Management attitudes key to closing gap with Aus

Media release
6 December 2009

Changing management attitudes key to closing gap with Australia

Poor management and disengaged staff, not the tax system, are to blame for New Zealand’s poor economic performance says an organisation representing the country’s small and medium-sized businesses.

And it says the recommendations of the 2025 Taskforce do nothing to address the fundamental problem of low productivity or close the income gap with Australia. In contrast, Gareth Morgan’s alternative proposal could help to change one fundamental problem – poor capital investment decisions.

The Independent Business Foundation says the taskforce has missed the key factor in New Zealand’s slide down the OECD’s economic performance ranks: the attitudes of business owners and their staff.

“Certainly, the taxation and regulatory environments have an effect on productivity,” says IBF chairman Grant Halley. “But New Zealand’s taxation is not onerous compared with many more productive countries, and we always rank highly in international studies of competitiveness and ease of doing business. So these factors are not holding us back.

“What is holding New Zealand back is a widespread lack of management and leadership skills among SME owners, which translates to disengaged workers and low productivity.”

Mr Halley said the foundation’s submission to the taskforce (attached) outlined the real problem.

“Recent industry surveys have revealed that two-thirds of the New Zealand work force is effectively disengaged, with only 12% stating a commitment to the employing company,”the submission said. But, it added, they were only copying the example of their superiors who engaged in “self-serving use of time, facilities and resources”.

As a result “staff can be excused for living by standards of performance that reflect their level of training and remuneration”.

New Zealand’s business sector was dominated by “growth-disinclined owners motivated largely by personal objectives”, most of whom were “management incapable and resistant to external influences”, the submission said.

One reason for this was New Zealand had too few large companies employing best-practice human resource and development programmes in which aspiring business owners could learn and absorb effective management techniques.

“In our view, it [increased productivity] requires a paradigm shift to change the prevailing culture of business under-achievement,” the foundation said in its submission.

In Australia the recently introduced Government-funded Enterprise Connect scheme was aimed at boosting management capability and was likely to further increase the productivity gap between the two countries.

Among IBF’s recommendations for bringing about the necessary change in New Zealand business attitudes were:

• Business incubators attached to every tertiary institution to provide management education
• Business skills to be included in every apprenticeship training scheme
• More emphasis on quality systems such as ISO and QBase
• Greater attention to and emphasis on management competence before new businesses start up.

Mr Halley said Gareth Morgan’s alternative tax proposal, introducing a tax on capital, would help to change the attitudes of small business owners who took all profits out to finance their lifestyle choices and then relied on cash flow to keep the company going.

“There is a tendency on the part of business owners with lifestyle priorities to invest it in expensive real estate as a status symbol,” he said. But if that real estate was taxed at the same rate as productive business capital, there would be a greater incentive to invest capital in the business to grow productivity and income.

In its submission to the taskforce, the Independent Business Foundation said it “in spite of our special SME-predominant nature there is no reason why we cannot close the personal income gap”with Australia.

But, it warned, “Unless we get to grips with staff engagement, we will continue to surrender our most needed human resource to better prospects overseas and productivity will suffer as a consequence.”

ENDS

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