Bryce Edwards: The Era of complacency over political conflicts of interest is over

Michael Wood has become a victim of his own complacency about conflicts of interest.

He simply didn’t take integrity rules meant to protect the New Zealand political system from corruption seriously. And that’s rightly led to his downfall.

Wood’s complacency about corruption-prevention is hardly unique. The whole country has generally been far too relaxed about conflicts of interest in politics and public life.

And why wouldn’t we be? After all, we are told consistently that New Zealand is the least corrupt country on earth. Transparency International’s annual Corruption Perception Index always ranks us at or near #1.

Complacency about corruption

The problem is we’ve become conditioned to believe the hype, and not to trouble ourselves with the idea that conflicts of interest occur in our politics. The upshot is that New Zealand simply doesn’t have much in the way of significant safeguards against political corruption.

And where any safeguards do exist, they are generally only followed as a box-ticking exercise, rather than with real rigour. Overall, we simply have a political culture of not thinking too much about integrity and corruption. We smugly regard these issues as being problems found in other countries, not ours.

There is also sometimes a tribal and arrogant orientation in New Zealand party politics that views corruption and dodgy deals as something that “the other side do”. Labour thinks National is corrupt and unethical, and vice versa. The fact that politicians appear to have an unwavering trust in themselves and their own side, means that they think the rules about corruption are actually there for their opponents rather than their own team.

In this regard, it’s not really surprising that Wood didn’t seem to think that the conflict of interest procedures in Parliament or Cabinet really mattered that much. And, in fact, for a long time he managed to get away with not abiding by the rules. It should be alarming that he was so easily able to fob off any questions about his conflicts of interest from annoying officials. But, of course, politicians have surely been doing this forever in New Zealand.

Politicians out of touch with growing concerns about corruption

Traditionally New Zealand hasn’t had political scandals about corruption and ethics. My own research shows that the word “corruption” was hardly used in the New Zealand media until recent years. However, there does seem to be a quickly escalating public concern about political corruption, conflicts of interest, and about the integrity of our politicians and political system.

Partly this is a result of the large number of integrity-based scandals occurring in New Zealand politics across all political parties and governments. This has fuelled a greater sensitivity about any wrongdoing of New Zealand’s political class. And journalists are now starting to look more deeply into the financial affairs of politicians and officials.

Unfortunately for Wood, he simply wasn’t up with the new sensitivities. Like many politicians, he appeared to think he was beyond reproach. And he would still be a minister today if it hadn’t been for a Herald journalist digging into this area when the Auckland Council was looking to sell shares in Auckland Airport.

Similarly, Meng Foon, was forced to resign this week from the Human Rights Commission because of his undisclosed conflicts of interest. He was only caught out because earlier in the year a journalist started to investigate who had provided donations to Cabinet ministers. When Foon was found to have donated to Kiri Allen, now the Justice Minister, an investigation was carried out by the Human Rights Commission, which found that he also hadn’t adequately disclosed his conflicts of interest with emergency housing. As with Wood, Foon seemed to be complacent about the requirements. And Foon’s employer, the Human Rights Commission, didn’t seem to even have processes equivalent to the Cabinet Office for ensuring compliance.

The key point is that throughout the political Establishment there is complacency about enduring integrity is maintained. But this laxness is now up against a heightened public and media concern about untrustworthy authorities, corruption and integrity. And it’s not just individuals who are under scrutiny – the systems supposed to safeguard the integrity of political and public life haven’t yet caught up with this new public mood against complacency.

Explaining Michael Wood’s conflicts of interest

Michael Wood was initially stood down from his Minister of Transport position when it became clear he had not managed his ownership of shares in Auckland Airport. But he was finally removed entirely from Cabinet yesterday when the Prime Minister became aware that he also owned shares in numerous other companies in which he might have a conflict of interest.

It turns out that Wood has been using two family trusts for the management of his shareholdings and assets – the Michael Wood Family Trust and the JM Fairey Family Trust (alongside his wife, Auckland Councillor Julie Fairey).

The use of such trusts is a complicated business, allowing great benefits for politicians, and it was the management of these trusts that created headaches for Wood. For example, it’s possible that his problem with divesting of his Auckland Airport shares became complicated because he owned these outside of the trusts and wanted to shift these into the trusts as a way of divesting them without having to sell them.

This could have held up the process considerably, especially because it would have required that the Minister would also need to be removed as a legal trustee of any such trust. This might explain why the process of sorting out the Auckland Airport shares was so complicated for Wood. This more complicated pathway to managing his conflicts of interest turned out to be something that got put into the “too hard basket”.

Wood’s family trusts also held shareholdings in numerous companies that Wood was regulating and making political decisions about. He owned shares in telecommunications companies Chorus and Spark, and as Immigration Minister had given these companies a significant help in allowing special immigration concessions for telecommunications technicians.

Similarly, Wood owns shares in the company that owns the Bank of New Zealand, and Wood was closely involved in setting up a Commerce Commission investigation into the banking industry – one that critics say has been designed to be too soft on the banks.

Given that the public now knows that Wood had a financial interest in many companies he was making decisions about, there might now be grounds for competitors to demand judicial reviews on the decisions that Wood has been involved in. The public therefore now needs to know the details of all the shareholdings in those trusts – at this stage, only the banking and telecommunications shares have been divulged.

Good moves by the PM to tighten Cabinet rules

The Prime Minister has announced new processes for managing the potential conflicts of interests of ministers. He’s to be congratulated in modernising and tightening up the previously complacent rules. All five steps that Chris Hipkins has implemented are good ones.

But he has hesitated to implement the sixth proposal, instead opening up for consultation the idea that ministers should not be allowed to own shares in companies at all, unless they are in a blind trust or managed fund like Kiwisaver. This is also a sensible proposal, and will hopefully be quickly agreed upon and implemented.

Newsroom reports today that if it was implemented, nine current ministers would be forced to divest their shares in companies, and of the seven who were contacted, “none committed to divesting them”. In contrast, “Three senior National MPs – Chris Bishop, Simeon Brown and Judith Collins – immediately told Newsroom they would divest their shares if elected to Government, regardless of whether the rules are changed.” The Act Party dissented, with leader David Seymour saying “We don’t want it to be a priesthood where you have to enter unclothed and penniless. That you live in a monastery for time you’re a minister.”

But all of the new, tighter rules will only apply to ministers. Yesterday, Hipkins had nothing to say about the rules for Parliament, the public service, and for Crown agencies. These also desperately need tightening up. After all, Wood’s transgressions also apply to Parliament. And Meng Foon’s case has highlighted the lax rules, or at least the policing of them, in government agencies.

The End of secrecy

In general, there needs to be a lot more transparency regarding the potential conflicts of interest of politicians and officials. Even what the Prime Minister is proposing for Cabinet-level means that most of the crucial information stays behind closed doors, with the public expected to just trust that the Cabinet Office will keep the politicians honest – something they don’t have a good track record on. We now need to see a much more open process, and less secrecy.

Ultimately, the increasing numbers of transgressions, together with the heightened public sensitivities about conflicts of interest and potential corruption means that something more significant is required.

Consideration should be given to the establishment of an Anti-Corruption Commission. After all, New Zealand is very light on watchdogs who are willing to bark at politicians. Yes, there is the local branch of Transparency International, but as a creature of the Wellington political class it’s often absent on corruption debates, or patting public officials and politicians on the back for their minimal efforts on integrity.

The good news to come out of all the scandals over the serious lapses of ministerial integrity – including Kiri Allan, Jan Tinetti, Stuart Nash, and Michael Wood – is that it indicates that the era of complacency over conflicts of interests is over. The public no longer appears to be willing to take politicians at their word that New Zealand is free of corruption. This greater scepticism is the best possible guardrail we can have for the prevention of rotten governance.

Dr Bryce Edwards is the Political Analyst in Residence at Victoria University of Wellington. He is the director of the Democracy Project.