Last week I spoke of my imminent retirement and I mentioned some of the things I wanted to do. Now, one week into retirement, I am already realising that I’m going to have to be more organised than I was when I was full time at the office. Because one of the reasons I really wanted to retire was I had so much to do, so many projects I wanted to tackle in my workshop. And guess what? I haven’t had time to get near the place since I handed over my office key.
One of the projects I have been looking at over the last few days is the Hawke’s Bay Regional Council’s proposal to form an investment company. Like all proposals it is not all bad or all good, but on balance I see their proposal as being structurally flawed. For a start it is proposed that all the directors will be elected Regional Councillors. That begs the question – why can these people make better investment decisions wearing their “director of an investment company” hat than they can wearing their “Regional Councillors hat?”
We are told that the investment company structure is a tool for enhancing the council’s capability to manage an active investment policy. How does that happen when it is the same people making the decisions?
We are told that the investment company structure will provide access to financial tools not otherwise available directly to council. What are these tools that are suddenly going to become available just because the structure has changed?
We are told that corporate governance should be separated from political governance and yet we are also told that the council can direct the investment policy of the investment company. How do you reconcile that?
Much is made of the suggestion that an investment company would reduce the risk to which the council is currently exposed. That one has got me beat. Risk is ultimately carried by the shareholders in this case you and I the humble ratepayers. How can an investment company, with a stated intention to gear-up its portfolio by borrowing be of less risk to you and I then a non-geared portfolio administered by the very same people.
And lastly, I wonder what experience the current Regional Councillors, who would become directors of this investment company, have had in the use of the sort of financial instruments suggested for use in this proposal.
I for one have serious misgivings about the structure suggested in this proposal and even greater misgivings about the proposal document which is written like a car sales brochure. The idea has some merit but I believe it needs far more work and yes – thought.
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