Remembering Jim Bolger and Jonathan Underhill

And a warning for retiring politicians sitting on boards

Jim Bolger in 2018. Source: Wikipedia.

I did feel a pang when I heard that former prime minister Jim Bolger had died.

That pang was both for Bolger himself – funny how time softens the edges around those of his policies that I disagreed with back then – and for the last time I saw him in person.

That was on a plane to Tauranga in 2017 and I was with BusinessDesk founder Jonathan Underhill, who was also my first hire at Bloomberg when I was New Zealand bureau chief, both of us on our way to cover the celebration of the port’s millionth container, although for different publications.

Bolger was already seated when we passed him on that plane and he greeted Jonathan like a long-lost friend, full of smiles and clearly delighted to see him – Jonathan had worked for National Business Review at Parliament’s press gallery before I lured him to Bloomberg and so had gotten to know Bolger on a personal basis.

While I had also interviewed Bolger, I don’t think it was ever face to face.

Jonathan died in January at only 61 years as the result of cancer and I was unable to attend the funeral because I was in Melbourne visiting my aunt, who has since turned 95.

Lack of closure?

Perhaps it’s the lack of closure that a funeral is supposed to provide, but I keep thinking of Jonathan every time I see a tall bald man in the street.

I’d told the Sydney bureau chief when I hired Jonathan that it would take about six months to train him to be a wire agency journo – we were then a highly specialized breed, one that the internet has rendered obsolete, because we had to be attuned to instantly reporting to financial markets whatever news that was breaking.

But the Sydney bureau chief kept getting impatient, constantly asking me should we “cut this guy loose?” I just kept insisting that we give Jonathan the six months I’d said it would take and the Sydney chap accused me of being like a mother hen protecting her chick.

Thereafter, I’ve always thought of Jonathan as my little chick, even though he was twice my size, and I was right: at almost exactly the six-month point, it was like a light suddenly switched on in Jonathan’s brain and he became just as addicted to the wire agency journo craft as I was.

He was also one of the most kind-hearted people I’ve worked with.

All those tension releasing jokes

We were often working under pressure – I remember one horrendous day when we covered something like 27 stories between us, literally running between media conferences and the office, relaying headlines to each other.

And the eight weeks it took to form a government in 1996, the government that Bolger’s National Party led in coalition with the New Zealand First Party, had put additional strain on us as we tried to cover both the financial and political news together.

Jonathan was always ready with a joke that cut the tension and made the pressure easier to cope with at such times. He became one of my favourite people.

But I’ve also been thinking about how extremely lucky Bolger was that in his post-Parliamentary career he managed to avoid the fate of one of his cabinet ministers, Doug Graham.

It was as Waitangi treaty negotiations minister between 1993 and 1999, when he left parliament, that Graham had been acclaimed by both Maori and Pakeha for speeding up the process of reparations and he signed two major settlements with the Tainui and Ngai Tahu tribes during his tenure as minister.

But unfortunately, as so many politicians do, Graham chose to pursue a career as a company director after leaving Parliament.

The obvious folly of chairing Lombard

He became one of several former cabinet ministers sitting on the board of Lombard Finance and Investments, one of the dodgiest of dodgy finance companies founded by one Michael Reeves.

(Hugh Templeton, a former National Party member, and Bill Jeffries, a former Labour Party member were two of the other cabinet ministers.)

I first became aware of Lombard after the former Securities Commission produced a report on finance companies, which didn’t identify any of these companies by name, but did say that one of them had a gearing ratio of more than 900% - that meant for each dollar of equity it had more than $900 of liabilities.

The commission refused to tell me which company that was, but a couple of phone calls was all it took to establish that it was Lombard.

I wrote a column about its balance sheet for the New Zealand Herald but the paper wouldn’t allow me to say Lombard’s balance sheet at March 31, 2004 was “scary.”

Instead, I had to be content with saying Lombard had “one of the most highly geared balance sheets I can remember” – for those with a Herald subscription, you can still find the story with the censored intro here: https://www.nzherald.co.nz/business/economy/official-cash-rate/emjenny-ruthem-shifting-up-a-gear/XQ7CYYDUHDPGHIZF3CTYJ2R33I/

A big-name auditor and a clean bill of financial health

Another shocking aspect was that Lombard was audited by one of the leading accounting firms, KPMG, which effectively gave it a clean bill of health that year in the form of an unqualified audit report.

It’s possible to feel sorry for Graham because his disgrace when Lombard failed and he was convicted of making misleading statements in prospectus documents was near absolute, even though he did manage to escape a prison sentence.

But it seems bleeding obvious that he should never have gone near Lombard, let alone have agreed to become its chair, though it’s also bleeding obvious that many other supposedly reputable professionals were similarly blind to Lombard’s extreme financial precariousness.

It’s difficult to tell from the published information how much Lombard’s directors were paid in that particular year ended March 2004 – the accounts show related companies reimbursed Lombard for directors’ fees of $96,989 and that Lombard itself spent $70,000 on directors’ salaries – Reeves and another director were also executives.

I’d have thought that Graham’s experience would have been an object lesson for any retiring politician sitting on or contemplating joining any company boards and a warning that they ought to conduct at least some due diligence.

Kiwibank’s financial shenanigans

Lombard went into receivership in April 2008, owing some 4,400 debenture holders $125 million and with secured creditors finally being repaid 22 cents in the dollar by 2014, which included amounts the directors were ordered to contribute – the directors were convicted in February 2012.

Bolger had already begun his tenure as Kiwibank’s chair in 2001, a position he held until October 2010.

But in February 2010, Massey University banking expert David Tripe alerted me to the fact that Kiwibank had reported negative net interest income of $15.4 million for the three months ended December 2009.

If that had been an accurate picture of Kiwibank’s financial health, that would have been catastrophic.

But what had actually happened was that Kiwibank had, for reasons never adequately explained, decided to change its accounting methods when it prepared its September 2009 quarter accounts and then reverted back to its earlier practices for the December quarter accounts.

Neither the September nor December 2009 published accounts included any indication of, let alone any explanation of, the accounting change or its reversal.

I interviewed Bolger about this state of affairs, since he and then director Richard Westlake had signed off both quarters’ sets of accounts as being “not false or misleading.”

Taking executives’ word for it

Bolger told me he had signed off on the accounts after he had been assured by all those involved in preparing them that they were true and fair.

“We took at face value the advice we received,” he said. “It’s also gone through the finance and audit committee of the bank, which I’m not a member of, although I usually sit in on it – Richard is the chair.”

So, essentially, they took management’s word for it, rather than doing their own due diligence.

Isn’t that exactly the same as Graham’s folly?

My view at the time, and it remains my view, was that the prudential regulator, the Reserve Bank, should have taken some censuring action against Kiwibank, Bolger and Westlake as a warning that financial institutions should not take such a cavalier attitude towards preparing accounts and especially censuring the lack of disclosure as to what was done.

RBNZ should also have made the point that any such obviously radical departure from previous accounting methods should have been acknowledged and explained.

Bolger at least agreed with me on that latter point: “I won’t buy an argument with you that we should have been more explicit. Frankly, I don’t know why we didn’t.”

Kiwibank’s six directors were paid $301,000 in the year ended June 2009 and $293,000 in the year ended June 2010.