Transcript: Journey to Excellence – June 2019 – Keynote 1

As well as our excellent lineup of speakers who spoke in the panel discussion about their personal experiences, JTE also gave time to two keynote speakers. In this issue of M2woman, we feature the keynote speech given by Sam Stubbs, Managing Director of Simplicity….

I have to say there are very few forums in which I speak in the gender minority and it’s completely wonderful. I wanted to talk a little bit about Simplicity so you understand where we’re coming from. The theme of my speech is that diversity is dignity, and dignity is diversity. I’m going to look at it through the lens of an investor and a KiwiSaver Fund Manager and how those things connect.

I just want to tell you a little bit about Simplicity and why we set this up. We’re a dignity company and what we mean by that is we’re a non-profit. What we believe is that fundamentally, people deserve dignity in life. And how do you give people dignity? When you have choices in life, you have dignity. We think about it the other way around. If you don’t have choices, if you’re forced to do something, it is hard to have the dignity and the dignity choice. So, how do you give people more choices in life? You give them more money. Money actually buys you choices, and choices gives you dignity.

The whole purpose of Simplicity, as a non-profit financial institution, is just to make people wealthier. That’s what we’re about. And how do we do that? We have the lowest fees and we invest ethically, and we give 15% of our fees to charity. There’s a whole lot of goodness there, but that’s not the topic of this conversation today. This is about how that relates to diversity and the dignity that diversity gives you. I just wanted to paint a picture of the future of New Zealand because I’m not sure that many people realise, but we’re about to go into a renaissance in New Zealand – a very optimistic period. I’m going to talk about how we can capture that opportunity and how it is absolutely critical that we embrace dignity as an economic idea, not just as a social idea, in order to make New Zealand a country it could be.

Let’s talk about our renaissance of growth. How many of you are members of KiwiSaver? You are part of now a $56 billion pool of money and that has been growing slowly over the last ten years. The Treasury tells us that by 2030, people like ourselves will have $200 billion invested in KiwiSaver and that’s the conservative estimate. About half of that money is going to be invested in New Zealand and so that means that we will have about another $150 billion saved in the next ten years. Half of that money will be here – $75 billion. That is about 2.3% of GDP. I know we talk about a Wellness Budget, but old guys like me still talk about GDP. That is 2.3% of growth every year. We have never in our lives seen that happen in New Zealand because what has happened with New Zealanders.

We have always been what we call a ‘Capital starved economy’. Money has always been tight. Money is – every now and again – available, because in the 1890s the English decided to love us and there was a tidal wave of money and then it receded. And then the Americans liked us in the 1950s; money arrived, and it left. And then the Japanese in the 1980s, and right now it’s the Chinese. The problem with those tidal waves of money is – you know what happens with a tidal wave, right? It causes a lot of destruction and it gives you a lot of lack of confidence in the ability to invest in a business. The businesses that we’re invested in in New Zealand now – and there are over 230 of them – when I go and talk to the management of these businesses, they lack the confidence, the belief in their own ability to expand and get new jobs and grow because they worry about the money. They worry about the affordability of it. They worry about whether the banks will lend it to them. But what we’re about to see is what we call our Singapore moment.

Over the next ten years, we will have 2.3% of GDP coming in as net money and what’s amazing about that money is it’s not a tidal wave, you don’t notice it. It’s a rising tide of money. Every single day now, KiwiSaver Managers put $15 million into the New Zealand stock market. And you never notice it right? Like a rising tide, it just goes up slowly and then suddenly you turn around and the tide’s in. We call that our Singapore moment, because it’s what happened in Singapore in the 1960s and it’s what happened in Australia in the 1970s.

Ask yourself this question: why has Australia not had a recession for 26 years? It’s not because they dig iron ore out of the ground, that would make them a commodity country. Australia has been recession proof for 26 years because we, with the Australians, have been investing every single day in their local market and they’ve become a capital rich economy. We are about to see that happen in New Zealand.

Have you noticed all the cranes here? Every one of those cranes has a thin layer of KiwiSaver money keeping that crane up. When it’s KiwiSaver money, it means that when we get a recession, the project doesn’t stop because that crane is not funded by bank debt entirely. The hotel continues to get built. The apartment building continues to get built. The jobs stay, and the economy gets smoother and more confident. The message we’re giving to the companies that we invest it is be more confident, the money is going to arrive.

We’re about to enter what we call a renaissance of growth in New Zealand. I don’t think New Zealanders mentality has been at all around this. We’ve always lived in this number eight wire economy. Money is tight and with companies, you’re always encouraged to pay the highest dividend you can, to keep your shareholders on. Our message to these companies is, we don’t want your dividends, they just get taxed and we have to reinvest them again. Invest in yourself, invest in growth. In that environment, you then ask yourselves how will companies thrive? How will New Zealand companies do better than their global competitors and how will they attract most of this KiwiSaver money? Because the risk with this is, you can invest in New Zealand or you can invest overseas, and it’s the push of a button to move the money overseas.

Right now today, I can invest in six toll roads in Australia. Guess how many I can invest in in New Zealand? None. Not one. The market has to provide the opportunities for us to invest, otherwise the money will go overseas. How do you create match fit companies worthy of all of this money? I’ve been investing for about 42 years, and the one thing that I’ve learned is that a great company only has three things. One is an idea; the second is money and the third is people.

Now, let’s talk about ideas. New ideas, great ideas. There are no new ideas, or there are very few. There are some in raw science, but basically great business ideas exist there and they’re all there now. Simplicity has no new ideas. In fact, we often say we never ever ever want to have a new idea. Just what’s worked overseas brought over here to New Zealand.

The second one is money. Remember that conversation we just had about the Singapore moment? The money is there. Has anyone been tapping the Angel Network? Or Angel investors? There’s a lot more money, a lot more vibrancy in that, and we just committed to invest $100M in fast growing companies in New Zealand, because we can’t find the opportunities on the stock exchange. The money is going to be increasingly there.

The third thing is the thing that always matters the most – it’s the people. Because a great person who takes an average idea, makes a great company. But a great idea taken by an average person doesn’t make a great company. It is always the people. How do we as investors think about what will be the next great companies that we invest in? It is always to look at the people. I fundamentally, passionately believe in diversity and all of these things are hugely important. I grew up on a road with four Pākehā families and 100 Maori and Pasifika and I could see the lives that were carved out by a society that doesn’t embrace diversity. All of those things your parents will talk about, other people will talk about. I’m going to talk about this as an investor of your KiwiSaver money.

When you talk about people, it is a very simple economic truth that if you do not draw from the widest and deepest pool of talent, you will critically disadvantage your business. Diversity for me has many hats, as a Dad and as a family member. But as an investor, it matters critically that businesses embrace diversity as the most single important thing they can think about. Not dividends. Not capital investment plans. Not new businesses. Not strategy. Diversity. There’s one other one which is sustainability as well.

Because Simplicity is a non-profit business, we are going to be around for 50 years. We’re structured just like Southern Cross, just like the AA. We’re going to be around forever. We are investing your money for 30, 40, 50 years. What do we think is the most important thing about that? It doesn’t matter what the strategy is in the next year or two. I don’t care what dividend plan is for the next year or two, but I do really care that you are drawing on the deepest and widest pool of talent you possibly can, because that will dictate the long-term success of your business and it’s the long-term success I’m interested in, not the short-term profits.

If you think about that as a force, and as a driver, what are we doing to make sure the companies embrace the concept of diversity? The first thing we need is sunlight. We have a gender diversity report which is the first one that we commissioned with AUT. We’ve got an academic who every single year now, is going to be producing the statistics, to show what gender diversity is with the top 100 companies in New Zealand. What we’re aiming to do is re-do that every single year and we just want to put a lot of sunlight on this. Because gender diversity is not a New Zealand problem. At Simplicity, we have a majority of women on our board. We have a majority of Senior Executives who are women. Why? Because we just wanted to do it. Because it was a good, it was because they were the most qualified people. But it wasn’t hard to do at all. Private sector New Zealand really struggles with this and so we’re going to put sunlight on it.

Then we begin stage 2. Stage 2 is me – and I’ve done this over the last year – writing to every single board, of every major company in New Zealand, saying we are an investor anew. We are a small investor right now, but we’re the fastest growing KiwiSaver scheme in the country right now. We intend to own 5 to 10% of your company in the next 10 years. Therefore you need to take what we say seriously and the two most important things for us as an investor in your company is diversity and sustainability. We are now shining sunlight on diversity. You will not get away with not being reported on in this regard.

Every year we will do this. We will publicise it. We will send it to the companies. The second thing we have said is this: You have five years to get it right. That’s how long it takes to rotate off board members in a normal company. Yes, we would have statistics about this. We’re taking pictures of your board and Senior Management. We’re lifting them from your Annual Reports and we’re going to look at the picture now, and the picture in five years’ time. It is going to be very obvious whether you have embraced diversity or not. If the picture of seven white, fat guys like me, is the same picture in five years’ time, you have failed us as shareholders. You are likely to be uncompetitive as a business long term and we will start voting you off the board or not voting for your re-election. Not just on that company, but any other company that you wish to be a Director of. So you need to take this very seriously.

This is shareholder activism, and it’s shareholder activism on behalf of our KiwiSaver members, so that they make the most amount of money, so that they have the greatest number of choices, and so they have dignity in their lives. That is why diversity and dignity are so intertwined. If you do not embrace it, you cannot be as prosperous as you could be. You cannot make as much money. You cannot make your shareholders as much money and you cannot give them the choices and the dignity that that provides. That is why dignity and diversity are so intertwined and that is why we take it so seriously.