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On this site you'll find posts and pages from recent years. The site began as part of my public law practice after leaving Parliament in 2005. Accordingly it records my opinions, not necessarily those of Franks & Ogilvie of which I am a principal, or any client, or the National Party for which I contested the Wellington Central electorate in November 2008.

From the Wellington Writersí Walk:

“Itís true you canít live here by chance, you have to do and be, not simply watch or even describe. This is the city of action,the world headquarters of the verb”

– Lauris Edmond, from The Active Voice

‘Creatives’ same the world over – hoist on their petard of economic ignorance

  • July 24th, 2014

Remember Actors' Equity's hatred of National's deal to restore freedom to contract, to retain Hobbit filming here? Robyn Malcolm and other stooges for Aussie Union officials denied they could price themselves out of work.

The law change that was part of the deal was deplorable in terms of constitutional/rule of law principles because it should have been of general application, not specific to a few film contractor/employees. But the beneficial purposes of the change were indisputable, except by the ignoramuses of the reactionary left.

Blogger Patrick Sullivan draws attention to a report of the French Federation of the Cinema Industry ('FICAM") which offers some evidence of what might have happened if Malcolm and Co had won.

He explains

" FICAM also cited the new rules of what is called the "collective agreement" which regulated the industry practices and created minimum wages in several sectors, including technicians such as electricians and camera operators, costume and wardrobe workers, and assistant directors.

"After a decade of debate, the agreement was signed by trade unions and the Association of Independent Producers (API), which represents major production companies Gaumont, MK2, Pathe and UGC in France, in October 2012 and went into effect Jan. 1, 2013. At the time, many directors opposed the measures saying that the new wages and stipulations regarding overtime and night shoots would jeopardize low-budget films."

FICAM just announced that French movie production is down by 24% since the new agreement has been operational.

Another reason why name suppression is bad

  • July 21st, 2014

My law firm partner Nikki points out news stories a month or so back about a guy in NZ who has qualified with a PhD after serving a lengthy sentence

She sent me a link to a similar article on a young UK woman who despite a long criminal history has qualified with a first class degree in policing, investigation and criminology. She plans to study a Master's degree at the London School of Economics and then use her qualifications and own life experience to work with troubled youth.

As Nikki says, tales of redemption are good for the soul. They provide a flicker of light amidst all the depressing dark stuff.

However, if either of these people had been given name suppression, or some other right to have the prior offending concealed, there would be no tale to tell. Truth is, they'd just be another couple of graduates. It's the fact that they have serious criminal history that makes their stories so significant and inspirational..

Incentive pay for MPs

  • July 14th, 2014

The moot for the New Zealand Initiative's youth debate semi-final this year in Wellington is a good one -

"Should New Zealand tie MPs' and Ministers' salaries to a multiple of the average national income?"

When the Remuneration Authority was asking MPs about reform of the system 10 years ago, I urged that parties be given a material amount they could distribute among their members according to their pre-Parliament incomes, to do three things:

  • reduce the income cut involved in going to Parliament for people for whom there is much more to lose, and
  • reduce the overpayment of the kind or people who would never be thought useful enough outside Parliament to get anywhere near their Parliamentary income, so they don't cling quite so desperately to their places; and
  • have the supplement reduce each year after entry to Parliament, to encourage turnover of people who have not progressed.

I also suggested a trailing commission, to induce longer term thinking among MPs. Exec incentive schemes that fail to add a trailing element or to defer vesting encourage manipulation of reporting and incentivise short term results. In politics that there is already more than enough incentive for false reporting and short-temism in the 3 year electoral cycle.

Accordingly MPs should have a material part of their remuneration deferred each year. If the MP demands immediate payment is should be substantially discounted. The deferred amount (say half) might be paid out say five years later, multiplied by 2 times or 5 times the GDP or average income growth in the five years. If it shifted MPs horizons, it would be money incredibly well spent even if they tripled or quadrupled their incomes.

For an even longer perspective, simply make the deferral period longer.


On shame – Hinch, Korotangi Paki, Kim Workman

  • July 11th, 2014

On Sunday afternoon I'll be in Auckland to chair a public discussion of  the secrecy that justice insiders defend so tenaciously. Derryn Hinch is the main speaker. He's endured prison to stand up for open courts and freedom of speech.

Doing my homework, I've been reminded of the intellectual blindness engendered by the beliefs of well meaning people.  Kim Workman is a good man. He writes thoughtfully on his blog "Smart on Crime". The post prompted by the absurd discharge of the Maori prince is worth reading by anyone who needs to understand the criminal justice establishment. They need to feel morally superior (compassion is their claim) over the rest of us, but they acknowledge the need also for research on their side.

So how do they end up so far from reality? This well written piece shows us. The reasoning is respectable so far as it goes, but it stops well before it gets anywhere near the main issues. It misses the same point as is missed by the justice insiders generally.

It measures everything according to its potential to redeem the offender. Redemption is worth trying if it does not prejudice more necessary purposes. But the fate of particular offenders is trivial, when the proper measure of a justice system, indeed any social mechanism for inculcating and upholding norm observance, is the extent of offending overall. Recidivism rates may affect offending rates, but they are much less important than rates of recruitment to offending.

Governments have few research proven tools to reliably reform hardened offenders. Once a young person establishes a pattern they are likely to keep offending until they grow out of it (now in the early forties). They offend whenever they think the price will be less than the rewards they get (including the psychic rewards of causing fear).

So crime rates are determined largely by recruitment to offender status, not 'cure rates' for established offenders.

Almost all cultures rely heavily on reputation mechanisms to discourage the establishment of such patterns. They commonly involve exacting a price over the long term from individuals, their families, and communities that harbour them. They also commonly provide well recognised paths to discharge the shame burden, to demonstrate remorse. As Kim Workman acknowledges, Maori norm enforcement relied heavily on whakaama – shame. What he does not go on to acknowledge was the extent to which shame mechanisms need practical impacts and 'stigmatization'. They depend on tangible consequences to shameful behaviour. Whakaama (shame) becomes irrelevant and toothless when it is separated from the consequences, when the forgiveness carrots are poured out in sackloads without any sticks of  ritual humiliation, group responsibility and formulaic depredaton (muru and utu)..

But well meaning 'sickly white liberals' (in Winston Peters' memorable words) have gutted our law of its links with reputation sanctions. They've left the law struggling ineffectually to rely on formal punishments alone.

So Mr Workman, when you deplore the powerful trend toward more severity in punishments, when you rail against the lack of recognition of the truth that speed and certainty of consequence are much more important than severity in deterrence, take a look at your own responsibility. You've helped eliminate from our law the most powerful and speedy social sanctions of all at the critical time (in application to young people).

Rethinking Justice applauds the secrecy of our youth courts. You defend our disgraceful name suppression law. You supported the Clean Slate law. And in your blog you whine about the ordinary peoples' rejection of the expert demand that criminal justice policy be left to experts. You exemplify the establishment's comprehensive rejection of the reputation based natural social sanctions.

You genuinely believe you have research and reason on your side, but it is fatally limited. Your post on Paki takes the shame analysis no further than the effect of shame on rehabilitation prospects. Shame may inhibit rehabilitation for offenders outside a community with high social cohesion (i.e. where the social sanctions are presumably severe, and scope for collective redemptive support). But where is the consciousness of its importance to offending rates?

Justice insiders have an unshakeable conviction that the system is all about them and the offender. And that gets nicely boiled down to focus on the superiority of the insider's compassion and morality. So, for example, you judge prison effectiveness by the re-offending rate of released prisoners. Prison does not rehabilitate. So what? That is not news. It never has. Spontaneous rehabilitation occurs at much the same rates almost irrespective of the programmes in prisons, as you know.

Rehabilitation is only the least important and the least likely to be achieved of the four objectives of imprisonment. I suspect much the same for shame as a sanction. Some will not re-offend having tasted the price of wrongdoing. Some will be undeterred. The important thing is that we are unlikely to know in advance, and even if we thought we did know, if offends the need for justice to apply equally to all, for some to get 'treatment' and others punishment.

The far more substantial reasons for punishment are to deter others, to protect others by incapacitating offenders from further predation, and to deliver retributive justice to the victims. Those factors are all about unknown potential victims and actual victims, and potential offenders.

But justice insiders dismiss the interests of innnocent others as immaterial.

Naming and shaming is important for all those third party purposes. What Mr Workman labels "stigmatisation'  is important in deterrence. The key insight of James Q Wilson, the philosopher who explained why Broken Windows policies work, was that the system must make plain what conduct is actually costly. Any law that is not enforced undemines respect for law generally. What is tolerated without high cost is perceived as permissible. Notional law is irrelevant compared to the actuality of 'what goes on (is acceptable) around here'. Like it or not, we all need to see stigmatisation in action to know the difference between official pretenses about what is acceptable and the actuality of what behaviour 'works' and what does not.

Put another way, openness about genuine punishment has a deterrent effect on those who might be tempted to think that offending is essentially costless, or at least that the cost will be less than the satisfaction Openness protects others by allowing people to know who they should take precautions with, and it involves all who know the offenders in monitoring them; Openness and deliberate shaming may be important to the recovery of victims. They need to know that the world is on their side.

Most notions of justice in most cultures affirm the need to balance wrongdoing. We have a deep sense that wrongdoers should not be permitted to be in a better position than their victims at the end of society's process. In east Asian culture that is given a theological explanation, the restoration of harmony in the heavens, by making sure that wrongdoing is balanced by harm to the wrongdoer. In our history it was more simply expressed, there must be a deterrent price paid for each crime that satisfies the legitimate and vitally important social need to see retributive justice done, for victims.

As purposes of punishment, (including reputation based informal consequences) those other reasons are more important than the redemption of individual offenders. That is particularly problematic for Mr Workman. He wants therapeutic processes to have priority despite practical knowledge that there are many offenders who will never be redeemed, and there is no reliable way to know in advance who will be redeemed.  His preferred therapies will therefore always be discredited afer application. Experience of failed compassion erodes trust in the law, and authority generally. It impels us toward self-help mechanisms, even up to vigilante action.

Despite the establishment's self congratulation over its redemptive intentions, they are primarily responsible for the increasingly punitive trend of legislative change. They have forfeited trust that the establishment is committed to law that works, that cheats won't prosper, that honesty pays.

Mr Workman will be ognored for whittering for so long as he tries to persuade us by claims about what is best for the offenders and their rehabilitation, without understanding that we are barely interested in offenders, their feelings, their families' feelings.

Nor are we interested in the elite's wish to look merciful. We are interested in;

  • the marginal offender who needs to be dissuaded, and
  • the next victim who need not be a victim, and
  • upholding the victims' right to see the price exacted, by a state and a community on the victim's side, not the offenders'.

Smart on Crime's theories have had their time, been tried and found wanting. As well as rejecting reputation mechanisms you've rejected punishment for its own sake as a proper objective of justice. But we are a democracy, and the people do not reject punishment as a purpose for a justice system that expropriates the victim's right to retribution.

We do not want to be left where there is no fear muscular shame at the entry levels of criminal life. We are realistic. The law cannot work with only formal coercion (custody and fines) to do the heavy lifting.  And you want to replace even what is left of shame and stigmatisation with therapeutic treatments. They do not fulfil the main purposes of punishment. So your establishment has forfeited the entitlement to respect from the people that is both the requirement and the justification for an establishment to lead.

Do our good times depend on China, or US green stubbornness?

  • July 9th, 2014

NBR reports an academic lashing out at our Trade Minister for failing to agree that the sky is falling in China. Two things incline me to sympathise with Tim Groser, over the professor;

First sign - the professor's pique that the Minister "sat there in front of me, looking at his watch and checking his cell phone. It was really quite rude I thought"  Diddums. Ministers must multi-task. Tim Groser would assuredly have heard the arguments before. But even if the Minister agreed, what did the Prof expect him to do?

The address might have been more valuable if the Prof had explained how a Trade Minister in a free economy stops trade from heading where the best returns are, even if everyone agrees there is concentrated country risk. Does the Professor expect the Minister to order some or all exporters to refuse to satisfy some Chinese customers and divert the product to buyers offering materially less? Perhaps the Chinese can steer their business people like that, but not free country governments.

Perhaps this is unfair on both – perhaps the Professor offered valuable but unreported suggestions for distorting our trade away from the current best buyers. If so, we should be debating some other dirigiste policies, including central planning to deal with a premature end to the dairy and beef bonanzas. To me that seems equally problematic and at least as likely as a collapse in Chinese demand.

Burning food for fuel is poor policy, but our beef and dairy prices probably depend on it. Forty percent of the US corn crop goes into bio-fuels. If that corn were released back for human and animal food, our dairy and beef prices would surely tumble.

Our Green Party voted for bio-fuel quotas while I was in Parliament. They knew when they did it that it would increase food prices and cause some humans to starve. But of course all worship demands sacrifice. And Gaia does not mind the sacrifice of wicked humans, so her servants the Green Party can be indifferent to real effects. The religious intent is what matters.

Similar green pressure in the US for mandatory 'renewable' biofuel quotas has diverted that vast country from growing food. Largely due to bio-fuel requirements US grain prices rose 140 percent between January 2002 and February 2008, Globally, biofuel production doubled from 2006 to 2011 though the 247 million acres of land used around the world for bio-fuels still produced less than one-half of one percent of the world's energy

Growing food to burn for fuel produces 0.3 watts per square meter.
For comparison, solar panels have a density of 6 watts per square meter. To fuel all US transport with corn-based ethanol would need 37 percent of the continental United States (not just their arable land). Soy biodiesel is even worse, requiring a third more than the size of the United States.
The environmental problems with biofuels go further. Ethanol in fuel increases combustion pollutants.

But New Zealand is living in the silver lining of this disastrous policy. We in New Zealand may selfishly hope that the US greens do not come to their senses. We should be grateful even if we deplore the economics, the science and the morality of biofuel quotas driven by their anti-enlightenment religion.


Source: Robert Bryce, "Biofuels Are a Bad Idea,"

Elevating judges and strengthening courts

  • June 20th, 2014

I've been asked if there is anything out of the ordinary in the elevation of Hon Justice Mark Cooper to the Court of Appeal, Hon Justice Ellen France to the presidency of that court, and the shift of current Court of Appeal President Hon Justice Sir Mark O'Regan upstairs to the Supreme Court.

 Justice Cooper is considered to have chaired the Canterbury Earthquakes Royal Commission very well.

I assume that Justice France is expected to be a good court administrator, because I've not heard particular comment about her judgments, good or bad. I criticised her long ago reasoning in the decision that the free speech character of flag burning trumped the terms of a specific statute forbidding desecration of our flag. But judges work where decisions are hard and being considered to have got things wrong occasionally goes with the job.

Justice O'Regan's move after a short time as president of the Court of Appeal is the most significant.

He could help transform the Supreme Court into the leading court it should be. At present practitioners commonly expect better decisions from the Court of Appeal, though of course there are exceptions.
There is a range of reasons for a comparative lack of respect for the Supreme Court. Among them has been an apparent lack of engagement by its members with each other's reasoning in decisions.
Together they've contributed confusion instead of clarity to what the court below has said. It looks like a problem of organisation and willingness to be lead, not a problem of individual quality. Indeed the Supreme Court will lose a very good judge when the Hon Justice McGrath leaves early next year.

But overall there has been a collective judicial failure at the highest levels to accept that they have both the responsibility and the power to deal with the disgraceful delay, expense and ineffectiveness of many justice processes.

Take the routine decisions this week in the Blessie Gotingco murder case. It is striking that there has been only resigned public acceptance instead of outrage over three absurdities in the system:

a) the trial being set down for March next year. Why? When I began practice, murder trials were routinely completed, with all appeal rights over within 6 months of the murder, as the late Greg KIng confirmed when I challenged him to check my recollection. What about the injustice of 9 months in custody if the accused is innocent? He will not get bail. There are many excuses for such delays. The judges call them reasons. Whatever they are, they have multiplied on this generation's watch. There is enormous self indulgence in the courts' leisurely pandering to offenders and lawyers. Parliament cannot discipline these system insiders with constitutional safety. Constitutionally the courts should be self-cleansing. Instead this generation of judges mumbles complaints about interference when Ministers try with limited effect to tell them the public will not tolerate more resources applied while the output is less and less satisfaction that justice is being done.

b) the accused's name is suppressed till the trial. Why? It is widely known. Anyone in the Court when he appeared could readily identify him. When his trial commences the jury members will quickly learn from their smart phones his record and the justice system failures with respect to him. Or they'll get it from google on their first night home. The courts have long known that the days are ended when they could fondly believe that jurors were empty little black boxes, taking account only of data drip-fed into them by the court. Our times are more comparable with when juries were established. They were originally a sample of neighbours who were likely to know enough of the accused already to decide on his veracity.

c) it is likely that the accused should never have been free to commit the murder. Many violent offenses are committed by people who would have been locked up if  judges were obeying the statutory requirement that the worst offenders receive the maximum sentence, and were applying the full sentencing range in a normal curve below that. It is likely that he would not have been out either, if they had not acquiesced in the parole system making a mockery of their sentencing

The Gotingco hearing this week is not so far an example of indifference by the courts to wasted expense, but that could yet come.

I hope that judges like William Young J, and Sir Mark O'Regan will use their time at the top  to take charge and transform the parts of the system within their control. They must restore faith in its common sense. A really simple start could be to pick up a suggestion I've made often, returning to what was routine when I started practice. That is to  increase substantially  the sentences of people who make insolent appeals. The lower courts and the victims would soon be free from the burden of watching ritual meritless appeals, if the courts appropriately treated offenders for their lack of  remorse in not humbly serving the sentences they are given.

A great start to restoring confidence in the courts would be for Mr Ross, the fraudster, to find his sentence increased to the maximum, with a 100%  non-parole period. .

Labour-Liu legal loophole?

  • June 19th, 2014

Since the link between Donghua Liu and David Cunliffe surfaced early this week there has been widespread speculation that Labour breached the law in failing to declare two campaign donations made by Mr Liu in 2007.

Though Labour maintains it has no records, the Herald has reported that in 2007 Mr Liu contributed $15,000 for a book signed by Helen Clark, and an unknown amount of money for a bottle of wine.

Under the current law, a candidate donation can include:

“where goods or services are provided by a candidate under a contract or arrangement at a value that is more than their reasonable market value, the amount of the difference between that value and the reasonable market value of those goods or services.”

Corresponding terms govern party donations. Assuming the second donation was for more than $1500, they would capture both of Mr Liu’s transactions. The candidate or responsible party agent who knowingly failed to report them could face up to two years imprisonment (section 207I of the Electoral Act 1993).

But until 19 December 2007 the law governing donations was different. Until then the Electoral Act 1993 defined ‘donation’ to include goods or services provided to the party at an undervalue, but did not expressly capture a sale at an overvalue.

This loophole was partly closed by the Electoral Finance Act 2007 but untl then it was arguably legal not to report the alleged Liu donations if they were provided by way of auction price.

The fact that the law was changed to capture the second transaction increases the strength of the case that parliament realised there was a legal loophole under the old provision.

There is another way to analyse the transaction under pre-2007 law:

  1. The donation of the item (e.g. the wine bottle) to the party;
  2. The auction sale where the price is immaterial to its characterisation as a purchase, not a donation.

On this view Mr Liu would not have donated to the Labour party at all. The donor would be the person who provided the item.  In other words was the mistake not reporting the gift as coming from the original donor with a 'reasonable market value' close to the auction price?

Though attractive in terms of spreading the worry net,  in my view this analysis is not correct, even if it was not irrelevant because of lapse of time for prosecution.  There are too may indeterminables for it to appeal to a court applying the criminal standard of proof.

Of course evading illegality with a technical device does not diminish the disgrace that has rightly come to Labour for its hypocrisy in hounding Maurice Williamson, and before that Judith Collins, and even more so John Banks. Their condemnation of John Banks is particularly disgusting in the light of the Liu revelations, because John's refusal to intervene for Kim Dotcom showed that he was not corrupted by the undisclosed donation.

We lack reason for such confidence about the effect on Labour of the early Liu donations, given Mr Liu's subsequent dealings with government, the circumstances of Shane Jones' decision on another businessman, and Labour's corrupt use of Parliamentary funding as it sought to nobble others with the Electoral Finance Act 2007.

Thanks Michael Moughan for careful study of the superseded law.


I thought I’d never see – NYT on ability streaming in schools

  • June 10th, 2014

The New York Times reports studies that endorse streaming school classes by abilities. .

As summarised by NCPA, the article says:

"Empirical data has tended to show that students gain when they are grouped according to their skill level:

  • Last year, [Dartmouth College economics professor Bruce] Sacerdote and two fellow economists analyzed students at the U.S. Air Force Academy. They found that the students largely benefited from their peers, but those benefits disappeared when cadets of the highest and lowest abilities were grouped together.
  • In a 2009 paper, Sacerdote tracked Hurricane Katrina refugees across different schools, concluding that students with high abilities benefited the most from high-ability peers.
  • Examining primary schools in Kenya, another study found that all students — not just the best learners — benefited when they were grouped into different classrooms according to their abilities.
  • Analyzing data from one North Carolina county, researchers Caroline Hoxby and Gretchen Weingarth determined again that students benefited when they were surrounded with students of similar abilities.

I hhaven't tracked through all the links in the short NYT piece, but I wonder if the mechanism at work is similar to the mechanism that results in girls in girl's schools thriving away from the testosterone fuelled dominance of boys. Perhaps being made to feel too humble may permanently limit ambition and the confidence to try.

The NCPA summary goes on:

"The benefits of ability grouping, not just for the talented students but for all students, indicate that [current left and union endorsed plans to eliminate] gifted and talented programs could have serious, negative consequences for bright students from low income families". .

A halal blow for Whittakers?

  • May 29th, 2014

We have something to thank Muslim religiosity for. The Malaysian Health Ministry appears to have caught Cadbury out with pork traces in their chocolate.

What is wrong with Cadbury? It didn't work for them trying to pass off palm oil in their Dairy Milk, in New Zealand, the homeland of dairying.

But you'd think they could stick firmly to palm oil in Malaysia, the homeland of the palm oil industry.

And this story will be world-wide. It won't only be Muslims disgusted by the thought of pork in their chocolate. I don't want  lard in mine either.

I hope our national champions (and long ago one of my first clients) Whittakers temporarily suspend the gorgeous Nigella campaign to reassure us that they don't lard their chocolate, and leave Cadbury to explain itself as best it can.

Will Abano trigger an NZX rule reform?

  • May 23rd, 2014

Abano shareholders will meet on 13 June to consider a motion to sack their chairman, Trevor Janes

Whatever the outcome, the affair should trigger an overdue correction of a mistake in the NZX listing rules. I’ve heard suggestions the mistake happened “on my watch” so I’ve meant to write about it before now.

I disclose first that I have known the Chairman since my earliest days as a commercial lawyer. He was a demanding client. Most clients give instructions then go home while the wordsmithing continues into the night. Trevor would stay for as long as it took, so mistakes couldn’t get headway. He always paid more than lip service to getting things right.

So I see the attack on his performance as just a strategy to cloak a predatory attack on Abano.  The predators may see no prospect of cowing the Board while he is there.

But the extended tussle brings back into focus what should be a running embarrassment for NZX.

In March this year NZX issued a class waiver that related to Mr Janes. It benefits only ACC Directors. Essentially the waiver says that ACC Directors do not lose their listing rule categorisation as Independent Directors when sitting on the boards of other companies even if ACC is a substantial shareholder in those companies.

The specific waiver should never have been necessary. NZX should have reformed the Rule long ago, or extended the new waiver to all non conflicted investment fund substantial shareholders.  The rule acquired its current form in 2003. It was well intentioned but foolish.  The provision should have focussed on directors with real, standing, conflicts of interest, like trade investors, not substantial shareholders indiscriminately.

Restricting the powers of executive directors and directors appointed by trade investors is a simple way to reduce pressure for related party transactions. Trade investors often want the company to:

  1. Sell to them (or associates)  at an undervalue; or
  2. Buy at an overvalue; or
  3. Otherwise deliver collateral benefits at cost or risk to the company. ,

Substantial investors (such as ACC in the Abano case) which can only benefit from a company by way of dividend, or their exit price, are in the same position as the ordinary shareholders. Instead of putting them in the suspect category, the Rules should welcome them and their expert directors. When the badly framed rule was introduced there was good research suggesting that companies with directors appointed by substantial shareholders performed better than companies without such ‘non-independents’. Various explanations were offered:

  1. Greater independence from management and of the chair – who generally otherwise control director succession in widely held companies;
  2. The analytical background and resources they can call on;
  3. Their backers demand performance for tenure; whereas incumbency suffices for most directors in widely held companies.

In other words, by including nominees of major investment shareholders in the ‘suspect’ category of ‘non-independent’, the rule-makers inflicted own-goals on shareholders generally.

How did this misdirected rule get into the Listing Rules?

NZX was captured by its own shorthand.  NZSX personnel referred internally to non-conflicted directors as “independent”. NZX wanted more directors able to withstand pressure from executives and trade investors. So they simply declared that intention as a rule, requiring at least two independent directors.

Initially it was primitive. They did not bother with definitions – “every one knows what we mean” was the answer to my aghast enquiry.  Then when definition became unavoidable, it was again left to amateurs. They did not like the question “Independent of whom?” So sensibly they focussed the definition on conflicts of interest (albeit with a bad formulation that talks of “influence” without distinguishing between adverse and positive influence.)

The rule has never been fixed. When an associated rule was changed (increasing a trigger point to a 10% shareholding) to reduce interference with innocent conduct, the change was made to the wrong provision. It made dodgy behaviour less risky, and left untouched the poor drafting of the Independent Director rule.

The objective of the rule is sensible. It could be fixed quite simply. But rule administration has become ossified. Changes must be negotiated with the authorities, now that the rules are deemed subordinate legislation and not just private rules of contract. Many suspect that it is because lawyers have a financial interest in pointless complexity.  I think it is more that few lawyers ask about the underlying purpose of rules. And non lawyers are bemused by slogans. Who wants to question a slogan advocating ‘independence’?

I’ve long meant to say publically of this rule – ‘It wasn’t me!’

I’m sorry Trevor that it has taken misuse of a dud rule by contemptible people to spur me into recording this. Good luck when the vote is held.  A healthy market needs to show that unsubstantiated personal attacks will not work. Let’s hope the shareholder vote is decisive.

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