Reputation - manage it or lose it
(30 May) The NZ Herald's John Roughan said it well: "If we are seen as a tax haven and used as a tax haven, then we are a tax haven".
New Zealand does not define itself as such but after the Panama Papers, others might – and their perspectives are what matter when it comes to national reputation.
Prime Minister John Key had some justification in his initial strident rejection of "tax haven" status. New Zealand has not systematically used its sovereignty for financial return from sheltering the wealth of others. We are not Switzerland or the Cayman islands: the international Tax Justice Network gave us a high mark just last year. But all this is somewhat beside the point in the Panama Papers context.
The leaked documents show a web of legal structures for shifting wealth ownership around the world with maximum privacy and secrecy – and New Zealand gets mentioned 60,000 times. There are no definitional disputes over this country's law on foreign trusts. We require no disclosure of beneficiaries, tax no income earned beyond our borders and lack the oversight common in other OECD countries' treatment of foreigners.
Two other undisputed facts:
-The number of foreign trusts registered in New Zealand has grown 500% over 10 years (to 11,645 last April).
-Around the world, such trusts are known to be vehicles for avoiding tax and/or for hiding illicitly-gained assets and income. The Panama Papers do not reveal (yet) the number of New Zealand-registered foreign trusts with one or more of these purposes.
So then, New Zealand has allowed itself to be used for global wealth management practices that might be illegal and/or unethical and that, in any event, cannot be subject to official audit.
But does being labelled "tax haven" really matter? The answer is emphatically "yes" because of the risk to our established, highly positive national reputation for transparency and honesty in economic and political dealings with others. Many countries are seen as tax havens in whole or part – the US and Britain among them – but the significance for New Zealand is far greater because "tax haven" is
so much at odds with our positive reputation in the other direction (and with our self-definition).
This country was No. 1 on Transparency International's Corruption Perceptions Index (CPI) for seven years till 2013 (we have slipped to 3
rd and 4th in the years since). Thanks to the CPI and foreigners' common perceptions of New Zealand, we have had an exceptional reputation for integrity in governmental systems, open access to information and fair dealing. Can anyone argue that isn't of value when New Zealanders go offshore to trade and seek capital?
Doubtless, it is that very reputation that makes us attractive as a base for asset-owning trusts – that and our loose legal regime.
To what extent, then, might the Panama Papers weaken that reputation? Will New Zealand come to be seen as nothing special (or worse) on issues of transparency and integrity? (That word "haven" is surely a problem – a haven for tax avoiders but also for corrupt politicians, money launderers etc)
The whole affair is graphic illustration of two truths about reputations – those of nations, companies and individuals.
First, positive reputation is an asset to be managed with clear understanding that what you don't do or say can be just as important as what you do and say. (Could New Zealand really not foresee the risks inherent in its treatment of trusts with foreign assets and beneficiaries!)
Second, if not managed, your reputation can be used by self-servicing others and weakened, or even lost, as a result. (How does it benefit NZ to be associated with the convicted, exiled former leader of Kazakhstan!)
See:Roughans column "The haunting truth about foreign trusts" on 14 May. The TJN scored New Zealand 54 on its Financial Secrecy Index (much higher than even the Scandinavians) www.financialsecrecyindex.com
TINZ reports the CPI on
www.transparency.org.nz
Ready for the next revolution?
(18 July) By world standards, New Zealand has very good information & communications technology (ICT). We rank highly on ICT infrastructure and skills - and our business environment is second only to Singapore when it comes to facilitating innovation using ICT and other technologies.
But as a country, we are not that good at securing economic and social advantage from these things. ICT affordability is a big issue – one that could start holding New Zealand back as the world enters the "Fourth Industrial Revolution".
All this from the World Economic Forum's (WEF) 2016 Global Information Technology Report – a unique assemblage of 139-country league tables and of economic and political concepts that, together, indicate levels of "networked readiness".
Readiness, that is, for the Fourth Industrial Revolution – a revolution in how human beings produce and consume stuff (and much more) as new digital, biological and physical technologies converge rapidly in the 21st Century.
The WEF foresees a global transformation coming out of the ICT created by the previous revolution – the digital one which gave us the Internet and massive amounts of cheap computing power – and by the ongoing march of bioscience (eg genetics) and engineering (eg robotics). "This transformation is not defined by any particular set of emerging technologies, but rather by the transition to new systems that are being built on the infrastructure of the digital revolution."
Countries will benefit, or fall behind, depending on their success in leveraging ICT to create and/or adopt the new systems of greatest value in the global economy. ICT is so important because of how it increasingly facilitates and accelerates new biological and physical technologies. "Networked readiness" is short-hand for a country's ability to benefit from this global transformation.
Each year the WEF ranks the 139 on a networked readiness index (NRI). In 2016, New Zealand is ranked 17th – one ahead of Australia but well behind the US (5th) and the UK (8th). Singapore is number one (again) and of course, the Scandinavians are well up there, along with Japan, Korea and Germany.
Scrutiny of the NRI calculations suggests we would rank higher but for a very poor score on ICT affordability – one of 10 "pillars" that make up networked readiness. New Zealand is 95th least affordable because of internationally high fixed line broadband tariffs and prepaid mobile charges, and because of weak competition in Internet services and telephony markets. (Australia is deemed to have far more competitive markets but is still only 57th on affordability.)
On the other hand, New Zealand is well placed (10th) on infrastructure, thanks to relatively high scores for electricity supply, secure Internet servers per capita and access to international bandwidth.
Where we look best is integrity of political and regulatory systems, and conduciveness of business environment: In world terms, we have an excellent legal system, effective law makers, rapid processes for starting a business, availability of venture capital and well educated people.
Is New Zealand ready for the Fourth Industrial Revolution? To a large extent, yes. But the report also suggests that ICT affordability might be our impediment to a bright, new technology fortune. To what extent should we blame this on costs associated with the age-old constraints of small size and distance from bigger markets, or on the high margins of ICT providers?
The WEF Global Information Technology Report was published on 6 July. See www.weforum.org/reports
But as a country, we are not that good at securing economic and social advantage from these things. ICT affordability is a big issue – one that could start holding New Zealand back as the world enters the "Fourth Industrial Revolution".
All this from the World Economic Forum's (WEF) 2016 Global Information Technology Report – a unique assemblage of 139-country league tables and of economic and political concepts that, together, indicate levels of "networked readiness".
Readiness, that is, for the Fourth Industrial Revolution – a revolution in how human beings produce and consume stuff (and much more) as new digital, biological and physical technologies converge rapidly in the 21st Century.
The WEF foresees a global transformation coming out of the ICT created by the previous revolution – the digital one which gave us the Internet and massive amounts of cheap computing power – and by the ongoing march of bioscience (eg genetics) and engineering (eg robotics). "This transformation is not defined by any particular set of emerging technologies, but rather by the transition to new systems that are being built on the infrastructure of the digital revolution."
Countries will benefit, or fall behind, depending on their success in leveraging ICT to create and/or adopt the new systems of greatest value in the global economy. ICT is so important because of how it increasingly facilitates and accelerates new biological and physical technologies. "Networked readiness" is short-hand for a country's ability to benefit from this global transformation.
Each year the WEF ranks the 139 on a networked readiness index (NRI). In 2016, New Zealand is ranked 17th – one ahead of Australia but well behind the US (5th) and the UK (8th). Singapore is number one (again) and of course, the Scandinavians are well up there, along with Japan, Korea and Germany.
Scrutiny of the NRI calculations suggests we would rank higher but for a very poor score on ICT affordability – one of 10 "pillars" that make up networked readiness. New Zealand is 95th least affordable because of internationally high fixed line broadband tariffs and prepaid mobile charges, and because of weak competition in Internet services and telephony markets. (Australia is deemed to have far more competitive markets but is still only 57th on affordability.)
On the other hand, New Zealand is well placed (10th) on infrastructure, thanks to relatively high scores for electricity supply, secure Internet servers per capita and access to international bandwidth.
Where we look best is integrity of political and regulatory systems, and conduciveness of business environment: In world terms, we have an excellent legal system, effective law makers, rapid processes for starting a business, availability of venture capital and well educated people.
Is New Zealand ready for the Fourth Industrial Revolution? To a large extent, yes. But the report also suggests that ICT affordability might be our impediment to a bright, new technology fortune. To what extent should we blame this on costs associated with the age-old constraints of small size and distance from bigger markets, or on the high margins of ICT providers?
The WEF Global Information Technology Report was published on 6 July. See www.weforum.org/reports
Getting the trust you deserve
(10 May) New Zealanders are suspicious of big business, as confirmed in recent surveys.
Colmar Brunton found 43% of us have little or no trust in corporations (only 11% have complete or lots of trust)^. Another survey, the Edelman Trust Barometer, ranks New Zealand below the global average for trust in business as a national institution – we are 51% trusting while the world is 53%*.
Does it matter? That we are not too trusting might indicate that New Zealanders are savvy and questioning. We don't take companies – or for that matter, the institutions of government or media – at face value. They must earn our trust.
Ultimately, though, high levels of distrust will damage an economy or political system. People need trust to buy products. Businesses need trust to engage with each other. And investors certainly need it to invest in companies and capital markets. (In politics, distrust manifests as apathy or at the other extreme, in support for demagogues who promise an alternative to government-as-usual.)
Curiously, the surveys also suggest that Kiwis want to trust business. Edelman found 77% of us believe that companies can make profit and, at same time, improve economic and social conditions. It also found 80% want CEOs to concern themselves with social issues as well as financial performance. (Chief among such issues in New Zealand is income inequality. The same in Australia.)
The Colmar Brunton survey showed much higher trust in small businesses: Only 9% of us have little or no trust in them, while 30% have complete or lots (and the other 60% have at least some trust). What is it about larger and more complex companies that troubles Kiwis? The same issues just don't arise when businesses are small.
Of course New Zealand corporations very rarely poison consumers, defraud trading partners or misappropriate investors' money. They are not fundamentally untrustworthy.
So what is going on? The answer lies largely in companies' failure to build strong understanding among customers, employees, investors and the public in general – understanding of how the particular company creates value for its stakeholders in economic, social and environmental terms.
That kind of understanding – and the credibility and trust that grows from it – requires talking to stakeholders in ways that are truly meaningful to them. It requires anticipating and answering their questions about your business. (Kiwis are, indeed, savvy and questioning.)
I am talking about Integrated Reporting – the concept and practice of corporations explaining themselves with greater clarity, conciseness and coherence. Explaining how they use their resources (or capitals) sustainability. Explaining what they set out to do, how and with what results. Giving a realistic view of the future that informs and inspires stakeholders.
Integrated Reporting encompasses the other "new" reporting concepts – sustainability, corporate social responsibility (CSR) and ethical governance. It is not rocket science but does require a fresh perspective on the business, and rigor in identifying and reporting the right information.
Some New Zealand corporations are doing it in full or in part. Prof. Mervyn King – former Governor of the Bank of England and champion of the global Integrated Reporting movement – came here in 2013 and said we were well on the way.
But Prof. King suggested more Kiwi companies needed to break down their internal silos of thinking and information control in order to really start Integrated Reporting. He was in no doubt about the advantages, with higher investor confidence and lower cost of capital chief among them.
Integrated Reporting is for each corporation to adopt and apply as best suites its business, operating environment and stakeholders. Ironically perhaps, the first step is for the company to demonstrate its trust in stakeholders – to know that the latter will find your business story and performance credible and worthy of support!
It's the 2016 reporting season. Time for companies to work more on building the trust they deserve.
^ See Colmar Brunton's "Who do we trust" survey report for the Institute of Governance & Policy Studies, Victoria University. March 2016.
* See the Acumen Edelman Trust Barometer – New Zealand Report 2016. March 2016.
Colmar Brunton found 43% of us have little or no trust in corporations (only 11% have complete or lots of trust)^. Another survey, the Edelman Trust Barometer, ranks New Zealand below the global average for trust in business as a national institution – we are 51% trusting while the world is 53%*.
Does it matter? That we are not too trusting might indicate that New Zealanders are savvy and questioning. We don't take companies – or for that matter, the institutions of government or media – at face value. They must earn our trust.
Ultimately, though, high levels of distrust will damage an economy or political system. People need trust to buy products. Businesses need trust to engage with each other. And investors certainly need it to invest in companies and capital markets. (In politics, distrust manifests as apathy or at the other extreme, in support for demagogues who promise an alternative to government-as-usual.)
Curiously, the surveys also suggest that Kiwis want to trust business. Edelman found 77% of us believe that companies can make profit and, at same time, improve economic and social conditions. It also found 80% want CEOs to concern themselves with social issues as well as financial performance. (Chief among such issues in New Zealand is income inequality. The same in Australia.)
The Colmar Brunton survey showed much higher trust in small businesses: Only 9% of us have little or no trust in them, while 30% have complete or lots (and the other 60% have at least some trust). What is it about larger and more complex companies that troubles Kiwis? The same issues just don't arise when businesses are small.
Of course New Zealand corporations very rarely poison consumers, defraud trading partners or misappropriate investors' money. They are not fundamentally untrustworthy.
So what is going on? The answer lies largely in companies' failure to build strong understanding among customers, employees, investors and the public in general – understanding of how the particular company creates value for its stakeholders in economic, social and environmental terms.
That kind of understanding – and the credibility and trust that grows from it – requires talking to stakeholders in ways that are truly meaningful to them. It requires anticipating and answering their questions about your business. (Kiwis are, indeed, savvy and questioning.)
I am talking about Integrated Reporting – the concept and practice of corporations explaining themselves with greater clarity, conciseness and coherence. Explaining how they use their resources (or capitals) sustainability. Explaining what they set out to do, how and with what results. Giving a realistic view of the future that informs and inspires stakeholders.
Integrated Reporting encompasses the other "new" reporting concepts – sustainability, corporate social responsibility (CSR) and ethical governance. It is not rocket science but does require a fresh perspective on the business, and rigor in identifying and reporting the right information.
Some New Zealand corporations are doing it in full or in part. Prof. Mervyn King – former Governor of the Bank of England and champion of the global Integrated Reporting movement – came here in 2013 and said we were well on the way.
But Prof. King suggested more Kiwi companies needed to break down their internal silos of thinking and information control in order to really start Integrated Reporting. He was in no doubt about the advantages, with higher investor confidence and lower cost of capital chief among them.
Integrated Reporting is for each corporation to adopt and apply as best suites its business, operating environment and stakeholders. Ironically perhaps, the first step is for the company to demonstrate its trust in stakeholders – to know that the latter will find your business story and performance credible and worthy of support!
It's the 2016 reporting season. Time for companies to work more on building the trust they deserve.
^ See Colmar Brunton's "Who do we trust" survey report for the Institute of Governance & Policy Studies, Victoria University. March 2016.
* See the Acumen Edelman Trust Barometer – New Zealand Report 2016. March 2016.