ENEMIES OF CAPITALISM

Journalist Colin James, had this thoughtful article in the December issue of New Zealand Management magazine.

His theme is summarised in the introductory paragraph:

Rip-offs and amateurism in business damage capitalism just as surely as child abuse accusations damaged the Catholic Church.

He calls upon “capitalism’s leaders” to expose and denounce not just unlawful business misconduct but also “venality” and “incompetence” as well.

He does not appear to accept any limitations on speaking out:

… the “difficulty of getting proof” defence, which one business lobby luminary uses, is unconvincing.

The term ‘luminary’ doesn’t fit, but I worry that he could be thinking of me!

I totally agree about the need for lawful and ethical business conduct and have written and spoken about it a number of times, for example here and here.  But speaking out about specific cases raises a number of tricky issues.

For a start, what’s special about business?  The same argument could surely be applied to many walks of life.  For example, one could say that amateurism or incompetence in journalism damages the news media.

A fair reply might be that people can and do criticise amateurish or incompetent journalism.  But by the same token, people in business, business journalists and others comment on the strategies and performance of businesses all the time.

Then you have to wonder where to draw the line.  There is no end of folly in the world, including in business.  Firms routinely go broke through incompetence, as well as for other reasons.  Is there any point in a running commentary on human folly?

Colin James is right to say that “morality and ethics aren’t court matters” and that trust is essential to the efficient conduct of business.  Business people certainly steer clear of others whom they regard as untrustworthy.  But again, what’s special about business, and is speaking out about suspected unethical behaviour feasible?  The law of defamation – which journalists are very conscious of – exists for good reason.

If a journalist asks me for my opinion about some fully disclosed skulduggery I’d be glad to comment.  But for anyone in my position to issue gratuitous statements about conduct which they cannot know enough about would be reckless and irresponsible.

Because I am sympathetic to Colin James’ general theme I put my money where my mouth is and took part in an action against a former chairman of Fletcher Challenge for insider trading.  The motivation was to demonstrate that people in business did not condone such behaviour by their peers.  But the basis of the case was a finding of insider trading by the Securities Commission.  Frustratingly, it was necessary to spend $70,000 to get a court order to get the necessary information out of the Securities Commission.

The proceeds of that action were placed in a trust called the Business Integrity Trust, the purpose of which is to help parties to take cases against business misconduct if the cases seem meritorious and they lack the resources to do so.

Absent a finding by an authority such as the Securities Commission or its successor, or by a court, it is hard to see a lot more scope for condemning business misconduct.  The issue of verification cannot be lightly dismissed.

We have always relied on the Fourth Estate to expose wrongdoing and reflect our morality back to us.  If Colin James is willing to rush in where the more cautious among us have feared to tread, perhaps he can set us an example to follow.

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2 thoughts on “ENEMIES OF CAPITALISM

  1. Colin James hit only one nail- “Rip-offs and amateurism in business damage capitalism…. He calls upon “capitalism’s leaders” to expose and denounce not just unlawful business misconduct but also “venality” and “incompetence” as well.
    But there are many nails that hold society together and business is just one of them. What about the lawyers, regulators, accountants, bureaucracy, politicians, judges and media? If New Zealand wants to clean up its image it urgently requires Fiduciary legislation to be applied to the entire membership club of fiduciaries without exception.
    In my submission to the Ministry of Economic Development titled “Fiduciary Protection Law” See- http://www.med.govt.nz/upload/70165/37.PDF
    My experience of New Zealand has been both wonderful and of horror. It appears to be a country run riot by too many conmen in flash offices. They speak well and love to show people their fancy brochures. They appear to be someone you can trust. But they are fiduciaries in disguise whose only interest is robbing us.
    In putting together the Matakana Island deal, I met and had dealings with Fay Richwhite, Stephen Lunn of Embankment Securities (owner of the Winebox papers), Neil Craig of Craig and Company and Far Financial. Fay Richwhite, they tried to steal the deal. But we had bugged a meeting and caught them on tape. Then Craig and Company a well known and respected stock brokerage firm we trusted with confidential forestry valuations, then used that information to make a bid to buy Matakana behind our backs. (Page 82) When that failed, Mr Craig then passed that information to Maori partners who used the valuation reports to threaten my partner Kanematsu with Maori protest if Kanematsu did not cut them into the deal. Te Kotukutuku became owned by the Iwi accountant and other leaders including the chairman of Ngai Terangi. The shareholders list reads like the ‘who’s who’ of trusted Maori leadership. By taking the Matakana assets for themselves, that is a clear breach of the duty they owe the Ngai Terangi Maori community….
    Far Financial a merchant bank I sought to borrow funds from liked my deal so much; despite confidentiality they stole my deal from me. See- Arklow vs Maclean…..
    On a separate matter I even had the manager of Tauranga Trust Bank, Clive Tippens, look at my proposed deal to buy Bob Owens Mt Maunganui beachfront hotel site with vendor finance to build two tower strata buildings and using presales to fund the deal. Within weeks Clive Tippens left the bank and went and did the same deal….
    This is what advisors get away with under New Zealand law. I offer this information to the government to provide you with clear examples of the types of dangers Joe Public faces when he meets with these so called experts and advisors on money….
    I recommend the government extend the operations of the Securities Commission to develop a government agency to monitor and regulate all people who work with fiduciary control. The new “Fiduciary Act” would require all persons wanting fiduciary control to be registered and be required to comply with a legislated code of conduct. In today’s world advisors are specialists. Armed with superior knowledge about the inner workings of their field, it is far too easy for advisors to take advantage of their clients….
    In contrast, the fiduciary standard restores balance and protects the consumer by mandating that advisors act in the best interests of their clients – at all times.
    If a problem occurs between the advisor and the client the existing methods to resolve fiduciary failure are expensive and unreliable.
    The Ministry of “Fiduciary Conduct” would have power to protect the public by acting as public prosecutor for any alleged breaches of fiduciary duty.
    The new law would clarify and enforce;
    – To ensure there is no weakening of the fiduciary duty that applies to advisors.
    – That once a fiduciary duty is entered into, it cannot easily be abandoned; the legislation would explain that once that line has been crossed obligations are active until the correct termination procedures are made.
    This is an important and much needed development of the law because it says the government is serious about offering victims real support.
    Regulatory Modernisation of Government Fiduciary Power
    Human rights are about how we treat each other. No human wants to be a victim of failed government action. Yet our history provides plenty of examples of it. Any centralised government power, namely executive power, should be human rights (fiduciary) compliant. In our system of democracy, we have two hands controlling state power. On one side we have the executive of parliament, and on the other the “independent judiciary”. Both must be subject to workable checks and balances to ensure all actions are compatible with the spirit and intent of our laws. Currently we have none that really work, and that is the problem.
    Do we really need to do something; is New Zealand really in trouble?
    Between the politicians and bankers who have controlled the law and the economy the result is we are now in a perilous state. In July 2009 former Reserve Bank head, Dr Don Brash said “It’s a sobering fact that New Zealand’s now more heavily indebted to foreigners than any but two other developed countries, and those two are Hungary and Iceland. Our net indebtedness – the extent to which our gross foreign liabilities exceed our gross foreign assets – is estimated to be some $170 billion, or well over 90% of GDP; roughly $40,000 for every man, woman and child in the country”. (That figure has increased)
    And in trying to dig our way out of debt we are being forced to suffer an endless mountain of ineffective government that at times has the focus of a lab rat. This is a daily problem in both local councils and parliament. They are destroying the economic engines of our society. Their style of management, (compared to BHP) continues only to exist because they are being protected by an outdated system of protecting civil leaders. Crown immunity has fostered poor management at a time where we have needed a focused duty of care. That is why crown and judicial immunity laws need to be removed; these laws are our greatest danger. Every fiduciary must be held accountable or politicians in government will not have the willpower or need to protect people who they don’t care about.
    Fiduciary law is not just about financial advisors. It is about people with jobs that accept control of others through conferred power. It cannot be broken into parts that suggest only some will be held to account with others controlling the most important parts, namely government managers are being allowed to fail without the victim public having any ability to obtain correction. New Zealand and other countries need law to protect the public from people who claim expertise and offer a trusted environment. That law needs to offer protection to all beneficiaries the moment they have conferred power to others who may harm them. Any gaps in the net will allow escape. Over the years we have been served with both good and bad decisions. Allowing analysis of those decisions will only result in an improvement in service we get from our government.
    We suffered fiduciary abuse by Far Financial, Craig and Company and Fay Richwhite. Then the courts and government failed to protect us. We had good law to protect us, but the protectors let us down. That is why we must make every fiduciary accountable.
    Who is fiduciary?
    ….A fiduciary relationship can be described when Person X in good faith confers power of discretion to a professional we call a fiduciary. And by handing over that power Person X becomes reliant to the fiduciary whose aid, advice or protection is sought. And so Person X is now in a position of vulnerability.
    The term “fiduciary” is an invention of Roman law and, as a noun, means a person holding the character of a trustee, being charged to act primarily for another’s benefit with regard to specific property or affairs. When you become a fiduciary in theory common law rules apply relating to your discretion in areas such as opportunism and self-interested behaviour.
    The fiduciary has special access and discretion to the control of assets of another for a defined or limited purpose which in common law fiduciary includes a duty to act with loyalty for the benefit of the beneficiaries and a duty to act reasonably and prudent.
    But what of our most important fiduciaries, politicians, judges and even the executives of the Securities Commission? They all have the ultimate fiduciary power but they have crown immunity which means they are allowed to fail. I have been advocating for at least 25 years this is the number one problem facing New Zealand.
    The fiduciary relationship has been described as one of the most ill–defined , if not altogether misleading terms in our law, and it has been said that there are few legal concepts more frequently invoked but less conceptually certain than that of a fiduciary relationship. Yet a fiduciary relationship is perhaps, the most important relationship known to human management in a society. Fiduciary law requires legislating for the sake of clarification which will inspire confidence to invest in New Zealand. Until we get wide reaching fiduciary law no one will trust New Zealand.
    See my experiences- http://worldeconomy-wingate.blogspot.com/2010/08/billionaires-millionaires-why-invest-in.html

  2. Oh dear thread hijacking…..anyway excellent points raised and as Colin James can no more judge and sentence Journalists for breaches of morality or ethics neither can you Roger or any business person do the same,

    I always find those clinging to the argument “but its unethical/immoral what you have done” to simply be losing the legal debate.

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