Telstra provides blueprint for how Air NZ should be run

Friday 3rd May 2002

Publicity given to the release of documents related to the government's involvement in Air New Zealand and the later appointment of four new directors to the company's board ignored the current and future situation of the airline's individual private shareholders.

While they had to approve the allocation of shares to the Crown at a meeting in December, the private shareholders had no say in the board reorganisation.

They will vote on re-election of the appointed directors at the next annual meeting but their ballots will be a formality only.

The government's position as the dominant shareholder means it could call all the shots at Air New Zealand in future.

That has raised fundamental questions about the relationship of a dominant shareholder to a company, its minority shareholders and director and the directors' relationship to the company and the dominant shareholder.

The issues arose directly and indirectly in Australia last year.

The Australian shareholders Association (ASA) circulated a statement to shareholders in telecommunications company Telstra Corporation, calling on them to support the election and re-election of directors who would act in the best interests of the company as a whole and not in the interests of any single shareholder including the Commonwealth of Australia, still the dominant shareholder, if such interests were contrary to the economic interests of the company.

Sections of the ASA's statement and the directors' reply were classic enunciations of the legal relationship between companies, their directors and shareholders.

They would apply equally to Air New Zealand's situation, with the possible difference that the Australian government is getting out of Telstra gradually, while the New Zealand government will be in the airline for a long time. Some people in government circles would like it to be forever.

The ASA statement said it was not the responsibility of business to indulge in uneconomic activities in response to urgings from politicians.

"If government is convinced that a service is required, it has the authority to implement an appropriate policy and it has the taxation system to fund it. Companies have no role as unelected and unpaid implementers of social policy.

"Unless given a legally binding direction under the Telstra Corporation Act [which must be tabled in both houses of Parliament] the directors of Telstra have a legal and fiduciary responsibility to act in the interests of all shareholders, not just one shareholder - even though it is the government of the day. If directors fail in this duty, they may be held legally accountable."

The ASA statement called on the directors of Telstra to advise the Australian Stock Exchange promptly of any government attempt to direct the policies and business activities of the company contrary to the company's economic interests.

A comment from the ASA after the Telstra annual meeting said the company was neither a charity nor a pawn of government and should not be used as a vehicle for social engineering.

The association noted it received 26,000 proxies supporting its position. That figure represented individuals, not the total number of shares they held.

Telstra chairman Bob Mansfield handled the response to the ASA.

"With regard to the issues raised by the ASA, I can assure you that your directors are very conscious of their fiduciary duties to the total body of shareholders and of the requirements to act in the interest of all shareholders at all times.

"This is an individual obligation imposed on individual directors by law and is a position which is clearly understood by your board.

"It is fair to say that the Telstra board is particularly sensitised to this issue, having the Commonwealth government as a majority shareholder and regulator and, at the same time, having the largest number of individual shareholders on their register of any Australian company."

Mr Mansfield covered specific matters of the directors' obligations contained in the Telstra Corporation Act and other legislation.

They were mainly irrelevant to New Zealand conditions, except one which was interesting, given the Commonwealth government's position as Telstra's majority shareholder.

The Telstra board must provide the government with information not disclosed to other shareholders, such as its three-year corporate plan, interim financial statements and reports about significant proposed events related to corporate restructurings, acquisitions, divestitures, joint ventures and partnerships.

Most quotations from the ASA statement would apply to Air New Zealand and the New Zealand government after changing the appropriate corporate and national references.

Those quoted from the Telstra's board's reply also applied here.

Air New Zealand's individual shareholders should get assurance that the company's directors not only understand their position but protect it, that the government stays away from any back door communications prevalent when the airline was state-owned and that public servants keep their fingers out of the operational pie.

That desirability leads to an insurmountable problem. The dominant shareholder has "shareholders" of its own, in the form of taxpayers, and is responsible to them for $856 million, so far. Only politicians could see through the murk surrounding that conflict.

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