when recruiting for professional appointments tests the world market. Because New Zealand is such a small market it is common to undertake search for middle management jobs and above, and there is considerable migration to and from New Zealand. It is perfectly obvious that to attract decent people we need to, and do, meet the world market in terms of the package of benefits, and certainly we are aided by quality of life issues.

At the trades and labouring level in our business there is, generally speaking, over supply, and as I have mentioned earlier, my personal view is that people who are either out of work or who are at the base of the employment pile in terms of remuneration are doing it pretty tough. People who work for us in outdoor and basic pursuits are lower paid, probably of the order of 10-15% than equivalents in Australia.

I have mentioned on a couple of occasions thus far that the unemployed do it pretty tough, and whilst the unemployment rate amongst the European community is quite low, probably of the order of 4%, the overall unemployment rate is presently of the order of 6%. The unemployment rate for Maoris and Pacific Islanders is presently around 13%---it has been up to 20-25%.

Since the trough of the recession (1988) New Zealand has created 10% more jobs---Australia I gather none or very few.

It is commonly held that some of the crime and racial issues are related to poverty issues and are interrelated with employment issues. Certainly it seems that an argument can be mounted that all are interrelated and that the best way to advance the cause of racial harmony, absence of crime, and economic growth is for the unemployment rate to be reduced through more people taking up the option of employment. At the moment this tends to be an economic decision and largely people are choosing to remain unemployed at the price at which labour is on offer.

There have been in New Zealand a number of major reforms that distinguish New Zealand from Australia.

In 1989 the Reserve Bank Act made the Reserve Bank completely independent of government and provides that the Governor of the Reserve Bank is to so manage banking affairs such that the inflation rate is to be between 0% and 2% per annum. Generally speaking this target has been achieved, although in recent times it has been pressured and there have been public calls for the Governor to be replaced. Nonetheless, New Zealand has had an inflation rate of less than 2% since 1991 and the New Zealand dollar has steadily climbed against the Australian dollar.

In 1994 the Fiscal Responsibility Act obliged the government to apply transparency in its accounts and to adhere to the same accounting standards as used in normal companies. The operating surplus has to take account debt servicing costs. The combination of these two pieces of legislation means that there is less political involvement and less uncertainty in the financial environment in New Zealand---although it is argued that the remaining levers need be used more extremely. The influence of government is less and more predictable than in Australia.

Another major piece of legislation that received considerable notoriety in Australia was the introduction in 1986 of the General Goods and Services Tax. This tax, which is now at 12½%, applies to pretty well all transactions, although notably non-income producing property transactions are exempt. Most other indirect taxes were abolished. The GST seems to work quite well. It has enabled income tax, both private and corporate, to be at a maximum rate of 33%. There is no capital gains tax. The cost of buying my Auckland house was $2,460 for legals---the seller paid agent's commission. I bought a car last week the transfer fee was $9.60 to AMI---motor registration transactions were privatised.

In 1991 the Employment Contracts Act was adopted. It liberalised the labour markets. It has been widely hailed by most employers as being highly beneficial, and there is increasing acceptance that the lower levels of unemployment in New Zealand can be attributed, at least in part, to the pricing of labour made possible by the Employment Contracts Act. There are political parties who are committed to its repeal in part, but generally speaking there is growing community acceptance that the Act is working reasonably.

I can recommend "Free to Work" by Wolfgang Kaspar (The Centre for Independent Studies) 1995 as an authoritative work on the effect of the ECA and recent economic performance in New Zealand.

I'm out of touch with doing business in Australia---my recollections were that in recent years the proportion of my time dealing with IR and labour related issues were:

MSB (Ports) 1992-1994 30%

Oakbridge (Mining) 1989-1992 60%

SEQEB (Electricity) 1984-1989 40%.

In New Zealand at Mercury, despite a huge rightsizing, it would be less than 3%.

We have several three year agreements that need to be renegotiated, this tends to be intense at the time, but thereafter the administration is routine. We have had no appeals, although with the rightsizing there were several grievances mooted but none went the distance.

Supporters of the ECA claim that labour costs are effectively 25-50% less in New Zealand than in Australia.

The other differences that come to my mind are that there is in New Zealand only two tiers of government, local government and national government, and the absence of the third tier is quite noticeable. In the business that I am involved there is limited exchange between the company and the national government, usually to do with macro competition or privatisation of the electricity industry issues, and no real involvement with local government other than on a day to day operating basis at officer level.

Finally, in terms of the important legislative differences, it is the very extensive extent of privatisation that has taken place in New Zealand. Most areas of government got into deregulation in a big way in the late 80s and privatisation of telecommunications, gas, electricity distribution, bus and road transport, ports, banks, government insurance, all took place before 1990, with the privatisation of New Zealand Rail in 1993, and most recently forestry. In the trading sector there is little left to privatise, save that the government still owns the major electricity generation and transmission. Most areas of regulation have been deregulated, most areas of trading enterprises have been privatised.

Health and education, as in Australia, are still largely in government hands, and are, in both countries, the Achilles heels of governments of all persuasions.

Those involved in health reforms are fiercely divided---a number of the boards and executives I speak to are greatly optimistic, the worst is past, the road ahead seems clear---but doctors and clinicians often speak differently---and the media is full of horror stories about waiting lists for elective surgery.

It is not possible to be optimistic, however, about education---the best that can be said is that the private school system continues to grow.

I turn now to a day in business life and it is perhaps helpful if I briefly encapsulate what Mercury, the company I work for, is and does. It is a former municipal power authority which supplied electricity to the major part of greater Auckland. As such it is about half the size of any of the recently privatised Victorian distribution companies. It was community owned, it is now owned by a Trust, with an obligation to issue shares to the public for cash to dilute the Trust ownership. The shares, to be issued as part of an IPO at some time in the near future, will be stock exchange listed. At the time of listing the Company will be in the top 10 on the New Zealand Stock Exchange by market capitalisation. It is the preparation for the IPO and the privatisation that has interested me and is one of the main reasons why I went to New Zealand two years ago. In preparation for the float it was necessary for the Company to be efficient and for it to approach world best practice in all of its operations. This has involved benchmarking performance in terms of efficiency, in adopting a highly competitive spirit, and in importing and developing the aggressive business skills necessary to survive in a highly competitive environment. In New Zealand there are presently some 40 distribution companies, of whom half a dozen compete aggressively for all significant customers with Mercury.

As part of the rightsizing of the business there has been a reduction of employees from 1500 four years ago, to 950 two years ago, to 590 now. Because compulsory redundancy was more financially attractive to employees than voluntary redundancy, most of the people who have gone have exited as part of a compulsory redundancy process. Whilst the employees knew that change was necessary, they never appreciated the dimension of the problem, and if they had realised at an early stage how many people were to go, there may have been more resistance. The unions for their part did not challenge the right of the Company to compulsorily rightsize, they contested only that either the processes that were adopted by the Company were unjust, or that the basis of the Company's decisions on an individual basis were commercially invalid. The Company's compulsory redundancy package, which had been negotiated in the `80s, was based on 12 weeks plus two weeks for each year of service. We were under a degree of public spotlight having a rightsizing of such size, and for the most part people accepted that the power board had been highly inefficient and clearly a rightsizing was necessary. Most of the anti views (and New Zealand has a highly developed squawk-back radio), came from the anti-privatisation brigade. However, the extent of the debate was relatively short and it soon fell from public issue.

There were a number of interesting issues that arose during the rightsizing. The first was that in the two years from 1994 to 1996 the number of people on individual contracts (as opposed to collective contracts) rose from 13% of the workforce to 47%, and the unionised staff dropped from 37% to 24%, and is expected to drop in the next few months to more like 15-20%. This created enormous pressure on the union, and in fact in the middle of our second wave of forced redundancies the major union, the Communication and Energy Workers' Union, of which Telecom was the major employer, Mercury the second major employer, went into receivership and ceased to exist.

We gained a greater degree of notoriety than we perhaps expected in that early in the rightsizing process we decided that we should adopt a "Fit for Work" regime in that people who would be contesting jobs, either from outside or from within (and with the rightsizing this meant virtually all of the workforce), would need to be able to establish that they were fit for work. This policy, which covered all aspects of health, gained notoriety because of relatively minor parts---alcohol and drug abuse, and the requirement we adopted that people test before employment and be subject in employment to random test for impairment through substance abuse. We developed a policy that allowed a person to be deemed unfit for work if their observed behaviour was indicative of a problem, or if a medical examination, or drug alcohol test proved positive. This was introduced at the beginning of the rightsizing and followed a 100% Company sponsored medical assessment of all employees. The unions, civil libertarians, and privacy proponents went berserk on a number of scores. The first was that they opposed any form of testing, either because it was an invasion of privacy, irrelevant, against human rights, or undignified, and they claimed that there was no link between a positive test result and impairment, and if there was a link then there was no direct link between a positive test result and any safety related incident. As a result of a threatened High Court injunction we were obliged to not require the testing of people who were in our present employ as a precedent for promotion, and if people in our present employ refused a test we were not to discriminate against them. If we had "reasonable grounds" or following an incident we could test, but not otherwise.

The upshot was that, because of the publicity, we are known locally as a Company with a drug test policy, and the word is out that if you have a drug problem don't try and get a job at Mercury.

Most of the people in fact who work for us, and all of the people who seek to work for us, have taken tests, and over the last year or so of those in outdoor related pursuits the test results have indicated that 30% have an impairment that would affect their work. The greatest degree of impairment was to do with vision, the next to do with hearing, the next with people with less than 10% of the use of limb, the next stress at a level producing physical systems, and finally medically diagnosed occupational overuse or muscular problems.

The degree to which impairment existed was astonishing, and surprising too was the relatively low incidence of drug and alcohol related problems which were of the order of 4% or 5%. The future financial consequences of these hitherto unknown medical conditions is frightening in terms of future compensation payments for occupational overuse, workers compensation and the like.

The incidence of untreated eyesight problems, colour blindness, and the like was quite frightening, particularly as the workforce that we were testing were basically all outdoor workers, all of whom are obliged at some time or another as part of their employment to be involved in the driving of vehicles.

Strangely enough to a great extent our employees didn't resent the testing, the opposition as such was driven largely by the so called do gooders in the community. Several people who had problems and who declined to test came to us privately and sought treatment processes to enable them to overcome their condition.

In recent times the accident rate has plummeted from 40 to 60 lost time accidents per million hours to 10 to 20. This correlates with experience elsewhere that with rightsizing---accident rates improve markedly.

All of the public attention has now subsided, we are regularly visited by companies from around the country seeking information on our programme and its implementation and effects, and in fact have in recent times been approached by the Accident Compensation Commission and the Occupational Safety and Health Authority seeking advice from us as to the programme and its capacity to be implemented elsewhere.

One of the other things that we have done in recent times as part of the upskilling process, and encouraging our very much reduced numbers of people to improve their skills, is to establish a self learning centre. We have set up a considerable number of lap top computers with a wide range of educational programmes ranging from English language lessons, to social skills, to spreadsheets and far more complex industry specific learning programmes, and have made these available on site and off site, free of charge, at any time to our workforce. What has been fascinating is a number of the older less skilled workers who have been attracted by private self paced learning, and who have been forced basically by their children to bring home a computer, and then able to learn at home, free of the pressures that are on people who are basically unskilled, free of being embarrassed by their absence of expertise. This programme has been spectacularly successful and is being copied by a number of organisations in New Zealand.

And now perhaps a story about something different that does encapsulate some of the differences between doing business in Australia and New Zealand.

Mercury's nextdoor neighbour, in an electricity sense, is a company called Power New Zealand. It had been a long aim of Mercury to amalgamate with Power New Zealand, as such an event would enable both of the companies to capture economies of scale, and eliminate inefficiencies (our respective head offices are less than 5 kms apart), estimated at greater than $300 million, and have a substantial market presence, the two of us would represent about 30% of the New Zealand electrical energy market. This is small by world standards but large by New Zealand standards. The target company, Power New Zealand, had a share give away where they gave away 108 million shares to their 210,000 customers. The significance of this was that these customers, in the main, were not natural shareowners, a huge majority would have never previously owned a share, and secondly they lived within a reasonably tight geographic area.

Mercury made a takeover bid at the time of the announcement of the share give away, and rather than operate on market through brokers (these new shareholders wouldn't have known what a broker was or how to contact them) Mercury set up a series of tents, caravans and mobile booths in all the local shopping centres, carparks, community centres, sporting events and the like. These booths were manned by students with cheque books and the operation was extensively advertised on TV, radio and press as cash for Christmas and so on, each parcel of shares being worth approximately $1,000 tax free cash in hand. As a result 57% of the target company changed hands in small cash off market transactions. The small shareholders in the space of four months sold out in droves, and as a result today Mercury owns 31% of Power New Zealand and is well on its way to realising its ambition of amalgamating the businesses.

Sharebrokers and the New Zealand Stock Exchange did not complain about the breaking of their monopoly.

The point to make here is that whilst a precursor to a fully competitive innovative environment is full deregulation and the absence of intervention, equally it is necessary to have an entrepreneurial spirit.

In summarising, despite what you may have heard from others, and whatever your preconceptions might be, there are differences in living and doing business in Australia and New Zealand. But you should not be fooled---there are far, far more similarities than differences. If I were to characterise in summation the situation I would say that Australia is the land of great natural wealth and opportunity, whilst New Zealand was a small loser that is now making good and making the most of very limited resources. Australia is a place of opportunity lost, squandering resources, squandering opportunities.

New Zealand is in a sense an ongoing mirror that will continuously remind Australia of what should and could have been done.

The question that all Australia needs to ask is, "What must we do now so that our children's children will judge us favourably?"

Why HR Nicholls?

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