Question: Would you invest in this company?

Its chairman is also its chief executive, and is 72 years old.

On its seven-member board is his wife, 70; son, 48; vice-chairman, 79, the CEO of a major subsidiary; and two other executives with business ties to the company.

The company doesn't even come close to conforming with the prescriptive rules for corporate governance being canvassed in New Zealand .

Yet Berkshire Hathaway is America 's most admired investment company and its founder, Warren Buffett, has created untold wealth for its shareholders.

By contrast Enron and WorldCom had all the standard US corporate governance policies in place.

Similarly, in the last 10 years the four companies that destroyed most shareholder value in New Zealand – Fletcher Challenge, BIL, Carter Holt Harvey and Air New Zealand – satisfied all or most of the prescriptive rules for board and audit committee composition being contemplated.

In a separate exercise the Institute of Directors is proposing that new directors of New Zealand companies will have to take an approved course and be accredited.

The upshot is that someone without formal qualifications could be a prime minister and run the operations of government, but would be debarred from serving as a director of a small public company.

We are at serious risk of losing the plot.

As Graeme Samuel, acting chairman of the Australian Competition and Consumer Commission, has pointed out, the reason for this fixation on prescriptive rules is clear. They suit bureaucrats and regulators because they are visible, compliance is easily measured, and non-compliance is easily penalised.

But an obsession with structure and a belief in the proposition that 'one-size-fits-all' does nothing to prevent fraud and deceptive conduct, or to focus boards on their prime duty of creating shareholder value.

It is one thing to draw up guidelines or codes of general good practice which companies can consider adopting voluntarily. Most New Zealand companies, for example, have already chosen to separate the chairman and CEO roles and to have audit committees.

But it is quite another to insist that conventional practice, which is constantly evolving, should apply in all cases.

Such a dogmatic stance fails to recognise the idiosyncratic nature of business, adds to compliance costs for small companies in particular, discourages public listings, and risks giving investors a false impression that conformance with rules is an assurance of good governance.

No evidence has been presented that New Zealand 's existing rules on corporate governance are inadequate or that prescriptive rules produce superior performance.

In the rush to regulate, shareholders are being overlooked or patronised.

It should be for shareholders, not regulators, to determine which directors will best represent their interests and the nature of their company constitutions, just as it is for voters to choose whom to elect to parliament and the shape of our democratic constitution.

Faced with a choice between Warren Buffett and the raft of companies that have conformed with rules but trashed their shareholders, I know where I would rather have had my money.

For more information, contact:

Roger Kerr
Executive Director
Ph: 04 499 0790
Email: rkerr@nzbr.org.nz

David Young
Communications Manager
Ph: 04 499 0790
Email: dyoung@nzbr.org.nz

Web: www.nzbr.org.nz