A New Zealand failure of governance – facing the reality

Tod Cooper
Member with delegated authority for
Procurement/ Online Training/ Whistleblowing

by Tod Cooper

TINZ Director

Writing for Employers and Manufacturers Association

BusinessPlus Magazine


Peter Thomas, the NZ Managing Director of scandal-ridden print giant Fuji Xerox spoke at a recent Chartered Institute of Procurement and Supply event in Wellington.

When introducing him I said he would open his kimono – and that he certainly did! Thomas spoke candidly about the past couple of years. He graphically described his experiences since taking over from the two former managing directors, both of whom are now facing civil charges for fraud. 

It is a gripping story. Thomas spoke from the heart to a group of about 70 procurement and business professionals, holding no details back. In our audience, no one checked their phones or drifted discreetly back towards the bar, such was the speaker’s honest and genuine remorse for the actions and omissions of his predecessors in the role. 

And as you would imagine, the following Q&A session was brutal. Impressively, Thomas did not shy away from answering the barrage of questions.

He avoided only those directly relating to the current civil charges that Fuji Xerox have filed against the two former MDs and the former CFO. With emotion, he stated that it was a matter of principle that those who did this should not just walk away. 

Accounting irregularities

The story is well known and has been comprehensively reported, so I won’t cover the details. Suffice to say that more than $350 million in ‘accounting irregularities’ were found in the company. A handful of staff did pretty well out of those ‘irregularities’. 

What were those irregularities? In a nutshell, they were about capturing and bringing forward hundreds of millions of dollars in revenues from long term contracts, many of which were volume-based with grossly overstated annual values. 

The way that staff were remunerated under the accounting practices meant that this procedure substantially boosted their bonuses. Basically, under these practices the contracts were apparently super profitable on day one, but in fact lost major money for the company from day two. 

The key focus from Thomas’s perspective is that he and they can’t change the past, but they must learn from it, and share those learnings. An admirable position to take, maybe out of reputational necessity – publicity couldn’t get any worse – but Thomas didn’t have to. He could have done what many others in similar-sized organisations would do and have done, and spend millions on lawyers and spin doctor PR to quell the publicity and tough it out.

Road to recovery

From Thomas’s perspective they have a lot of work to do.

A priority is to regain the trust and confidence of stakeholders, none more important than existing customers, staff, and partners, many of whom have stuck with them through this. I’ll admit I was one. 

Despite significant liabilities and negative equity (both in the hundreds of millions) Thomas talked about how Fuji Xerox needed to rebuild the business from the ground up. This means implementing significant restructuring of the business, processes and culture. 

Thomas spoke about the need to incorporate rigorous controls into the new structure. These include, for example, implementing robust checks and balances, a resilient and well communicated whistle-blowing process, strong independent accountant and auditing, and more.  He went on to say that “as critical as these controls and processes are, they are like an ambulance at the bottom of the cliff:  a robust governance structure to focus on integrity is fundamental”.

For me, this was at the heart of Thomas’s demonstrated understanding of the Fuji Xerox scandal. 

Thomas talked about: 

  • replacing a board (that never met) was a priority, so there could be much better governance and accountability from the top
  • moving to a more distributed hierarchy of control, so the managing director does not hold absolute power
  • developing and applying better internal policies and processes to apply to everyone, without exceptions
  • ensuring a strong internal staff culture based on fair and reasonable remuneration. Lack of an ethical culture was the problem. While the fraud was the work of a small few, it tarnished everyone in Fuji Xerox – and brought the company to its knees. 

The New Zealand lesson – who we are

It is scandals like these, and honest reflections such as Thomas gave, that remind me just how vulnerable we are as Kiwis and Kiwi businesses. It is a reminder of how we often have a predisposition to trust – sadly a susceptibility which can be exploited. This attitude of trust is who we are, part of what makes this place of ours so great. However, we need to be ever-mindful that even here in little ol’ New Zealand, even in our calm blue waters, crocodiles can be lurking. 

Transparency International New Zealand, PO Box 10123, The Terrace Wellington, 6143 New Zealand admin@transparency.org.nz. Copyright © Transparency International New Zealand 2009 - 2019.
Website design and marketing from effectiveemarketing.com