Bernard Teahan

Licensing Trusts in New Zealand Licensing trusts in New Zealand are a statutory form of • What are the ‘mystical’ elements endearing community enterprises to community enterprise now existing for over 70 years. Thirty their communities? were established between 1944 and 1975. Over the years • Who are the owners of a ? since they have generated wealth of $250 million through • How have they performed in meeting their statutory objectives? their business units, benefited their areas in many ways, and This article reviews some of the answers through their community support donations programmes1 A Great Social Experiment yields, with emphasis on the lessons they provide for distributed significant profit back to enhance their the growing global world of social and community’s quality of life. Today, 18 continue to operate community enterprises. (mainly hospitality) businesses, and provide support to their History: a better way The sale of liquor in New Zealand has communities. long been controversial, as it has in many Their presence, successes and failures • In today’s more fluid communities, countries. In the 1940s, the liquor laws offer insights into this form of statutory how could the 50–70-year-old, were widely accepted to be a mess.3 It was enterprise and also the wider sphere street-by-street definitions of trust a time of war, and an uncertain climate of enterprise controlled by defined communities be relevant? for social change. New Zealand was still a communities and accountable to them. Yet • What is the role of community young country, barely a generation away licensing trusts are relatively unknown in enterprises in a global world? from its pioneering days, when the excesses their entirety. To redress this and to confront • Are democratically elected boards too of alcohol brought about prohibition in misconceptions, in July 2017 A Great Social hit and miss in delivering the many areas. Experiment (Teahan, 2017) 2 was published. necessary talents to govern a The concept of licensing trusts was Key policy conundrums concerning their competitive enterprise? born out of a desire to create something existence and performance are debated in • Is it unwise to mix social/community better but not to give rein to the excesses the book: goals with economic goals under one of the past. The parliamentary debates • What is the justification for their management? record that it was based on a liquor control existence today? scheme originating in Carlisle on the Scottish/English border. But it is most Bernard Teahan worked for 30 years as chief executive of Licensing Trusts. Qualified as a chartered likely that its unique features were the accountant, he holds two master’s degrees from Massey University and a PhD from Victoria University.

Page 68 – Policy Quarterly – Volume 14, Issue 1 – February 2018 design of a remarkable man, the minister efficiently operate a licensed premises, to assess whether there are generic of justice, H.G.R. Mason.4 He sought to with all its associated problems and causes relative to their structure. establish ‘a body corporate for the purpose challenges. of providing for the establishment of Financing a start-up licensing trust Reason for being model hotels … in the interests of the was a problem that collectively the trusts A logical starting point justifying the public well-being, and of providing for the never really solved. The more supportive existence of licensing trusts is the objectives sale of intoxicating liquor in the district, Labour government had guaranteed bank they were given, first in the legislation of and to provide for the distribution of the overdrafts and advanced funds from the the 1940s, and today in the Sale and Supply profits for public purposes’ (Hansard, Consolidated Fund for the Invercargill of Alcohol Act 2012, the current legislation 1944, p.716). The then prime minister, and Masterton trusts during their for licensing trusts. , with his socialist beliefs5 and establishment stage, and both trusts The well-being of their communities, his keen sense of community, was also a quickly repaid that support with a speed particularly in the sale and provision of noted supporter. of providing new premises and achieving sensitive products, is the initial unique The Invercargill Licensing Trust Act profitability that removed the need for distinguishing feature. Caring for their 1944 was passed on 17 April 1944. The the guarantee. But from the 1950s communities to the extent that profit was Masterton Licensing Trust Act followed in onwards government support was very not pursued at the expense of people’s December 1947 and the Licensing Trusts Act in 1949. Over the years those acts have been merged into the sale of liquor Caring for their communities to the extent legislation. that profit was not pursued at the expense

Structure and governance of people’s welfare was a prime motivator The 30 licensing trusts were formed between 1944 and 1975. Thus, no trust has in the [Licensing Trust] formation. been established for over 40 years. While that in part suggests that the circumstances giving rise to trusts no longer exist, it should be remembered that the 1980s through limited, predominantly restricted to welfare was a prime motivator in their to the late 1990s or early 2000s was very guaranteeing the last 25% of any formation. Mason described it this way: much a time when the market philosophy overdraft funding. ‘although the Board should be primarily a and private enterprise dominated. The As a body corporate, the trust was vested commercial body, we should like to see the charitable trusts legislation too is an easier with the necessary powers to operate a element of social welfare developed to the structure through which to establish a business. It was required to pay taxes, and fullest extent … so that it should community enterprise. A further influence be audited by the controller and auditor- predominate strongly in all the operations was the business and government climate general. Its meetings are subject to the Local of the trust, as well as in the distribution of during the earlier decades. As Bollinger Government Official Information and money’ (Hansard, 1944, p.719). In the (1967) and others caustically record, often Meetings Act 1987 and an annual public current legislation, as with the Licensing the business and political climate had not meeting must be held where its annual Trusts Act 1949, there is no overt mention been supportive for licensing trusts, even accounts and report are open to scrutiny. of this well-being factor, but take away this though trusts had been enthusiastically accountability to their local community supported by their communities. Performance over the years and there is little meaning to licensing To form a licensing trust was never To gain a perspective of the performance trusts’ existence that could not be achieved easy. First, the community had to decide of licensing trusts over the 70 plus years of by private ownership. They are required to whether it wished to do so, in a public their existence, and their value as a form report back to the electors of their defined poll. The alternative choice was private of community enterprise, a number of district in a number of ways, none enterprise.6 A constitution notice was benchmarks are desirable: (arguably) more influential than the then promulgated through the Ministry • their collective financial performance; triennial elections to decide which trustees of Justice. Elections were called for • their individual range of should represent the community. (generally six) trustees to represent the performance; The second unique reason for existence community. Once elected, the hard work • their success or failure in delivering is the distribution of profits back to began. The trustees had to find a property, benefits to their communities; community organisations in support of engage builders, and, most difficult of all, • their comparative performance community activities. Today this function find the necessary finance. Invariably, relative to alternative forms of is one of the major areas of activity for trusts started out with over 100% debt ownership, notably private enterprise; trusts, and one which, not surprisingly, financing, which was always a significant • their demise rate and why some have endears them to their community. But first hurdle to overcome. They then had to failed to continue to exist, primarily trusts must make profits. They need to be

Policy Quarterly – Volume 14, Issue 1 – February 2018 – Page 69 Licensing Trusts in New Zealand

Table 1: Licensing trusts’ financial indicators of the Orewa, Hornby and Stokes Valley 1990 2008 2014* licensing trusts. Annual revenue $286.633m $356.852m $349.787m There are no objective statistics that Assets employed $224.785m $313.053m $342.802m ‘prove’ licensing trusts have more caringly managed the sale of alcohol in their Equity $151.215m $231.813m $245.828m communities than private enterprise has. Community support donations $2.162m $33.444m $26.930m Crime, alcohol-related incidents, Equity ratio 66.6% 74.05% 71.70% drunkenness, social excesses, all are Profit $2.280m $41.687m $45.977m influenced by too many variables – Return on equity 1.56% 17.98% 18.70% unemployment, poverty, education * These three years are the occasions when collective studies were undertaken. standards, the relative wealth of the community, among some – to provide efficient and commercially sound or they licensing trusts to their communities, meaningful answers. What are available are will not survive. and why they have endured. Throughout stories, often influenced by the opinions The various acts of Parliament over the its history since the signing of the Treaty and mindset of the teller, but nonetheless years have defined the objectives of trusts of Waitangi, New Zealand has had a love ‘real’ in the sense that they are contestable. as being to provide licensed premises for affair with the concept. In the nature of In their submissions on the Law the sale of alcohol, and the provision of love affairs, at times the relationship has Commission review in 2009 of alcohol law meals and accommodation. That business been close; at others, distant. The renewed in New Zealand, the New Zealand Licensing segment, frequently and loosely called the international and national interest9 in Trusts Association recorded a number of hospitality sector, has been where licensing community enterprises of recent times examples (see New Zealand Licensing trusts’ commercial activities have been once again emphasises their need in a Trusts Association, 2009). predominantly concentrated. What has more globally driven world, in which resulted have frequently been attractive communities seek to protect their interests Assets and financial performance and significant hotels, taverns, restaurants and enhance their quality of life. Simply Table 1 summarises key financial indicators and bottle stores; so much so that in some put, community enterprises, and their from trusts’ annual accounts. communities the licensing trust facilities sister organisations, social enterprises, are These results collectively provide have been the catalyst for the generation of primarily concerned with the well-being of evidence of good returns and sound equity. new economic activity, notably tourism, their defined community. Annual returns on equity of around 18% providing sustained employment. How, then, have licensing trusts demonstrate good management, and yearly Examples are the hotels in Invercargill performed in carrying out this mandate, donations approximating $30 million are (Ascot Park Hotel is a modern facility with and what is their collective size and range? noteworthy. 116 accommodation rooms, bars, a restaurant and conference facilities), Alcohol care performance Community support donations Solway Park Hotel in Masterton (102 In the writer’s experience, this subject is, at This function has grown considerably over rooms) and Waipuna Hotel (148 rooms) best, one of those ‘deep-grained’ elements the last 20 years, to where today the funds in Mount , Auckland. Not all of embedded in trusts’ fabric. The elected donated to the community in support the over 130 trust facilities are of this nature of trusts’ governance invariably of a very wide range of organisations standard, with some trusts providing more demands a supportive and timely response and activities significantly enhance the modest social premises of bars, bottle to community pressure. quality of community life. The growth has stores and gaming lounges. Some trusts Arguably, the design and quality of come partly as trusts have matured, and have used the ‘catch all’ objectives clause in licensed premises has been a major substantially as they moved to provide the legislation7 to broaden their trading influence on the use of alcohol in licensing gaming lounges when legislation in New base into other sectors: for example, aged trust communities. Just as the Carlisle Zealand authorised ‘pokie machines’ in care, supermarkets, housing, and property scheme designer’s sensitive knowledge of licensed premises. Gaming, like alcohol, is as landlords. social needs led to improvements in social a ‘sensitive’ product requiring management habits, many licensing trusts have led with care, and the trusts were well placed to Philosophical underpinning their communities. That this has been a even-handedly balance availability with the Inherent in the structure of licensing trusts force in trusts’ behaviour should not be tendency to excess for some people. are the concepts of a love of community, too surprising. It is human nature for Some of the larger trust donations – for a sense of self, solidarity and enterprise,8 trustees to want the best for their example, Invercargill, Waitäkere, Portage which collectively are the driving forces communities, because, at the least, that and Masterton – have been very sizeable, behind community enterprises seeking also reflects well on them. But this trait frequently hundreds of thousands of to enhance the well-being of their has also brought about trusts’ failures, dollars, and sometimes in the millions. The community. It is these components where the product or premises was not Invercargill Trust’s support and facilitation that endear community enterprises like supported by the market, as in the failures of Stadium Southland, with its indoor

Page 70 – Policy Quarterly – Volume 14, Issue 1 – February 2018 cycle track of international standard, is but Table 2: Trust House donations one example of an exceptional facility that 2012 2011 would be unlikely, arguably, to exist Amount of donations $2.754 million $2.886 million without the trust’s efforts. Other examples Number of donations 322 349 are Henley Lake in Masterton, the Portage Total donations last 10 years (2003–12) $31.537 million $31.150 million and Waitäkere trusts’ Trusts Arena in Henderson, and Lake Hood in Ashburton. A Great Social Experiment estimates that investment was poor, their of the licensing trust model, notably the the total of these cash donations over 70 accountability weak and their service lack of equity capital, did contribute, but plus years exceeds $500 million. To that to consumers dismal, the trusts the conflicting requirements of the may be added another sizable sum of ‘in serving up booze barns, slack service regulating agencies were far more kind’ support, such as no charge for use of and inferior financial management ... destructive. The Licensing Control facilities, and sponsorship greater than The vast majority of New Zealanders Commission required accommodation (16 commercially justified. long ago saw through the warm rooms) to be provided for the travelling However, it is the many small fuzzies that underpin the trust public to address their concern about the donations, of a few hundred or thousand concept (New Zealand Herald, 2003) shortage within the wider Wellington dollars, that are the lifeblood of many trust region; and the Lower Hutt City Council communities. It is these that consistently When opinions such as this are aired, opposed the location of the premises on endear trusts to their communities. An arguably the record should be balanced. In the one site at the entrance to the Stokes example of this activity is listed in the Trust the West Auckland circumstance referred Valley where there was a (limited) chance House10 annual reports (Table 2). to here, the community by their votes of a reasonable market from the travelling overwhelmingly rejected the editorial’s public. From this conflict, the worse Why trusts have demised views, but such comment has a way of outcome resulted: an overcapitalised hotel There is a theme expressed from time to lingering, and even being accepted as the located in the middle of the Valley catering time by the critics of licensing trusts that prevailing truth, if not consistently refuted. to the largely incompatible markets of the they are an impractical ideal incapable of Even in recent times a request to the editor residents and the visitor. Failure was thus reasonable performance.11 After all, say to redress significant errors in a Dominion inevitable. the critics, if you are going to operate a Post article drew no response (Du Fresne, Less defensible was the failure of the business, the private ownership model 2017). four Wellington trusts in the late 1990s. is widely understood, has clear lines of The common causes of business failure Major shortcomings in governance and ownership and commitment, and has been – misreading the size of the market, management were the significant factors. proven to be the structure to best deliver inadequate management and governance The ‘failure’14 rate of trusts can be the most efficient business performance. skills, overinvestment, lack of equity – are reasonably compared to the similar rate All that is true at least in the sense of widely just as relevant for trusts. The lack of equity for private enterprise companies. While accepted business beliefs. But as we come capital was especially debilitating, and one-off failures or a small number to the end of three decades during which frequently required trusts to borrow all their comparison need to be viewed with the market philosophy and neo-liberalism capital and their start-up costs. Profits then caution, the 70-year period of licensing dominated, we have learnt again that other had to be generated immediately. When trust existence gives more credibility. The structures provide opportunities to pursue start-up problems occurred, at times more credible statistics suggest about 25% a range of objectives wider than profit exacerbated by the inexperience of the of new businesses do not survive the first generation. For, as Jensen and Meckling trustees in running a tavern or hotel, year, 50% do not survive five years and record in their seminal essay ‘The nature sometimes it was little short of a miracle the 71% ten years. That, after an average of man’, we ‘care about not only money, but trust survived. Often, the volunteer effort by existence of 45 years for the 30 trusts, the about almost everything – respect, honor, trustees was remarkable.12 demise rate for licensing trusts of 40% is power, love, and the welfare of others’ The failure of the Stokes Valley trust remarkably good. (Jensen and Meckling, 1994). within a few months of opening its doors There is another challenge here that, in for trading was to cast a long shadow over Footprint today the harsh limelight of the media, licensing the licensing trust concept for decades to The 18 licensing trusts existing today trusts have not addressed well, or been come. To fail within such a short period of are an integrated and integral part of allowed to address criticism: time inevitably fuelled the view of some their communities. They range from the that trusts were inherently flawed. The largest, Invercargill, with assets exceeding In reality, trusts became unpopular critics had a field day with their ‘told you $100 million, annual revenues exceeding with most New Zealanders because so’ wisdom. The reality evidenced by $90 million and community support they succumbed to the normal archived correspondence and reports,13 donations of over $100 million since stultifying consequences of smallness and hindsight, shows that there were a 2007, to the smallest, Hawarden, which has and monopoly. Their return on number of contributing factors. The flaws recently closed the only tavern servicing

Policy Quarterly – Volume 14, Issue 1 – February 2018 – Page 71 Licensing Trusts in New Zealand its very small community of 250 for 45 A further challenge for trusts is their housing and a small hydro electricity years. Five – Wiri, Mount Wellington, ability to obtain or retain the level of scheme are examples of its diversification. Birkenhead, Portage and Waitäkere – are in management and governance skills metropolitan Auckland; four – Invercargill, necessary to make the changes required to What we can learn from licensing trusts’ Porirua, Rimutaka, Flaxmere – in cities; remain relevant in the future. Some smaller experience and nine – Mataura, Clutha, ŌOamaru, trusts have met that need by association Although only a niche of New Zealand Geraldine, Ashburton, Hawarden, Cheviot, with a larger licensing trust nearby: for society, licensing trusts’ presence in rural, Masterton and Te Kauwhata – in provincial example, the shared resources of Portage provincial and metropolitan areas, and New Zealand. and Waitäkere in West Auckland, and the their existence for over 70 years, give management grouping of Masterton, important lessons for today’s more globally Weaknesses, challenges and the future Flaxmere and Rimutaka existing prior to interdependent world: The community assets generated are 2015 for nearly 30 years. • Community (and social) enterprises now quite significant. In most cases they Four trusts continue to maintain provide an important balance to provide both a springboard to the future limited monopoly rights within their globalisation. Communities can thus and insulation against the lows of business constituted area: Portage, Waitäkere, Mataura better ensure essential services are cycles. But there are warning signals for and Invercargill. So long as these rights available; sensitive products are licensing trusts: the hospitality industry is continue to exist, supermarkets can not sell managed in their best interests; the poor, disadvantaged or other subsets of their community are supported; A further challenge for trusts is their employment or economic development ability to obtain or retain the level of is pursued; or the community is protected from a monopoly position. management and governance skills • Community well-being goals and necessary to make the changes required business goals can be successfully achieved in concert provided they are to remain relevant in the future. clearly established and regularly reviewed. • There is no substitute for good, committed people governing and often over-supplied, with frequently low beer and wine, and private operators can not managing. If the necessary skills are not profitability and returns, and subject to a own and operate taverns in these areas. Only available (through the ballot box in number of societal threats. Some traditional the community can vote to remove these licensing trusts’ case), they must be segments for trusts – for example, bars and rights. Invariably, any such poll is funded and brought in. Ideals must be tempered bottle stores – may have a limited future for organised by the supermarket chains wanting with reality. the trusts without the restrictive mandates. to access the benefits of beer and wine sales.15 • Accountability to their owners, the Some of the smaller trusts, which have but While these monopoly rights remain, these community, is essential if the extremes one outlet providing a bar for their residents, four trusts have an appreciable degree of of poor performance and excesses are to are providing services for a market that time protection and are less buffeted by market be avoided. has largely passed by. forces. Their ability to influence their • The ‘dividend’ of surplus profits Supermarket sales of wine and beer at communities beneficially in the use of generated from the business units can low margins dominate the take-home alcohol and gaming is also significantly be deployed to enhance the liquor sales market. What is left is greater.16 community’s quality of life. Donations increasingly captured by a proliferation of Societal changes too are having an to support cultural, artistic, recreational, traders who operate corner stores in a way impact on licensing trusts, at times educational and sporting organisations similar to the traditional corner diary. beneficially. Communities are concerned can in turn allow these groups to better Trusts are not able to compete easily with about the abuse of alcohol and are function. this business model of family living on the imposing restrictions. It is unlikely that premises, long hours for low pay and these constraints, which also reinforce the Conclusion internal ‘family’ financing. Further, the original ideals of licensing trusts, have Alcohol sales in the interests of the tendency for these operations to peaked. community’s well-being were both the complement their liquor business with the A few trusts have broadened both their reason and the vehicle for the establishment sale of recreational drugs – commonly geographic and trading segment base. of licensing trusts. Today, that remains the called party pills – further accelerates the Masterton is the notable example, owning dominant trading base for them, with demise of this market for trusts, who see businesses away from its home area and gaming added as the second sensitive these sales as abhorrent and detrimental to hospitality. Aged care (since exited), product. the well-being of their community. supermarkets (also since exited), residential

Page 72 – Policy Quarterly – Volume 14, Issue 1 – February 2018 For the 18 trusts remaining, the future 1 These extensive lists of donations are recorded in their 10 Trust House Limited is the operating company for the annual reports and on their websites. Masterton Licensing Trust; it also provides some services for is diverse. A few have not been able to 2 The book’s title derives from the 1944 parliamentary the Flaxmere and Rimutaka trusts, and more recently the debates. The author sees the words as a question for the Porirua Community Trust. evolve out of their, mostly small, hospitality reader to decide. 11 For example, at the time that four Wellington licensing trusts trading base and their future in their 3 For example, see Bollinger (1967) and the many references failed in the late 1990s there was considerable editorial during the parliamentary debates on licensing trusts in the agitation in the local newspapers. Also, in 2003, at the present form is challenging. Others are 1940s. time of the West Auckland competition polls (see Teahan, 4 Rex Mason was minister of justice (as well as holding a 2007, chapter 6), editorials were often bitterly opposed to determinedly changing to ensure their number of other portfolios) from 1935 to 1949 and 1957 to the trusts; when the trusts comfortably won with significant relevance for the decades ahead, while 1960. He is now regarded as making ‘possibly the greatest support from the community these unbalanced comments contribution of any politician to law reform in New Zealand became an ironic epitaph. successfully providing appreciated in the twentieth century’ (Round, 2011). Among his many 12 As recorded, for example, in an unpublished account of the community services. reforms, he reorganised and modernised New Zealand law first 25 years of the Flaxmere Licensing Trust. in the major Law Reform Act 1936, established the Law 13 The files of the Ministry of Justice at Archives New Zealand Collectively, licensing trusts have Reform Commission of 1937, and, through his persistent are a rich source of information. efforts over many years, decimal currency in 1967. 14 Demise is a better term than failure. As for private enterprise contributed much to their communities, 5 See Bassett and King, 2000. companies, cessation will often be voluntary: for example, and while there have been less than 6 Remarkably, and overwhelmingly in the polls, communities because time has passed the market opportunity by, or there chose licensing trusts in 57 areas. By comparison, there is no longer a wish to continue. laudable stories and failures, their were nine areas where private enterprise was chosen ahead 15 Originally, 13 trusts had limited monopoly rights. In all, with of a community licensing trust. Often the mandate was well some multiple challenges, there have been 16 polls, with six architects, H.G.R. Mason and Peter Fraser, over 90%. favouring retention of the monopoly rights for the trust, and were they alive, could be forgiven if they 7 The Sale and Supply of Alcohol Act 2012 provides (section ten favouring open competition. Only in Invercargill has no 305) that a trust may also ‘carry on any other business that, poll ever been called. These polls have complex influences: took some quiet pleasure in their successes. in the Trust’s opinion, can be conveniently carried on in see Teahan, 2007 and 2017. That they have survived for 70 years and conjunction’ with their hospitality functions. 16 An example arose during research into the West Auckland 8 This article does not intend to discuss how these concepts polls in 2003: the number of gaming machines in Portage achieved the collective size and support for interweave to underpin community enterprises. For more on and Waitäkere was one third the occurrence in the rest of this, see Teahan, 2007. New Zealand. their communities they have is a notable 9 For example, see Laville, 2003; Salamon, 2003; Bollier, legacy. 2002; OECD, 1999; Department of Trade and Industry (UK), 2002. Teahan (2007) explores why this growth is occurring.

References Bassett, M. and M. King (2000) Tomorrow Comes the Song, Auckland: New Zealand Herald (2003) ‘Editorial: End trusts’ “stultifiying” monopoly’, Penguin New Zealand Herald, 17 February Bollier, D. (2002) ‘Commons sense: community ownership and the New Zealand Licensing Trusts Association (2009) Submissions to the Law displacement of corporate control’, Multinational Monitor, July/August Commission on the issues paper Alcohol in Our Lives, October Bollinger, C. (1967) Grog’s Own Country: the story of liquor licensing in OECD (1999) Social Enterprises, Paris: OECD New Zealand, Auckland: Minerva Round, D. (2001) ‘Henry Greathead Rex Mason KC CMG: an outstanding Department of Trade and Industry (UK) (2002) Social Enterprises: a law reformer’, Waikato Law Review, 9, pp.131-52 strategy for success, www.dti.govt.uk Salamon, L.M. (2003) ‘Data released on worldwide nonprofit sector: Johns Du Fresne, K. (2017) ‘Licensing trusts: glass half full or empty?’, Stuff, 13 Hopkins-led effort tracks 35 countries’, Ascribe Higher Education October News Service, 15 April Hansard (1944) New Zealand Parliamentary Debates, vol. 264, 27 March Teahan, B. (2007) ‘Community enterprises: enduring institutions for a Jensen, M.C. and W.H. Meckling (1994) ‘The nature of man’, Journal of newer world’, PhD thesis, Victoria University of Wellington Applied Corporate Finance, 7 (2) (revised July 1997) Teahan, B. (2017) A Great Social Experiment, Masterton: Fraser Books Laville, J-L. (2003) ‘A new European socioeconomic perspective’, Review of the Social Economy, 16 (3)

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