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Risk taking – Cartel fines on Nu-farm, and Hoggard

  • March 2nd, 2008

The Commerce Commission has rightly trumpeted the success of its case against a timber treatment cartel with a total of $7.5m in fines and cost orders. Nufarm was one of the guilty, though it eventually cooperated. Nufarm executives were fined personally.

Nufarm is one of NZ’s major success stories. Kerry Hoggard should get much of the credit. He took it from being a small NZ fertiliser company to an Australian listed company that attracted a $3bn Chinese takeover late last year. By that time NZ sales were 3% of its total.

Yet Mr Hoggard lost his NZ reputation 8 years ago, for insider trading in the shares of Fletcher Challenge, which he chaired. The Commerce Commission success shows that around that time some Nufarm executives were also busy colluding to break the Commerce Act. 

A cop friend is not surprised. “People at the top set the tone. Don’t believe in ‘out of character’.  If we could arrest for bad company we wouldn’t need much more”.

When it became clear there had been insider trading, but Fletcher Challenge was not going to do more than sack Mr Hoggard, we (Catharine (my wife) and Roger Kerr (as Fletcher Challenge shareholders) with me running the case) sued him. The eventual settlement endowed the Business Integrity Trust.

I’ll never forget the sadness at the settlement negotiations, where a talented man was shamed, though I was not sure whether it was shame for the conduct, or shame for being caught.

I’ve tried to understand why a man with his wealth and reputation would do what he did for $57k profit.

It seemed that he regarded insider trading law as just another area for calculated risk. He was right that obeying the law has been made optional. But if he still drew lines between those he broke and those he did not, he drew them in the wrong place.

Over my time as a lawyer I’ve seen that amorality mushroom, matched only by the un-ending boom in jobs for compliance officers. The algal bloom of regulation means that being consistently law-abiding is no longer an option, but choosing which rules not to break is a vital judgement.  I felt sorry for minister David Parker a couple of years ago. The company law rules he broke (the opinion which “cleared” him was rubbish) are broken by most companies.

Breaking some laws will break you, whereas breaking others carries no moral obloquoy. For example drunken driving is now widely accepted to be bad. But speeding (in good conditions) or failing to wear your seat belt are seen as misdemeanours, not evils.

The first category should leave you ashamed. For the second you need only accept the penalty with a good grace.

Not long ago a decent person would have had a reasonable chance of living up to a vow to be law-abiding. That is now fanciful. So people evolve their own morality, deciding what laws they’ll respect when the police aren’t watching.

There are now hundreds of thousands of pages of law that people need feel no shame about breaking. Some of it is just political deception, deliberately written not to be enforceable (like the Victims Rights Act), or with the hope that it will not be enforced much (the anti-smacking law). Much more is written in vague aspirational terms with no clear boundaries. There is so much, or it is so complex only a lawyer could know it, and you can’t afford the lawyers. Or it conflicts – like where directors are liable to creditors and shareholders if they leave in charge a dud manager they don’t trust, but employment law says you can’t sack until you’ve warned and counselled and offered retraining etc. Even a stand-down is constructive dismissal.

A flood of new law with no real connection to morality is breeding thousands of young Hoggards. 

Mr Hoggard spent a lifetime taking calculated risks. More paid off than not. Fortunately most of his were about products and marketing and financing. We need thousands more with his willingness and cool judgment. But sadly, more and more of those risk decisions must be about the law, instead of about competitors and products and projects.

When sensible honest people have to accept they’ll break the law or go broke on compliance expense, they have to punt on not being caught. Just as with fishing though, enough are caught to make lawyers indispensable for any who can afford them, who’ve got too much to lose if they’re caught. That makes lawyers rich. And so they breed. 

Our future would be much brighter if we were valuing and breeding salespeople, engineers, scientists, and risk-welcoming investors and entrepreneurs.


  • peterquixote
  • March 13th, 2008
  • 12:54 pm

Messrs Fay and Richwrong, from NZ business asocaites and co tactics changed this country forever Stephen.
That is why Auckland Airport will become NZ citzens Airport.
Then the Raiul road,

  • william
  • July 22nd, 2009
  • 11:04 am

I’m interested that you say you don’t understand why Kerry Hoggard would do something for a $57k profit…… the answer I believe is simple, he didn’t. His motivation wasn’t profit, but simply to show support for the company by buying shares at a time when there was uncertainty due to the change in direction. It wasn’t for him about any personal profit.

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