Book reveals how Kiwi wealth evaporates

By Nick Stride

Friday 29th November 2002

For those already familiar with ANZ Bank top brasser Joseph Healy's EVA crusade, his long-awaited book fleshes out his compelling message with a wealth of detail, anecdote and argument.

Those who aren't should read it to find out how companies on the NZSE40 index destroyed $21 billion of shareholder wealth between 1991 and 2001 and how the drain can be plugged.

Healy isn't offering a magic bullet and at 284 pages he is not a light read. As he says, what can be said in a nutshell probably belongs there.

The economic underpinning of his analysis, EVA (economic value added), is easily understood. As Peter Drucker put it, "Until a business returns a profit that is greater than its cost of capital, it operates at a loss. Never mind that it pays taxes as if it had a genuine profit, the enterprise still returns less to the economy than it devours in resources ... until then it does not create wealth, it destroys it."

Healy blames the wrong measurements of profitability (net profit after tax, earnings per share, etc), inappropriate executive incentives, weak shareholder involvement and perfunctory corporate governance standards for New Zealand's wealth black hole.

But he doesn't argue New Zealand's directors and managers are any worse than anybody else's or that value destruction is unique to this country. Nor will anti-capitalists or business bashers find any ammunition here. Honourable failure in business, he says, while disappointing, is not a disgrace.

The target audience is public and private sector business leaders and professional investors but this book needs also to be read by our economic agenda-setters in the Beehive. There is a direct link, Healy argues, between the poor record of many of our large corporates and New Zealand's faltering economic performance.

He concludes modestly that his book raises more questions than it answers and suggests much more research is needed into the links between economic and business performance.

Let's hope academics heed the call without indulging in such precision as to be "myopic and ultimately irrelevant to business leaders and policy makers."

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