Do New Zealand firms still think greed is good – or are the days of unfettered pursuit of profits over? In a three-part series we get business bosses to front up over capitalism’s fault lines.
Rob Everett knew he was setting the cat among the pigeons. No, he hadn’t “gone communist”, the Financial Markets Authority chief executive told a bunch of merchant bankers and institutional investors at the New Zealand Capital Markets Forum in March.
Nevertheless, the head of the government’s market regulator had a strong message for them: If a company’s sole purpose is to make money at the expense of everyone else they shouldn’t be allowed to operate.
He may as well have told the All Blacks that winning test matches isn’t the be-all and end-all.
“I was trying to provoke a conversation that seemed to me to be happening in other parts of the world but not really in New Zealand,” Everett says.
“I really wanted to force open a bit of a debate about what’s the responsibility of boards to think just beyond just profit.”
Company directors and executives should “anchor themselves” in what’s good for New Zealand and the communities they operate in, he told the gathering.
The former European chief operating officer of Merrill Lynch says working at the investment bank taught him that when a firm shifts from a client-focused model to a shareholder-focused model “bad stuff happens”.
He slammed the principle of shareholder primacy established by American economist Milton Friedman. The accepted model of capitalism post-Friedman, and encouraged by ex-US Federal Reserve Chairman Alan Greenspan, has been “an unfettered pursuit of corporate profits with the assumption that rational and judgemental markets will weed out the crooks and the incompetents, and the ‘best’ will rise to the top”.
“All of us in financial markets know that markets are often not rational and nor, it seems, are parliaments or electorates,” Everett said.
The reaction to his renegade presentation has ranged from sage nods in corporate social responsibility circles through to “push-back” from economists who argue he didn’t fairly represent Friedman.
He used the free marketeer as an entry point to the conversation, “and to be fair I took some of his more inflammatory quotes”, Everett chuckles.
“I was really trying to get to that notion that what’s in the law should be a minimum standard, trying to get them to understand there are expectations on them above and beyond that.
“And if they fail to align with those standards then it can really damage the trust dynamic which I think is important for big business.”
As the regulator for the financial services sector he has the revelations of the Australian Royal Commission into banking particularly in mind, not to mention ANZ’s local embarrassment after being censured by the Reserve Bank and the sudden departure of its chief executive.
“In almost all jurisdictions you look at, trust has declined quite rapidly in the last 10 to15 years as to how those institutions serve their customers. And that’s a problem.”
Everett is far from the only one making this kind of point. French economist Thomas Piketty’s 2014 tome Capital in the 21st Century became an unlikely bestseller, and has now been turned into a film by New Zealand director Justin Pemberton that debuted at this year’s New Zealand International Film Festival.
It romps through the last 400 years of wealth and income inequality in the western world, arguing that the post-war period of relative egalitarianism was a blip. Without a global system of progressive wealth taxes, the world is at risk of rapidly reverting to Victorian-style levels of inequality, Piketty warns.
When New Zealand First made its surprise announcement in October 2017 that it was forming a coalition government with Labour, party leader Winston Peters said the current perception of capitalism had deeply influenced its negotiations.
“We had a choice to make for a modified status quo or for change,” he said.
“Far too many New Zealanders have come to view today’s capitalism not as their friend but as their foe. That is why we believe that capitalism must regain its responsible, its human face.”
In Britain, Labour leader Jeremy Corbyn told the party’s annual conference that shifting economic policy leftwards was the “new common sense of our time” after a decade of stagnating wages and squeezed living standards.
And even in the US it is not inconceivable that the next president will be a Democrat who favours policies such as clamping down on hyper-inflated CEOs’ pay packets, as Bernie Sanders advocates, or attacking the tech giants’ power as Elizabeth Warren has promised.
Are New Zealand firms having this discussion? Are they aware that four decades of privatisation, deregulation, lower taxes for business and more power for employers and shareholders have not produced widely shared prosperity, but instead created wage stagnation, growing inequality, banking crises, the convulsions of populism and the impending climate catastrophe?
Have they been listening to the next generation of customers and employees? Respondents to Deloitte’s 2019 Global Millennial Survey make it clear that if businesses and governments think this 1980s retro party can continue, they’re in for a shock. The poll shows positive economic sentiment among millennials is at its lowest level in six years, with only 26 percent of those surveyed expecting the economic situations in their countries to improve in the coming year. That figure has never been lower than 40 percent and stood at 45 percent the past two years.
Meanwhile the proportion who say business has a positive impact on wider society has fallen to just 55 percent, after four straight years in the 70s and 61 percent last year. Those surveyed say climate change is their greatest concern, and in perhaps their strongest message to the corporate sector 37 percent say they have stopped or lessened a business relationship because of the company’s ethical behaviour.
So: How are New Zealand businesses responding to this crescendo? The Spinoff decided to put it to the test by asking a selection of Kiwi business leaders to address three key questions about inequality, climate change, and the insidious power of social media.
The following are their answers to our first question:
Many younger New Zealanders are losing faith with capitalism and globalisation because they perceive inequality as being on the rise. Is this concern justified and what role can your organisation play in addressing it?
Rob Everett, chief executive of the Financial Markets Authority
“It’s hard to argue that there isn’t a lot of concern about economic growth and globalisation actually benefiting a very small slice of people at the top and pretty much not everyone else to the same degree. You see it in Trump, Brexit – these are votes for change.
“If you run that through the slant of a financial markets regulator, what we worry about is the level of trust from the public to the financial services sector as a whole and the big financial institutions.
“The sense of inequality plays out there in the sense that those institutions seem to make a lot of money, pay their people very well, but are they really focused on the needs of the customer or are they just trying to sell stuff? They are possibly operating within the law but are not going that extra mile to put customers first.
“Corporate law never keeps up with society, it takes too long to change it. So if you just operate to the standard of the law in business you almost certainly are not going to meet the rapidly evolving views of society.”
Mike Bennetts, chief executive officer of fuel retailer Z Energy
“There is enough evidence there to say that it is justified, because the data says inequality is rising.
“I do think businesses have an absolute responsibility to contribute to the debate and to do something about it. The days of businesses being able to close themselves behind doors and say, ‘look we only talk about profits’, are long gone.
“If you look to more sophisticated markets than New Zealand, like say the US, you’ve got business leaders there speaking out on a number of issues, for example the tech sector speaking out on Trump’s thoughts on immigration, or someone like Apple CEO Tim Cook who is to the best of my knowledge the only gay chief executive of a very large Fortune 500 company.
“Business leaders are speaking out more, frankly because their employees expect them to make a stand on things that matter, socially and environmentally.
“Z Energy launched its sustainability policy in November 2010, so just a couple of months after we came into being as a ‘new’ company. The cliche we put in it was ‘we want to move from being in the middle of the problem to being at the heart of the solution’.
“Business leaders often miss out on the opportunity to listen to solutions, and in Z we have a certain amount of ‘reverse mentoring’ – senior executives assigned to a much younger or junior member of staff to tell them how it is in their world.”
Kendall Flutey, CEO of financial education startup Banqer
“In December last year Stats NZ reported that the net worth of the richest 20% of New Zealand households has risen $394,000 since 2015. Over the same period the net worth of the bottom 40 percent didn’t budge. Globally the richest 1% own 45% of the world’s wealth, a steadily increasing ratio over the last decade. Younger Kiwis perceive inequality and inequity is on the rise because it evidently is, here and abroad.
“Losing faith in an economic structure which doesn’t serve the majority of the world’s inhabitants, or our planet and sees few succeed sounds rational if you ask me. The system has been unmasked as a broken model and I don’t believe business can only be for profit, it needs to be for something more enduring, more meaningful.
“We represent that through how we do business and the daily decisions we make. We’re attempting to empower through education so that Kiwi kids understand the current economic system and have the capability to build on a new model.”
Jeff Douglas, managing director of pharmaceuticals company Douglas Pharmaceuticals
“Essentially, I would disagree with this statement. I don’t think many younger Kiwis are losing faith with capitalism and globalisation. I think young Kiwis are motivated, often well educated, and they want to get ahead. They want to be rewarded for their efforts and their investment in education.
“I would disagree that inequality is on the rise. I think capitalism is a far better model than socialism.”
Marc England, chief executive of electricity generator and retailer Genesis Energy
“Capitalism’s imperfections mean that there are examples of inequality developing. Businesses like ours have an important role to play by working with government to ensure issues are addressed.
“To associate inequality wholeheartedly with capitalism would be to disregard the fact it has brought so many global citizens out of poverty in the last hundred years. Capitalism and globalisation have been drivers of significant global wealth growth, achieved partly through free trade, open borders and global security, but also through its ability to encourage and reward creativity and innovation within countries and across borders.
“However, averages hide the fact that not everyone has benefited equally, and it is clear that globalisation has had a bigger impact in some economies than others – and in some cases inequalities are emerging.”
Alistair Davis, CEO of car dealer Toyota New Zealand and chair of the Sustainable Business Council
“The facts on inequality are sometimes quite confusing, but there seems little doubt that the perception there is increasing inequality and that the significant benefits of globalisation are not reaching everyone, has resulted in a pushback on immigration, trade friction and significant shakeups of economic systems across the globe.
“These disruptions can have a significant impact on how Toyota, as a global company, does business and we need to adapt in order to continue operations in an ever-evolving economy.
“One of our guiding principles is respect for people, their culture and the customs of every nation that we are present in, and to ensure that we contribute to the economic and social development of that country through corporate activities in the community.
“In New Zealand we try to provide employment to our associates with fair pay, and ensure that we remain a desirable company to work for. We contribute to society through our partnerships with Parenting Place, Department of Conservation (Toyota Kiwi Guardians), Toyota Gazoo Racing New Zealand and Emirates Team New Zealand.”
Steve Jurkovich, chief executive of state-owned Kiwibank
“Whether it’s justified or not we all have a role to play.
“At Kiwibank we have asked a range of our stakeholders including customer, staff and shareholder representatives on what matters most to them, and have formed initiatives and partnerships that have a big impact and are aligned with our purpose to make Kiwis Better Off.
“An example is our partnership with Banqer, a gamified financial literacy tool where kids come out of the programme knowledgeable on everything from budgeting, saving, interest, and KiwiSaver, to tax, real estate and insurance.
“Another is our recent accreditation for the Gender Tick, the first New Zealand bank to gain it.”