Keith Rankin's Thursday Column

John Hawkesby: World Famous in New Zealand?

3 February 2000


By what criteria does television pay its newsreaders? One criterion is star quality. Stars are persons who - by dint of their personalities, talents and profiles - can generate revenues for their employers sufficient to justify huge fees or salary packages. Was John Hawkesby, sacked soon after starting a contract with TVNZ worth reputedly $700,000 a year, a star? Or did he - and some others in the infotainment business - find a way to draw personal windfalls from the public's bargaining impotence?

The public - as owners of Television New Zealand - paid Hawkesby's salary. Thus any earnings premium gained through clever negotiation is at the equal expense of all New Zealanders. If Hawkesby is due to receive compensation of $5.8m, as is rumoured, that means that every man women and child in New Zealand is nearly $2 worse off than they would otherwise be. It might not sound much, but there are other good causes that many of us would rather our $2 went to.

At the centre of the problem is an asymmetrical bargaining process, by which one individually party gains or loses directly in accordance with his or her bargaining success (eg Hawkesby), while the other bargaining party (eg the TVNZ board) does not lose if it strikes a poor bargain. The costs of such a poor bargain are borne by the owning public; a third party from the point of view of the TVNZ board.

This asymmetry is always a potential problem with publicly owned enterprises, whether SOEs, LATEs, or Crown Entities. It is also a problem with privately owned enterprises whenever the ownership is so dispersed that the board of directors ceases to feel accountable to the owners. Such organisations tend to be more interested in empire building than profit making.

What should ordinary TV newsreaders be paid? And what should a "star" like Hawkesby have been paid?

There is a market for newsreaders. While it is in principle an international market, in practice there are cross-national barriers that do not exist in most other professions that place people in the public eye. Viewers prefer indigenous news presenters. This is also an imperfect market because newsreaders' individual personalities probably determine more than anything else which news bulletin people watch. In my case, I've watched TV3 weekday news for most of the 1990s more because I have preferred TV3's newsreaders and reporters over TV1's.

The supply of newsreaders worldwide is quite low not because of the academic qualifications needed, but because few people are sufficiently comfortable, confident and competent in front of a camera to draw viewers to them. While the demand for newsreaders is not high, it has risen with the expansion of television. Thus newsreaders are well-paid on account of their relative scarcity in the face of growing demand. TV3 probably pays its newsreaders something like a market price. Canwest, which "holds" TV3, makes sure that TV3's owners interests are preserved.

Did Hawkesby have a market value over and above his value as a newsreader? Until 1998, he was a commodity of one with just two potential employers. Unlike Jonah Lomu or Kiri te Kanawa, he was never an international star. After he walked out on TV3 in 1998, there was only one potential employer; TVNZ. There was no market to give him a market value. Given that still he wanted to work as a newsreader, TVNZ did not need to pay him a premium.

When he was with TV3, his market value was probably less than he was being paid. He failed to increase TV3's ratings. (He may have prevented their ratings from falling, so we can only guess whether he was worth more than say Neil Waka or Louise Wallace, both of whom were I expect undervalued by TV3.) When he broke his contract with TV3 - snubbing Carol Hirschfeld and obviously expecting Richard Long's job at TVNZ - his potential to attract viewers plummeted. At TVNZ, Hawkesby's only bargaining chip was his ability to remain voluntarily unemployed for some time, thanks to a high level of past earnings.

If Hawkesby had had a market value, TVNZ should have calculated the 'net present value' (NPV) of investing in Hawkesby at that market wage. If the NPV proved to be more than zero, they should have hired him at that outlay, meaning either the amount a rival broadcaster would have been willing to pay for him or (in the absence of a rival) the standard rate for newsreaders.

But Hawkesby had no market value. So the TVNZ board should have estimated the maximum wage they could pay him without returning a loss to TVNZ's owners. At such a wage the NPV would be zero. Having made that calculation, they should have used their superior bargaining position to pay him less than that maximum.

The NPV calculation involves computing the expected present value of the additional revenue he would have brought to TVNZ against the expected present value of his salary package over the duration of his contract. If TVNZ had had any nous, they would have made high remuneration conditional on his generation of increased revenue. A performance-based contract would have reduced the expected present value of TVNZ's outlay on Hawkesby. If TVNZ was genuinely seeking to maximise shareholder returns, Hawkesby would have had a contract much like that of former Auckland Blues coach Jed Rowlands.

For Hawkesby to be able to claim with success $5.8m today, TVNZ must have given him a promise to pay, regardless of performance, $700,000 per annum for each of ten years. He did not have a market value of $700,000 per annum because there was no market for his services.

Such an unconditional contract defies credibility. The viewing public who were paying Hawkesby's wages had already signalled their disapproval of Hawkesby before his TVNZ employment contract was signed. The real breach of contract was between the TVNZ board and the owners of TVNZ. The New Zealand public never agreed to become Hawkesby's Santa.

The best ways to compensate the victims - ie TVNZ's owners - would be (i) to adjudge that Hawkesby is owed no more than what he has already cost us, and (ii) to ensure that none of the board members who hired him for vastly more than he was worth ever gets the opportunity to employ anyone else on behalf of the New Zealand public.

We need a government, a judiciary, and directors of publicly owned enterprises who respect public property rights. TV3 manages its affairs in the interests of its owners. TVNZ can do the same. At least the new coalition government is showing signs that it will act like an effective public holding company. We know from the experiences of the late Bruce Jesson and the Auckland Regional Services Trust is that principled public sector holding companies can be at least as effective as private holding companies in instilling disciplined and principled behaviour into the organisations that they hold.

John Hawkesby is not a superstar who could have earned more for his employers - us - than his employers' representatives promised to spend on him. His case is just the 'tip of the iceberg'. The New Zealand public was ripped off in the 1980s and 1990s, through a multitude of dud "human resource" investments funded by an unwilling and uninformed public. Public property rights were ignored. The public has as much right to a return on its investments and inherited property as do private proprietors. Let the 2000s be different.

© 2000   Keith Rankin

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