The Commerce Commission is losing the respect of the business community and its system of governance needs overhauling, says the New Zealand Initiative think tank in a new report released this morning.

Authored by its chair, former Bell Gully executive chair Roger Partridge, the report’s primary recommendation is to ditch the current system, which sees a group of commissioners appointed to both govern and do much of the work of the competition watchdog.

In a repeat of a similar survey undertaken in 2017, Partridge writes that “among the regulators whose influence is felt across the entire economy, the deterioration in the Commerce Commission’s (ComCom) previously poor performance is alarming”.

“On average, only 29.9% of respondents agreed or strongly agreed that the commission met the KPIs, while 38.5% disagreed or strongly disagreed.”

The survey was sent to some 200 of NZ’s largest companies and to members of the NZ Initiative, a right-of-centre think tank, with a questionnaire seeking ratings on 23 questions for 23 regulatory agencies.

It received 56 complete and 60 incomplete responses, although only seven of the 23 attracted ratings from more than 10 of the respondents.

Of these, the ComCom was the most consistently rated, with 36 responses. 

Source: Reassessing the Regulators Report, NZ Initiative (sample size for ComCom = 36 respondents, for FMA = 20) 

Commercial unreality

The strongest negative responses related to the commission’s understanding of “commercial realities”, predictability of decision-making, and both external and internal accountability.

On the question of potential bias in the answers among disgruntled corporate applicants, Partridge said while some corporates could be expressing their displeasure with decisions the commission had made against them, there would equally be others that would have benefited from its decisions.

The report suggests the weak accountability outcomes are directly related to the fact that “commissioners exercise both governance and executive regulatory decision-making responsibilities”.

That was unlike two other regulators that attracted significant numbers of responses, the Financial Markets Authority (FMA) and the Reserve Bank of NZ (RBNZ). Both had separate boards that the executive team reported to.

The RBNZ, in particular, showed significantly better results in the latest survey by comparison with its 2017 rankings, which were taken before the central bank moved to a more accountable model in which the governor was no longer a sole decision-maker.

Likewise, the FMA had a separate board and executive, having gone through a reform process to replace the Securities Commission, which had operated a governance model similar to ComCom’s current model.

Source: Reassessing the Regulators Report, NZ Initiative (sample size for ComCom = 36 respondents, for FMA = 20)

Time for reform

It was time for the successes of governance changes at the RBNZ and FMA to be applied to the ComCom, Partridge said.

The report records comments from respondents to the survey saying they believed the commission’s decisions were “a triumph of theory and emotion over practical reality” and neither the Ministry for Business, Innovation and Employment (MBIE) nor the commerce minister, David Clark, “has any interest” in exercising oversight.

The report also suggests the select committee process fails to review the commission adequately because it lacks MPs with commercial and legal experience.

As well as replacing the commissioner model with a board and executive model for the competition regulator, the report proposes that the model should also be adopted “for all regulatory agencies”, as recommended by the Productivity Commission in its 2014 report on regulatory reforms.

The NZ Initiative also suggests that a new Regulator Assessment Authority be set up for expert oversight over the ComCom, FMA and RBNZ.

The report also suggests that the process of appointments to regulatory bodies is not sufficiently transparent.

It recommends that: “Parliament create an independent agency to ensure all appointments to regulatory agencies are subject to robust, independent scrutiny and a standardised process, including the valuation of candidates against a published skills matrix”.