Bad Bosses the Real Reason Behind Kiwi Brain Drain

Senior economist with The University of Auckland Business School Dr Rhema Vaithianathan says New Zealand managers and processes are “strikingly bad” at managing staff and they – rather than the wage gap with Australia – might be the most significant reason for losing staff to our trans-Tasman cousins.

The Associate Professor in Economics says a recent Ministry of Economic Development survey of 152 Kiwi companies reveals that managers come out amongst the worst worldwide in their abilities to recruit, promote and retain ‘high talent’ staff.

And she says that her $69 million suggestion to extend research and development tax credits and support medium-sized New Zealand-owned firms and family businesses could be paid back quickly by way of increased tax income and must be implemented now.

“New Zealand’s management scores are not good – in fact they might be the most significant reason for losing so many people to Australia – and it’s time we accepted the fact and did something about it,” Dr Vaithianathan says.

“We are significantly worse in the people management dimension, in particular in the area of recruiting and retaining talent. In terms of addressing poor performance, we came worst out of 16 countries; ranked 13th out of 16 for promoting high performers; and 14th out of 16 for retaining high performers.

“This issue must be seriously addressed by comprehensive management training and support programmes for our small and medium-sized manufacturing firms and family businesses. We simply cannot afford to ignore the issue anymore.”

International evidence is increasingly pointing to management skills and processes as an important part of the productivity puzzle, Dr Vaithianathan says. Countries such as the United States, Japan and Sweden consistently score high on various measures of management skills and techniques, whilst New Zealand management scores in the middle-to-poor range.

Management practices can account for up to a third of the differences in productivity between firms and countries, and the data suggests that a '1 point increase' in the management score is equivalent to a 65% increase in invested capital.

“In other words, New Zealand can overcome its appallingly low capital-to-labour ratio and poor labour productivity with improvements in management skills,” Dr Vaithianathan says.

“New Zealand's productivity is low and falling; our gap with Australia is large and rising. We spend more hours at work yet produce less value per hour. Commentators up and down the country are repeating the familiar mantra: we need to diversify our economy and add value. Politicians and business leaders form taskforces and working bees, turning their brains to what the next big opportunity for New Zealand might be.

“Is it the movie industry? Is it the green economy? Is it mining our conservation estate?

“Most of these attempts are strong on motivational speeches but very weak on specific policy recommendations. We need smart managers who make smart choices, and we need to get rid of nightmare bosses for good.”

The World Bank has been running management support programmes for small-to-medium-sized firms in developing countries, and preliminary findings are apparently positive, Dr Vaithianathan says.