PETER THOMAS AGAINST NEW ZEALAND HERALDPeter Thomas complained about a column by Brian Gaynor published by the New Zealand Herald in its business section on August 7, 2010, claiming that it breached Press Council principles relating to lack of accuracy, fairness and balance. He also suggested that it misled or misinformed readers by commission and omission.
His complaint is not upheld.
Mr Gaynor commented on the possible consequences of a District Court decision dismissing all charges brought by the Ministry of Economic Development against five directors of Feltex Carpets Limited.
The charges were that the directors had failed to disclose a breach of a loan agreement (a debt facility provided by the ANZ Bank); and that this loan had been classified as a “non-current” liability when it should have been “current”.
Mr Gaynor outlined the judgment while also linking the dismissal of the charges to the on-going debate about corporate responsibility in New Zealand and the difficulty in establishing who was responsible when there were problems and deficiencies in financial reporting.
Although pointing out that the directors had been found not guilty, he also raised the question of whether the directors had an obligation (an ethical or moral obligation rather than a legal one) to keep investors better informed.
He also referred critically to the Initial Public Offering of Feltex.
The complainant, Peter Thomas, was one of the Feltex directors and was also the Managing Director and CEO of the company between November, 2004 and September, 2006, when receivers were appointed.
The article was headlined “Feltex ruling revives familiar debate” and was further introduced by “Lack of corporate responsibility means the buck is passed around and around”.
It was accompanied by a photograph of the five directors.
A complaint was made to the New Zealand Herald but when APN New Zealand Ltd, on behalf of the newspaper and Mr Gaynor, rejected the complaint and declined to provide the requested redress, formal complaint was made to the Press Council.
The complaint was made in a lengthy submission from Mr Thomas’s lawyer.
First, he argued that the article in question was a business news item rather than an opinion piece (where the writer might have greater freedom to comment from his own perspective).
For example, it did not appear in the editorial or opinion and review pages. There was no by-line to indicate it was opinion. Moreover, the report was highlighted on the front page of the business section, in a side bar under the specific heading “News”. ie the reference was to “a news item, not an opinion piece”.
Secondly, Mr Gaynor’s notion – that no specific group had accepted responsibility for the collapse of Feltex because of the blurred lines of corporate responsibility in New Zealand – implied the fault for its failure lay with someone or some group, rather than factors such as market forces or changes in economic circumstances. ie it implied that the directors were to blame.
The complainant suggested that the comment, “The Feltex IPO . . . was clearly an exercise of dressing up mutton to look like lamb” implied something misleading or deceptive or improper on the part of the Directors with regard to the IPO.
Further, “Even though investors were crying out for greater transparency the Feltex directors chose not to disclose that the company was in breach of a bank covenant and had major bank loans which were “current” in the interim report released in February 2006” also implied a conscious decision by the directors to ‘hide’ the true state of the loans
The complainant took exception to Mr Gaynor’s comment that “This (ie greater disclosure to investors) is something they could have, and should have, done . . . as most investors, with the exception of the Feltex directors, realised that the company had serious problems.” The complainant said this was inaccurate as well as unfair and unbalanced.
These comments ignored the clearly stated conclusions of both the Securities Commission and Her Honour Judge Doogue.
The Securities Commission had found that the Feltex Prospectus based its projections on reasonable assumptions and “did not breach securities law and was not misleading in any material particulars”.
Further, while financial reporting standards had indeed been breached in assessing a major bank loan as “non-current” instead of “current”, the Court concluded that the directors were not to blame. They were able to rely on professional advice, but that advice purchased from the auditors, Ernst and Young, was faulty. This was apparent in the Court’s judgment -- “the Ernst and Young assessment report was completely wrong”. (Judge Doogue)
Judge Doogue had “completely and unequivocally exonerated the Directors of the charges and of any wrongdoing with regard to Feltex”. She had even stressed that “these directors are all honest men and they had conducted themselves at all times with unimpeachable integrity”.
The submission argued that because the article omitted such findings it was inaccurate and unbalanced, it misled or misinformed readers, and above all, it was unfair to the directors.
In short, the exoneration of the complainant by Judge Doogue had been undermined by unfair reporting.
The Newspaper’s Response
The editor of the New Zealand Herald, Tim Murphy, firmly rejected the complaint.
He stressed that the piece was clearly a column and therefore opinion – it was typeset in a manner common to all columns (different from news articles), and it was presented with a colour (purple) common to all columns, the material was not current and spanned a considerable period, and finally, the words, style and content made it clear it was opinion and not news.
Mr Gaynor was expressing his personal view that the directors of Feltex could have gone beyond what was merely permissible in law in regard to a breach of the banking covenants and the company’s “current” debt and reported the company’s financial position with greater transparency.
Mr Gaynor had not suggested anywhere in his column that these alleged breaches (referred by the Ministry of Economic Development to the courts) had been in any way the cause of Feltex’s demise.
As far as the comment about the IPO being “mutton dressed as lamb” and the complaint that this was a criticism of the Prospectus, the phrase had been misunderstood. The phrase did not communicate falsity and deliberate deception, rather that something old was being presented as something new.
It had not been necessary to traverse all the findings by the Securities Commission and Judge Doogue in his column as those decisions had already received wide coverage in the media.
In sum, Brian Gaynor had expressed honestly held views in an informed and balanced way.
Discussion and Decision
First, the Press Council does not agree that this piece of journalism is likely to be read as a news item.
The Council is puzzled by the submission that it appeared without a by line, when the newspaper printed a photograph of the writer immediately under the headline, accompanied by his name.
Further, a more careful reading of the sidebar to the front page of the business indicates that Brian Gaynor’s column is not listed under “News”, rather it is one of several sections highlighted within the business pages; ie the reader is directed to News – “Designer to ditch DJs” (C3), or to Brian Gaynor – “Passing the Feltex buck” (C2), or to International – “Food price time bomb” (C6) etc. Brian Gaynor’s column is here signalled as being different from general news articles.
There are other markers within the text that indicate that this is a column and not a news report, such as “This column wrote . . .”. Further, various colloquial expressions such as “an exercise of dressing up mutton to look as lamb” and “the buck is passed around and around”, suggest the language of the columnist not the reporter.
The Press Council has repeatedly said that opinion and comment pieces can take a strong line, reflecting the views of the writer. Often, opinion columns might challenge, even, at times, offend. But that is a legitimate role of the press.
Nevertheless, the Press Council has also reiterated the need for information presented as “fact” to be accurate.
The complaint also stressed the need for statements, even in opinion columns, to be based on “true facts” and not to “ignore, disregard, put to one side, or diminish what the true facts are”.
The submission for Mr Thomas argued the columnist had omitted “true facts” – the rulings in favour of the directors – but the Council does not accept that argument.
The column begins “This week’s district court decision . . . dismissed all charges against the five Feltex directors . . .” and later this reinforced by “The directors were found not guilty on the MED charges . . .”. Further, the photograph of the directors is firmly captioned “CLEARED: Feltex directors”.
Mr Gaynor also went to considerable length to explain and detail Judge Doogue’s judgment, especially noting why the directors were found not guilty and citing her sharply critical comments about the Ernst and Young auditors.
The complainant suggested that the comment “as most investors, with the notable exception of the Feltex directors, realised that the company had serious problems” was entirely unsupported by any factual basis.
However, the writer is being sarcastic. He knows that the directors knew they had serious problems, but he is using irony for deliberate effect, after pointing out that the then Chairman had rejected calls for up-to-date financial information during heated questioning at the Feltex ASM in December 2005.
In any case, the Press Council is of the view that Mr Gaynor was entitled to express his opinion that the directors could have done more to keep investors better informed. That is, they may have taken “all reasonable steps to ensure they complied with the law”, but they may also have chosen to go beyond the (incorrect) advice from the auditors and disclose the breach of the loan facility in the report for the half year ending December 2005.
He had noted the “frequent requests” for better and more up-to-date information at the ASM. He might also have noted the significant criticism by the Securities Commission in its report (October 2007) into Feltex Carpets Ltd – IPO Prospectus, Financial Reporting and Continuous Disclosure.
The Commission concluded that changes to a loan facility with Feltex by the ANZ Bank “were material information that a reasonable person would expect to affect the price or value of listed securities, if the information were generally available to the market . . .” and that “Feltex should have disclosed these changes to the market on 27 October 2005”.
The Securities Commission explained that failure to comply with the continuous disclosure provisions of the New Zealand stock market incurs civil liability for a company but, as Feltex was no longer trading and had no material assets, the Commission could not pursue action against the company for its failure to disclose the information.
Obviously, no one could be held responsible.
As far as the complaint against the comment that “The Feltex IPO was clearly an exercise of dressing up mutton to look like lamb” is concerned, the use of that common idiomatic expression is hardly material in the overall context of the column. Further, in the Council’s view, it is clearly Mr Gaynor’s opinion and justifiable within what is equally clearly an opinion piece.
The nub of this complaint is that Mr Gaynor’s commentary was unfair and unbalanced in that despite a District Court judgment in favour of Mr Thomas and the other directors, Mr Gaynor implied that they were somehow to blame for the failure of Feltex.
Instead, it seems to the Press Council that Mr Gaynor was primarily using the court’s verdict to raise legitimate questions about the lack of definition of corporate responsibility in New Zealand.
The heading (“Feltex ruling revives familiar debate”), the introduction (Lack of corporate responsibility means the buck is passed around and around”) and the opening sentence (“This week’s district court decision, which dismissed all charges against the five Feltex directors, has reignited the debate about corporate responsibility”) combine to point to the possible consequences of the court’s ruling.
The theme is neatly summed up towards the end: the “expert” advisors, Ernst and Young, had not performed to a professional standard (in the words of Judge Doogue), but only directors, not auditors, can be prosecuted under this section of the Financial Reporting Act, and the directors could not be held responsible because they had (quite properly) relied on the “expert” advice.
The whole thrust of the column develops the argument that clear lines of responsibility need to be established for the financial reporting process.
The Press Council does not accept the claim that this column unfairly and inaccurately blames and denigrates Mr Thomas and the other directors.
The associated complaints about misleading by commission or omission and a lack of balance are also not upheld.
The complainant requested that the Press Council recommend a correction, an apology and a contribution towards costs. All are consequently nullified. However, it should be noted that the Press Council has no power to make such recommendations.
In part, the New Zealand Press Council was established to provide an independent forum for the resolution of complaints, cost-free to both parties.
Press Council members considering this complaint were Pip Bruce Ferguson, Kate Coughlan, Sandy Gill, Penny Harding, Keith Lees, Lynn Scott and Stephen Stewart.
Barry Paterson, Chris Darlow and John Roughan took no part in the consideration of this complaint.