Hard tasks ahead for bright new Stock Exchange chief executive

Friday 17th May 2002

New Zealand Stock Exchange chief executive designate Mark Weldon will face intriguing challenges when he assumes administrative control on June 4.

Mr Weldon, at 34, has an outstanding academic and business record. The drive devoted to his career was seen earlier in his sporting role as a New Zealand representative swimmer, an activity that demands disciplined and constant striving for peak performance.

He comes to his new post as Securities Commission chief executive John Farrell is retiring and former Reserve Bank governor Don Brash has resigned and moved to politics.

The Reserve Bank has little direct involvement in equity investment but monitors it as part of an assessment of economic matters.

The bank is intimately involved in the wider securities industry through regular tenders for public sector paper.

Detailed analysis of private sector investment trends is essential in deciding appropriate figures for tender acceptances.

The Stock Exchange has made much of its desire and intention to increase the base of listed equities.

It may have laudable desires and intentions but implementation could be a different matter.

There were 156 listed equities on the exchange on Tuesday, including index-linked funds and broker-
promoted warrants. Several capital and convertible note offerings were additional traded securities as was government fixed-interest paper.

Equity additions this year were two, the main one being the long-established Allied Farmers.

Frucor, Bendon and the Property Leaders' group of three companies were delisted.

Some public listings are being mooted but, with respect to their directors, shareholders and executives, most are "rats and mice" that will add little to total market capitalisation There is no sign big family-owned organisations, such as the Todd empire, will seek public listing, although that situation could change as descendants get further away from the founders and current controllers.

Major international oil companies and other overseas-based operations with substantial New Zealand operations have given no indication they will spin off shareholdings to New Zealand investors.

Private investors should be thankful big overseas companies seem unwilling to float their local activities.

The record of groups with dominant overseas shareholders, particularly from North America, has been dismal since the corporate world was opened to allcomers.

A few big groups are the base of New Zealand's equity trading. Take out Telecom, Carter Holt Harvey, the New Zealand-based portion of Lion Nathan, Independent Newspapers, Natural Gas Corporation, what is left of BIL International, Fisher & Paykel, a couple of port companies, Auckland International Airport and other utilities and there is not much left as a proportion of total market capitalisation.

Institutional shareholders, local and overseas, control the market in companies with high market capitalisations.

Small private investors are left with the scraps after the institutional lions have fed, subject to their willingness to move to second-tier groups where they can find good pickings.

Regular assessments of share-price performance in The National Business Review have shown second-line companies usually outperform heavyweights in share-price gains.

There is no mystery about that phenomenon.

Small companies have administrative flexibility and lack the bureaucratic layers of big groups and can show strong growth from low bases.

Countless academic studies have produced the myth that big, private organisations can overcome the inertia that is an inevitable byproduct of size.

Most large animals are slow movers. Most large companies also move slowly as do their public sector counterparts.

Private investors will be interested in Mr Weldon's actions when he takes office.

Many expatriate New Zealanders have personal reasons for returning to this country and Mr Weldon may be no exception.

A couple of years dealing with a committee and a stagnant equities industry could change his current views.

We will see.

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