Speech at a breakfast function hosted by CCMAU for Crown company directors, The George Hotel, 50 Park Terrace, Christchurch

They say the only people who are more silly than someone who would give a speech about Crown Companies at 7.30 in the morning would be anyone who came to hear them…

The positive side is that it shows we must all be passionately committed to high quality governance of our publicly owned companies.

I want to cover two general areas this morning: First, the government has recently announced a change of policy towards State Owned Enterprises, and CCMAU has asked me to bring you up to date about these. Second, I want to talk briefly about the role of state owned enterprises and why your role in making them successful is crucial.

The key change in the government’s SOE policy is that we are inviting SOEs to consider expanding the scope of their business. It’s expected you will look at adjacent products, markets and technologies.

This change is driven by the government’s emphasis on transforming our economy. We want a high-value, high-skill knowledge-based economy.
It will succeed by focusing on niches in the global value chain, where we are responsive to consumer demand and where we harness the unique skills, strength and creativity of New Zealanders.

When we look at the opportunities to grow successful New Zealand businesses, some characteristics stand out. The first is that we haven’t grown enough successful international skill-based businesses. It’s more common to see our businesses reach a certain size and then sell out.

That’s not surprising; it’s hard to grow a large business in New Zealand. A $100 million company in Los Angeles doesn’t need to leave the state, and possibly even the city. A $100 million business in New Zealand is much more likely to have to master the complexities of exporting and sophisticated management.

Then on the other hand, many of the larger companies operating in New Zealand are branches of overseas-owned companies. They provide services to New Zealand, but they’re not strongly involved in extending their operations overseas. Think of many of our banks, for example.

There are gains from many overseas-owned businesses, of course - we benefit when there is a transfer of overseas expertise and technology into New Zealand, for example. But we also need New Zealand-owned companies capable of growing and contributing to a more productive economy.

Many of our SOEs have the capability to do just that. We need to look at where we have substantial management talent and businesses with enough scale to enter international markets. Our SOEs and publicly-owned businesses stand out as examples. SOEs have some of our most capable management, and best governance.

The new policy is not a general licence to start new business in any sector.
The government still expects publicly-owned businesses to focus on their strengths and capabilities. The greatest risk is that boards and management might lose focus on their core activity. So proposals for entering new business areas will be assessed case by case. But life is risky. We will get nowhere if we try to manage risk out of existence.

We also need to look at funding proposals. Generally, the government will want to see funding from the business’ own balance sheet. In many ways, the policy is not revolutionary; it formalises decisions we have begun to take anyway.

Kiwibank, for example, was a new business for NZ Post. There was obvious discomfort for the government in moving into banking. But it fitted with NZ Post’s mission statement: People connecting people in communities and commerce.

There was also an unmistakeable market opportunity. Many people confidently predicted the failure of Kiwibank. (CCMAU was one of many)
In fact it is a roaring success. It’s been signing up new customers at the rate of 2500 a week, every week for the last four years. It is making an operating profit already – most unusual for a new bank!

The basic premise of the SOE policy applies equally to all Crown owned companies. CRIs have been actively contributing to our economy for many years. One key principle in the CRI Act 1992, is to conduct research that provides a "national benefit". CRIs have experience in expanding their scope of business through commercialisation of research technology.

The monitoring and accountability regime for CRIs has changed over time.
We can accommodate the higher risks of commercialisation. CRIs have become smarter at managing risks without endangering their core business.
This is a valuable lesson for SOEs and shareholders alike.

If something works, we should do more of it. We need to develop successful new businesses. If we don’t take initiatives to increase the scale and productivity of Crown owned companies, they risk withering. They have to be given the chance to grow.

This policy change provides benefits for the entire Crown company portfolio.

I encourage you to consider new market opportunities. And encourage you to give feedback on the new policy as it is applied.

For a long time we had an ideological debate in this country about the role of publicly-owned businesses. We went through a period when governments felt all public ownership was bad. It never made sense to me say ‘all public ownership is bad’ or ‘all private companies are good’; nor the converse of those statements. Neither viewpoint was true. We need to look at the facts and the opportunities.

These days the government is committed to realising the advantages that public ownership of enterprises can bring. Sometimes it’s just that we need strategic assets to keep functioning because they are crucial to New Zealand's infrastructure. That was why we stepped in to buy Air New Zealand back.

Sometimes it’s because we see an important role in leading a new direction for a sector. That was the case when the government bought the rail tracks back.

And there will be other times when a case can be made that a new business area is going to produce sound commercial returns for New Zealand. The government will generally look for spill-over benefits from new business activities that contribute to the wider economy in a positive way.

But the bottom line is, the government is saying to boards: It is possible to think about growing your business. Where there is an opportunity, and capability, the government is prepared to look at backing you.

I know directors and chief executives already have a tough job. You are exercising your judgement on behalf of New Zealanders. We don’t often get the chance to acknowledge your work. But I want to take this opportunity to say thanks. And I would like to spend some time now answering your questions and hearing your comments on the sector you represent.