The resignation of Dr Smith from his Ministerial portfolios last Wednesday leaves a void..

There may be more than meets the eye, or more to come that would explain why an apparently innocuous error jrequired his resignation. But more important is whether his projects can continue..

From the time I entered Parliament Dr Smith stood out. He was clearly intelligent, seemed harder working than his colleagues, and more driven..

As Minister for the Environment, Minister Responsible for Climate Change Issues, he shepherded through National's amelioration of the ETS. It must have been thankless, with no gratitude for those of the green faith, and no respect from those who consider our efforts to be pointless, even if we are in human induced climate change for the worse. He has made sure we retain our credibility as a country that observes the agreements it has has signed, even when they are regretted, without exposing us to the costs that could have been crippling.

As Minister for the Accident Compensation Corporation he appeared to handle many hot potatoes astutely.up to the last one.

After the last election he retained Environment and Climate Change Issues, dropped ACC, and took over Local Government. . The launch of Better Local Government on 19 March was inspiring.

But he'd earned the cred to try potentially radical stuff by relative consistency in other ways. ·         Launching Building a Bluegreen Future on 2 March  – a policy paper outlining work on climate change, energy, transport, biosecurity, freshwater, biodiversity, oceans, recycling, contaminated sites, air quality, and outdoor recreation

·      The appointment of the Crown Observer to assist Christchurch City Council was handled adroitly.on 27 January

It’s a shame he will not be there to steer the  local government reforms  I fully support the move to scrap the 2002 broadening of local government role to  “general competence”.

I admire his passion, even with reservations about some of his projects, like the establishment of the Energy Efficiency and Conservation Authority in 2000, and the Environment Protection Authority in 2011.

In 2010 after a stocktake of ACC. Nick Smith argued that private competition will force the ACC to be more efficient and confirmed the Government would, in the second term, go ahead with plans to allow competition from private insurers for the ACC Work Account. This was a controversial move. There is now more doubt about the fate of this reform

He’s won the Nelson and Tasman seat eight consecutive times since 1990 when he was only 25. Keeping the arts luvvies and the hippies and the practical workers there happy all at the same time would take stamina.

I hope he leaves his shoes near the Cabinet table. If they do not find someone to fill them, perhaps he'll be allowed to put them on again, after it is clear that all the mud has been exposed..

Republican presidential contender Ron Paul is usually caricatured here as far right or libertarian.  He is instead principled. On 20 March he posted a thoughtful piece in a weird newsletter (the Daily Bell)  headed" Demolition of Due Process".  Because it raises an issue that will come to haunt us I paste much of that post below. It was triggered by an address by Obama's attorney general Holder at the law school of Northwestern University (Chicago).

Ron Paul says tHolder's speech "demolished what was left of the rule of law in America".

Perhaps we now find more courage in our female leaders than the males. Or is it just that the whinging media cut them more slack to be "macho" than the males. Whatever the case I long to see more macho staring down of  the privacy abusers, as Paula Bennett did several years ago.  Judith Collins could offer the ACC complainants the chance to go back to the privacy levels replaced by ACC.

 Judith Collins can probably now safely ignore the media  yapping about ACC's accidental release of information, and leave that part of the non-story to die. Sean Plunket's encouragement was welcome.

It has been overtaken anyway by a new non-story, trying to draw in Nick Smith for his normal (for an MP) character endorsement of someone known to him. Ms Pullar's lack of balance and self-absorption, as revealed by Whale Oil's correspondence, looks characteristic of a brain injury victim. Nick must regard that reference as one he got wrong.

Privacy enthusiasts don't care that privacy cloaks rip-offs. ACC replaced civll law suits tort for negligence compensation. Though most claims were settled, those that were doubtful ended up in court. In those days our senior lawyers still thought that justice being seen to be done was more than a quaint notion. People accordingly knew that  accounts of grotesque suffering from a bad back might be published, to be remembered when next they were seen practicing their golf swing.

As President of the VUW Law Students' Association I supported the replacement of  tort with the ACC scheme.  I naively never thought of  ACCbecoming a political slush fund for politicians to prove their generosity with with other peoples' money. I  did see the risk of it becoming the resort of hypochondriacs. We imagined that a vigilant and cynical press would patrol that boundary.  I doubt whether any of us foresaw the counselling scam – where people demand paid friends because their actual friends have got sick of hearing their complaining.

I guess it will be just too much trouble even for Judith Collins, but  after Nick Smith reined in the great physio scam the next reform would be to end payments to counsellors until there is research proof that they are worth what they cost, and that they are not just sucking up money that should go to more rewarding therapies.

Big ups for this one. There's little namby pamby about the local government reform package announced today.

Clients have had to blow tens of thousands in defending their communities, customers, and businesses from Council threats and depredations. They've endured cynical consultations, court cases and mind-numbing attempts to help Councillors understand the swamps of waste and patronage they've been generating.

Now to see if the government holds its nerve in the fine print.

As a constitutional lawyer, I will be specially interested in whether the admirable reinstatement of a meaningful purpose:

The Local Government Act 2002 will be amended to replace references to the ‘social, economic, environmental and cultural well-being of communities’ (the four well beings) with a new purpose for councils of ‘providing good quality local infrastructure, public services and regulatory functions at the least possible cost to households and business.’

results in the efficiency of the old 'ultra vires' action to restrain abuses of local government authority.

Publishing graduate incomes 5 years after finishing a course (using IRD data) could be the least expensive and most effective thing the Minister of Tertiary Education does to mitigate the vast waste of tax money that is Grant Robertson's interest free student loan scheme.

The government announcement must be low-key. I have not found it on the Minister's website. Reports talk of publishing in relation to "courses". Presumably that will mean courses at identified institutions. If so, for the first time the tertiary institutions will be ranked on a measure with a clear and simple meaning for enrolling students.

In the US private publishers sample graduate information. Often they measure average time to first job, starting salaries and salaries at five years. Their published gradings have a substantial influence on enrollment preferences. New Zealand Vice Chancellors have long had some survey information of this kind but it has never been published in a form likely to be useful to students.

The PBRF (Performance Based Research Fund) ranking  is coming up for its second application as at June this year. It rates academics (and their schools and universities) according to their published research output. It is partly a response to fears that the enrollment based funding system had precipitated a race to the bottom, with university recruitment being driven by the profitability of courses that maximised student numbers. That in turn could be overly influenced by perceived ease of passing, not academic quality..

Employers on the other hand generally demand courses with rigour. They may not much care about the course content as long as the exam results can be a proxy or heuristic for the aptitudes that make workplace success likely (diligence, intelligence, ambition etc).

The relative starting salaries and salaries 5 years out, of graduates in the same "courses" but from different institutions, could create a stronger student demand for rigour, and more support from university management for .staff who weed out the unsuitable students, to maintain quality reputations

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The death of  James Q Wilson is reported by the Washington Post, with a summary of his importance. He ended the defeatist perception that sophisticated free societies just have to get used to  high crime.

Apologists for criminals assume that the New York miracle is the product of redneck police aggression.

In fact when Rudy Giuliani got behind George Kelling and William Bratton in New York they in turn had behind them the academic might of some of the US's foremost universities. For 6 months Bratton did almost nothing while academics crawled throughout the NYPD, asking cops what upset them and what would help them in thier work.

When the Broken Windows revolution came into the open it was the implementation of the ideas of a fine academic – James Q Wilson,.and George Kelling.

I went to see James Q Wilson in California in the early stages of developing a 3 strikes concept for New Zealand. Like other first class academics (and unlike the defensive groupies who dominate local criminology ) he responded warmly, saying immediately that he was not enthusiastic about 3 strikes. But he was happy for me (a minority opposition backbench legislator from an obscure  country with a population smaller than the town he was living in) to pick his brain. He joined me in a cafe with a research colleague for about 3 hours.

We covered my questions. He was mainly against 3 strikes because it was more expensive politically and financially. and in moral authority terms than a genuine broken windows policy backed by judges who would make sure the law had consequences. He thought that 3 strikes had worked powerfully in California only because it was an affirmation that the justice system really meant it when it said crime would not pay.

For the Atlantic Monthly article that launched the broken windows revolution, see here. Most politicians who refer to broken windows and zero tolerance know them only as slogans. The 1982 article is a good catch up.

Wilson and co-author George L. Kelling argued  that communities must address minor crimes such as broken windows, to prevent larger problems from developing.

The article was based on walking the beat with police as well as scientific research. Police were spending too much time in police cars and not paying enough attention to offenses that created a sense of disorder, such as breaking windows.

As reported in the Washington Post obituary the 1982 article said “Window-breaking does not necessarily occur on a large scale because some areas are inhabited by determined window-breakers whereas others are populated by window-lovers; rather, one unrepaired broken window is a signal that no one cares, and so breaking more windows costs nothing,” 

Police and politicians responded.

As the Post says: "In the New York subway system, for instance, police cracked down on so-called minor offenses such on graffiti, panhandling and fare jumping and saw dramatic improvements in perception of public safety."

It worked.

On 23 February I linked to an Economist article that claimed India had no more diplomats than New Zealand. The claim seems to be wrong.

Chirs Butler, a former NZ Ambassador has done some homework:

The “Economist” claim is interesting but it seems to defy both logic and experience.  So I did a bit of checking and it looks as if it might also defy the facts.

 According to Internet sources the Indian Ministry of External Affairs employed 4,746 people in 2007 (when its Minister announced plans to double that number over the following five years: see “Times of India” 30 April 2007). The Indian ministry’s own website states that it has some 162 posts around the world and employs around 600 Foreign Service officers (ie diplomatic staff).

 In comparison, in 2010/11 the New Zealand Ministry of Foreign Affairs and Trade employed 1,363 staff in Wellington and at its 53 overseas posts (MFAT website; I think the figure probably includes also the staff of NZ Aid).  The MFAT website does not appear to break down staff by category, but according to the www. careers.govt.nz website, it  has some 300 foreign policy officers (ie diplomatic staff).

 So where did the “Economist” get its factoid? It’s difficult to be sure, but in an address to the Spectator Anglo-Indian Summit on 28 June last year, UK Foreign Office Minister Jeremy Browne noted that India had only 660 diplomats, “about as many as New Zealand”. The bottom line of his point was that India needed to employ more in order to become internationally effective.

 I wonder who wrote Mr Browne’s speech?

It is interesting that Mr Browne would risk commenting on something as 'sovereign' as another country's foreign affairs effort, with what appears to have been a casual comparison. That seems more like blogging.

Good to see Ralph Chivers of the IOD risking a lashing by reminding  the flem-specked mob that the Lombard directors were not found to be dishonest or negligent or lazy. Ralph is doing his job, but he is also speaking truth.

The law is set to give New Zealand the worst of all combinations of outcomes. Those howling for blood will be disappointed by the sentences, which will seem pitiful for convicted criminals whose crimes, in media shorthand, will inaccurately boil down to losing $12m of money entrusted to them because of their criminal falsehood. Meanwhile directors fees will go up, the available quality will go down (those who have better things to do with their time will do it), much more will be spent on arse-covering compliance by the honest and the anxious, and crooks will do what they have always done – ignore the law.

I'm guessing that Ralph could not be as blunt as he should because of the head-in-the-sand duffers in his organisation he also quoted:

"But equally a number of senior directors have said to me that nothing has really changed; that these cases are reminding us where the standard has always been, and that good directors have nothing to worry about."

They sound to me as smugly stupid as Sir Douglas Graham nearly 20 years ago.

The rage in comments on NBR, on Interest.co.nz and in response to David Farrar's prompt post is just what criminal law should engender. It is deeply ill informed, but that is not the fault of those foaming in the blogs. It should be justified though it is not. It proves my key  point in the last post  precisely. Criminal law is damaged by extending it into territory that should be governed by civil liability, where costs and risks and benefits can be properly balanced. The barriers to enforcement of civil liability must be lowered, but to abandon that effort as the government is doing and instead use criminal law is like using DDT or 245T for pest control. It works, but you also kill that which you set out to protect.

People should be able safely to pillory directors convicted of making criminally false statements. They should be able to assume that such a conviction merits ostracism, and liability to make good the damage caused by the crime.  They should not have to consider fine points of definition and justification. There should always be a bright line test for criminality. It should involve wickedness of some kind, a conscious willingness to do wrong, what was called mens rea (the guilty mind) in the days before the pragmatic barbarians gained control of the law drafting pen.

The problem lies in the misuse of the criminal law by calling  'false', statements the makers thought to be true. To most of us false carries a connotation of deliberate or conscious untruth. In this case strict liability has mislead the commenters into reading more into the offense words "untrue" than they actually mean.

If there was any good done by prosecuting, much of it will now be undone when the penalties, however stern, will seem pathetic for people who have been labelled (falsely ) dishonest. The penalties can only disappoint too when compared with $12m lost by investors. So instead of being a triumph for the long arm of the law, the case will convince even more people that the insiders are being taken care of by their mates.

Few will stop to think that Lombard money was actually lost long before the relevant prospectus was renewed. It was lost from the day the market turned and the ultimately realiseable value of the Lombard assets became less than its liabilities, though none could know at the time. The only question after that was whether any new investors shared in and reduced the losses to be borne by the existing investors, but that is always the question for businesses that do what banks have to do – borrow short to lend long.

If there is no going back from criminalisation then at the least we shoiuld make sure that the charges are not misleading. The charge should be for recklessness leading to a misleading statement. That could start to fix the problem now evident from the reaction to the Lombard case (and the unfortunate confusion created by Heath J's judgment in the Nathan case where he found, incredibly, that there was no dishonesty but still sentenced to jail.

I see nothing in the conviction reasoning to comfort anyone, though burnt investors may see justice of a kind – until the the non-prison penalties to come.

I draw some slight comfort from a discreditable schadenfreude. When Sir Douglas Graham was Minister of Justice I presented the NZ Law Society's submissions on what became the Companies Act 1993. I was also heavily involved in the debate over whether we should have a takeover law like Australia's, or more like the USA or Switzerland (we got mostly Australia's dopey model). I had several meetings to lobby the Minister on both. I recall his indifference to our warnings that the law was casually eroding the balances of shareholder and director powers, rights and freedoms. Puffing smoke rings high in the air as he looked at the ceiling (yes Veronica in those days cigars were common in the Beehive) he told me he thought I was getting a bit carried away, and that he was sure the courts could ensure that uncertain new provisions would be applied sensibly.

But that memory is unworthy. It is far overshadowed by genuine sympathy for the plight of him and his fellow directors.

When honest men share the criminal dock with crooks the crook is comforted,  the boundary between the crooked and the straight becomes obscure and obedience to criminal law becomes a matter of cynical calculation. Instead of being an unquestionable standard for all decent citizens, adherence to criminal law becomes mere risk balancing. The risk of being caught becomes just like other business risks, balanced against the returns. This is even more so when the law renders criminal some acts that the director (as potential criminal) has no practical way to stop.

All healthy legal systems rely on an active consensus of the law abiding to uphold the rules, and to assist in detecting and punishing offenders. That in turn depends on the social mechanisms like shame and disgrace that enforce the consensus.

Our company and securities law is busy trashing that consensus.

Paragraph 10 of Dobson J's Reasons for Verdict explains it.  He did not make the law. He must just apply it:

"In the relevant respects, the law has created criminal liability for what may be no more than a material misjudgement about the accuracy and adequacy of the description of the state of financial health of the company, as directors authorise it in offer documents".

The judge's reasoning highlights how mechanical the law is. I think there were ways in which he could have mitigated the reach of this law, but even if he had, when circumstance emerge that make an offering statement untrue the statutory defences are flimsy. Evidence of honesty, diiigence, compliance with accepted governance principles, reliance on trusted management and reliance on accounting standards may all be immaterial.  

I will think no less tomorrow of the Lombard directors than I did two years ago. I would welcome these convicts to my house. I give them still as much respect  for their achievements as before. I would appoint at least one of them to positions of responsibility. So in this respect criminal law has lost its power to brand. It has lost its power to draw distinctions that are vital for the effective functioning of commercial morality when the policeman or the regulator is not around, or is too busy.

The disjunct between commercial morality or ethics and the criminal law now means that when I do not have personal knowledge I am likely to sympathise with defendants, and assume that they are just losers in a liability lottery,. Criminal law should be invoking in its support the powerful social sanctions of exclusion and disgrace. Now senior directors all over the country have another reason to shudder "there but for the grace of God go I". For if they are any good at all they will often have made decisions with inadequate information, relying on their intuitions about others, juggling risks, applying their best efforts for the company, knowing that it could go wrong.

This is not to say that I do not judge those responsible for losing investors' money. Nor does it say I respect these particular directors for their sagacity as the long bull market in property neared its end, and it became ever more inevitable that the mezzanine financiers of developments would lose their money. They were foolish optimists, in hindsight. I  would not have made the same decisions as them. But perhaps I am more risk averse, and had been through the 1980s as a senior commercial lawyer, 

But I draw a huge distinction between misjudgment (as the judge called it) or foolish optimism on the one hand, and dishonesty on the other. There are plenty of dishonest directors to hound. When the law squanders scarce enforcement millions on foolishness it sends millions more into the pockets of the  lawyers now feeding off the corporate desperation for back-covering records of conspicuous diligence. None of my million dollar per year professional colleagues will be helping make any commercial boats go any faster, though many will be earning more in a year than any liability most of their clients would ever have.

But risk aversion has far higher costs. The flight of people from public markets to private equity and direct investment could waste most of the millions more the government is pouring into securities law, and trying to revitalise the moribund share market. Yet without an active local share market for medium size companies, our successful local business people will continue to sell to foreign capital when they need more, or want to start spreading their personal investment risks.,

Criminalising foolishness is foolish, but if we are now set on it there are many classes of foolishness to criminalise before a failure to warn even more strongly than they did, investors looking for the returns from calculated risk.

What about the politicians who ordered the guarantees for finance companies that have lost us all billions. What about the city planners and the heritage lovers whose aesthetic preferences blocked replacement of old brick buildings that have killed scores of people? What about the boilermakers union leaders who have killed by making it impossible to build steel framed building in New Zealand for decades so that instead we had concrete pillared buildings imitating the slenderness of steel.? What about those who designed or implement the parole laws that enable known violent risks to kill innocent New Zealanders every year?

A couple of years ago, commenting on the charging of Rick Bettle I summarised the likely outcome of convicting honest and diligent but unwise or unlucky directors as follows;

"The deterrent of the prosecutions could see the birth of  impeccable candour among company directors, ushering in a new age in which fear of prosecution makes it  possible to take at face value nearly all public commercial discourse, assuming statements have been checked to exhaustion for possibly misleading inferences. The resulting public confidence will see a flood or renewed saving and direct  investment by the newly trusting "mums and dads".

Or we could be watching a dramatic acceleration of the great decline in  opportunities for direct public investment, as promoters directors and major shareholders decide that the compliance costs (and risks) of public offering far outweigh any lowered costs of capital. On that scenario there will be little that the NZX can do to reverse its decline in significance. The power and revenue of private equity and other "wholesale" market intermediaries will surge, and whatever their 'financial literacy' or newly refreshed trust, for "kiwi mums and dads" there will be declining choice for direct investment."

Another post summarised the effect on the returns investors might expect from share investment, of imposing asymetric liabiliities on directors:

" if shareholders want the upside of good faith judgment when it proves right and want the blood of directors when that same good faith judgment proves to have been unwarranted, then the shareholders will find that the directors will demand a goodly part of the return that the shareholders are expecting. If directors pick up the downside risk for shareholders they will want the return to justify it."

Another contribution to widening inequality.

This week's Economist illustrates what it sees as India's under-powered foreign ministry with the following

"As a measure of India’s priorities, consider that the world’s second-most-populous country has no more diplomats than tiny New Zealand."

The Hon Murray McCully might argue that to have as many as mighty India, a country not usually accused of low head counts in anything, suggests the fault lies in our policy, not India's.

I suspect we should be getting good value from the  current numbers but have too many of the wrong sort, judged by the debacle of our policy on Fiji.  Or is that a case of politicians not listening to good advice?

Presumably we will see more contracting with Australia and other countries for consular work,