Ruth Richardson on Being Globally Great from a Canterbury Base

Ruth sent me a copy of a recent speech, and I wouldn’t do it justice by editing it, so a great read for those interested.

Soon after Dr Rod Carr, a star in the Canterbury firmament, took over at the helm of UC a decade ago, he issued a business challenge.

The dare to create five new Canterbury companies worth over a billion dollars.

This week, SML, of which I am a foundation director, welcomed our new CEO Leon Clement.

Leon inherits a company that didn’t exist 10 years ago but is now worth $2billion and growing. Quite a legacy from the retiring CEO, Dr John Penno.

The first talent I worked with in dairy, Simon Challies, could talk in similar glowing terms about Ryman Healthcare.

And then there are the challengers – I chair two of those companies – NZ Merino making wool great again, or more accurately a natural fibre premium play, blending with friends. Think wool surfboards with eco-resin or wool and eucalypt shoes. 

And Syft, a University of Canterbury start-up, which after consuming vast amounts of investor dollars, so very nearly fell from its perch. Rescued by a relentless focus on sales, Syft is now one of the fastest growing and profitable companies in NZ.

Both have a billion dollars in their DNA.

I have had the fortune to straddle two worlds in my career; public policy and private business – the performance of both matters a lot to the prospects of success on a global stage.

Let me start with the prime driver which is business, not the government.

We can’t prosper by taking in our own washing so, strutting it on the global stage has to be our modus operandi.

And I mean strutting, not just selling low value stuff that rises or falls on the rise or fall of the NZ dollar.

Strutting starts with the daring of the ambition and is sustained by the ability to execute.

The CFO of NZ Merino has recently completed a PM’s scholarship at the London Business School.

His report to the Board singled out this formula for success captured in a former attendee’s quote:

“The recipe for a successful new business is 5% idea and 95% execution.”

NZ is a country typically rich in ideas but tends to suffer from either an execution or an investment deficit.

Execution bungles litter the landscape – who would have thought that with booming demand construction companies would go bust.

Or that our biggest dairy co-op, Fonterra, would be swinging in the wind.

And turning to the investment deficit it is no secret that the NZ capital markets refused to fund Synlait at the outset – were it not first for Japanese and then Chinese investment we would have been stopped in our tracks.

My observation is that while NZ often has the recipe, it is the international investors who have the readies.

Strutting means we have to be edgy.

The Auld Mug was not returned to NZ by conventional tactics.

Moon shooting literally has created a rocket and space industry in NZ – and why not.

I retired last week after a decade at the helm of KiwiNet a consortium of most of NZ’s universities and Crown Research Institutes, driving the creation of a high value export economy from publicly funded research.

Plant and Food at Lincoln first commercialising high value kiwifruit varieties, then saving the industry from the ravages of PSA.

Plastic substitution from blood waste.

Catching the crims with pioneering multiple DNA identification.

I am convinced more than ever before that science and capitalism founded the modern economy – but then I would say that.

Synlait, NZ Merino and Syft have all had to be edgy to make it.

Synlait by backing different milks and plunging into the world’s best markets for premium products which has involved a big Chinese learning curve.

NZ Merino by backing away from the commodity auctions and industry good bodies and making markets in active outdoor wear partnering with the best in the world and writing long time contracts with our special suppliers.

Syft by cornering the real time mass spectrometer market for talent and for customers like Samsung who set the standards.

It takes a team to translate ambition and edge into action.

All three boards operate as something of a third team (thanks Dr Denis Mowbray from Canterbury for the term and methodology) – while Directors and management recognise their respective roles and responsibilities, thinking is best developed and traction best achieved when we link up.

Think Bootcamps at Stanford, in market visits, active recruitment of diverse talent from around the world all learning from each other.

And learn we must about trends, geographies, technology, disruptive forces, and geo-politics.

Three top of mind issues impact our global fortunes.

*The frightening retreat from sane economics. Free trade is the path to growth, protectionism is the path to decline.

In the escalating trade wars it is the producers like us who run the risk of collateral damage.

Look at what is unfolding in the USA. A $12billion support bill for farmers. It should be seen for what it is – a bail out of bad policy.

The $12billion is just the tip of the iceberg _ for that sector the tangible cost of trade stupidity when what farmers really want is the restoration of global markets.

*Next let’s talk about the Trump elephant in the room – the Disruptor in Chief. I haven’t fallen victim to the Trump Derangement Syndrome.

It pays to separate the signal from the noise. Trump is bent on seismic shifts long overdue – breaking the stifling grip of tax and regulation on the USA economy, making nations pay their Nato bills, asserting sovereignty over the flow of immigrants.

It’s as well to remember that the toxic politics roiling Europe, prompting Brexit and fuelling the rise of nationalism is a direct consequence of the ordinary citizen rebelling at being cut out of the democratic equation and lectured to and put upon by political elites on such matters.

But Trump is dead wrong on trade and protectionism.

Yes there may be rorting the rules, yes there maybe imbalances that have got out of whack, but that is not a basis on which to invalidate the international trading system and engage in punitive and selective tit for tat exercises.

NZ is the little guy easily hurt. First strike is a plunging dollar amid global woes; as a country we don’t get rich by our currency becoming poorer. We depend on international trading rules to preserve our position and trade liberalisation wherever we can secure it.

It wont do just to launch a’ Trade for All’ talkfest (our shield) but put down our trade initiative tools (our sword).

Attacks on the WTO and ripping up TPP are strikes two and three.

*Last we need to get a handle on China, the most significant economic force for NZ and the big global challenger to American primacy.

I see China up close and personal with two of my directorships.

I am now a Chinese appointed director on SML – Bright Dairies hold nearly 39% and get to appoint half the Board, one of who must be a NZ national of governance standing – moi.

When appointed my mission was characterised thus –  “you may be Bright appointed, but you are to be independently acting” .

Actually that is the law of the land but nice to know that the corporate governance rules are well understood.

I am also a Director of the Bank of China in NZ; one of the worlds biggest banks but relatively new to NZ.

When recently in Beijing for a Board meeting their internal regulator had made it his business to understand NZ’s very distinctive regime for banking governance where the buck stops with the directors, not the local regulator – in this case RBNZ.

He observed that  being a director is not for decoration!

The very best way to think about China is to embrace the mutually beneficial business purpose while not surrendering principle about what it means to be a modern sovereign nation with democratic values.

That balance has been superbly captured in the recently published Strategic Defence Policy Statement _ recommended reading for every serious New Zealander. 39 pages, an easy plane read and what I particularly admire, no pussy footing around.

How China governs and how China grows matters much to NZ.  China First is as flawed as America First.

I have huge respect for the Chinese counterparts with whom I work closely in both companies.

The CEO for the BOCNZ wrote an article in the NZ Herald late last week that is my next recommended reading _ 5 tips for doing business in China: choose your Chinese partner wisely, have the right project, relationships are important, be open-minded and always welcome innovation, creation and change, and finally be patient and persistent.

 

Let me turn to the second of my worlds – public policy and why it matters much despite my insistence that the primary responsibility for business success properly sits in the court of businesses.

Governments set the rules of the road, they tax and regulate, they rule things in and rule things out, their intervention logic may not bear close scrutiny but they still have the power to intervene, all of which sets the scene for the prospect for business endeavours or entrepreneurship and weights the risks and the rewards.

The holy trinity of public policy is high quality monetary policy, fearless (and rigorous) Treasury advice, and best in class trade negotiators.

I am an avid reader of media in every form and from every angle, at home and away.

Even the most casual reader cannot escape the conclusion that NZ business is in something of a funk, whether real or imagined, and the finger is being pointed at the current policy and political climate.

Cam Bagrie, easily the country’s most coherent and compelling economist, recently penned an article for Spinoff entitled: “Business confidence is bullshit, but that doesn’t mean that the economy isn’t in trouble”. 

Cam cuts through the business confidence noise and warns that we have the potential for a growth pothole. “That is becoming a concern as the wheels of the economy need to be turning and tax revenue coming in the door for social agenda demands to be met.”

Cutting to the chase it pays to distinguish between shadows and substance.

Here is my take on the current state of public policy in NZ.

It comes down to the three R’s with a twist.

I see three policy and political forces at work.

1. Responsible conduct of public finances a la the coalition’s Budget Responsibility Rules.

Big tick, but then I would say that as the author of the Fiscal responsibility Act in 1994 – the public policy gift that keeps on giving

2. Rookies in charge.

This is an accidental government formed on the fly and governing on the fly.

In the absence of coherently thought through policies, every significant initiative is parked with a working group or the hundreds of other names conjured up for the contracting out of government.

Inside the machine four Ministers hold sway – the PM, the MoF, the evergreen Mr Peters and the Minister of Everything David Parker.

H2 aka Heather Simpson, runs the business of government inside, while outside, two former Labour players, the policy homage to Helen Clark and Michael Cullen just go to show that Elvis never left the room.

Eventually the working groups eagle will have to land – do we really want to revert to the failed industrial regime of old, do we really want to tax the hell out of the very thing we so patently lack, capital, do we want to choke agricultural production with a rigid” all gases are the same” regime for tackling climate change?

Business is right to be very afraid that the government does not have their back.

3. Rabid positions.

How else to explain the axing of charter schools than capitulation to education union demands?

How else to explain retrograde and radical collective bargaining and union imposition reforms other than bowing to the political power of the unions trying to reclaim what they see as lost ground when NZ workers voted with their feet to abandon unions in their droves?

Unhappily the rabid Ministers hold the responsibility for Education and Workplace Relations and they have been given their head in the most crucial areas of all – the formation and deployment of our most precious resource – our human capital.

Chris Hipkins, the hapless Minister of Education, also doubles as the Minister of State Services, where he is proving to be a wrecking ball as well. Doubling down on Bill English’s ill advised lecturing/dictating to the Board of The NZ Super Fund on the CEO’s remuneration package, Chris Hipkins is overseeing a whole new degradation of governance and management responsibilities. Any director of SOE’s or Crown entities worth their salt would not succumb to the assault on their fiduciary duties. And the recent heavy handed shuffling of the CEO bums on seats in the State Sector by the State Services Commissioner Peter Hughes, who should know better, is in breach of best practice.

Even local authority trading enterprises are falling victim to this corporate governance bullying.

Here in Canterbury the CEO of Christchurch City Holdings has hauled in the Chairmen of the various enterprises (Lyttleton Port Company, Red Bus, Christchurch Airport, and Orion to name half of the eight companies) to strip them of their remuneration policy rights. It is a slippery slope – where Rem Policy goes, strategic policy and execution follows.

Clayton’s governance wont do.

The last worry I want to table is the denial of science.

The outgoing PM’s science adviser blew the cover on the meth contamination scam – no respectable science supported the meth contamination risk and the countless time and money spent on the meth myth.

Sir Peter Gluckman went on to call out the refusniks in an area of scientific endeavour that has the power to disrupt and transform food production systems and our ability to sustain ourselves within planetary limits.

Ag Research has developed a modified ryegrass, HME, that is every climate change campaigners dream. 50% higher growth, 23% less emission of methane, gentle on resources like water and soil.

The trouble is it falls foul of NZ’s GMO rules and despite being government and industry funded it is condemned to being trialled off shore and ultimately deployed to the benefit of our competitors. Makes no scientific, economic or logical sense.

The same fate awaits experimentation in alternative foods. CRISPR technology now and science not yet discovered will go on modernising our world, transforming our prospects if we will let it. Death of great science on the alter of doctrinal and PC positions doesn’t strike me as the smartest choice. The choices we make are not a zero sum game.

 

So what are the rescue remedies?

The primary government may come to their senses – or the coalition partners may start jerking them around. Think the curtailment of the 90 day rule repeal, no water taxes, capital taxes apparently off the table and the three strikes repeal on hold.

I never thought I would say three cheers for Winston Peters!

The welter of working group reports may be DOA.

The adults in the room may be successful in urging course correction. MFAT succeeded spectacularly as the new government got underway rescuing TPP from the fire for NZ.

The power of the Productivity Commission secured by the force of their analysis and advocacy may prevail.

Third recommended read – all of their reports the latest of which are on the stakes involved in transiting to a low carbon economy, and making sense of local government.

Last recommended read – Niall Ferguson “The Square and the Tower”.

This famed economic historian argues that the traditional power exercised by hierarchies (think governments, churches, corporations) in their towers has yielded to the power of all of us networking down in the square _ think the colour revolutions, the Arab Spring, the MeToo movement, and dare I say Brexit and Trump.

Its clear that the square can be occupied by tribes (think the free speech deniers and PC crowds) but to fall back on an old favourite the wisdom of the crowds ultimately prevails. Look at the fightback being staged in the wake of the disgraceful denial of platform to Dr Don Brash, a kiwi champion if ever there is one.

Ultimately it’s your voice and down the track your vote.

Three cheers for living in a democracy.