Inquiry into Mayor Aldo Miccio's management of his role as mayor and his private business interests

On 16 January 2013, the Office of the Auditor-General received a letter from the chief executive of Nelson City Council on behalf of Mayor Aldo Miccio asking us to review how the relationship between the work of Mayor Miccio and his private business interests had been managed. Our response to Mayor Miccio is below.

File Ref: EN/LCA/4-0008

Aldo Miccio
Mayor
Nelson City Council
PO Box 645
Nelson 7040

Dear Mayor Miccio

MANAGING YOUR PRIVATE BUSINESS INTERESTS AND YOUR PUBLIC ROLE

On 16 January 2013, the chief executive of Nelson City Council wrote to this office on your behalf to ask us to review how the relationship between your work as Mayor and your private business interests had been managed. The public concern that triggered this request arose following your trip to China in March 2012.  The trip was organised by the Nelson Regional Economic Development Agency, through its chief executive Mr Bill Findlater.

We agreed to carry out an inquiry into this matter.

Council staff provided us with a full set of the relevant documents that the organisation held. Representatives from this Office also met separately with you and with Mr Findlater on 21 February 2013.

On the basis of this information, this letter sets out the facts as we have established them and our comments on how the line between your public and private roles has been managed.

Background

You have been visiting China and importing goods from there since 1993.  In 2005 you started importing from China through your family company, Bissi Ltd, of which you are a shareholder and the sole director.

Bissi Ltd has been dealing with Alibaba.com Ltd (an e-commerce company based in China) since 2009, providing New Zealand products for sale on its e-commerce platform.  York Zhang is the Chief Executive of Plaxo Ltd. You told us that you first met Mr Zhang when he visited Nelson as part of an Auckland based ASEAN business group visit in July 2011. This visit was organised by the Ministry of Ethnic Affairs and the Nelson Economic Development Agency.  Following that meeting, you met with Mr Zhang in Auckland and communicated with him on a number of occasions over the following months.  In August 2012 Bissi Ltd entered into a joint venture with Plaxo Ltd.

First official visit to China – March 2012

In early 2012 the Nelson Regional Economic Development Agency proposed that you, as Mayor, accompany a delegation of Nelson business people to Nelson’s sister city Huangshi in Hubei Province, China.  The delegation would also take the opportunity to meet with business contacts in Beijing, Guangzhou and Shunde.  The delegation was to depart on 17 March 2012 and return on 28 March 2012.

Mr Findlater sent a travel itinerary to each delegate on 17 January 2012.  At its meeting on 31 January 2012, the Council approved travel, accommodation, transfers and meal costs of approximately $5,000 for the Mayor to lead a delegation of Nelson business people to China in March 2012.

On 18 February 2012 you sent an email to Mr Findlater suggesting that a visit to Hangzhou to meet the Chair and Chief Executive of Alibaba be added to the trip, following an invitation you received from Mr Zhang. You did not give an explanation for the purpose of the visit other than you had been invited to be hosted by Alibaba.

Mr Findlater changed the travel arrangements for the two of you to travel on to Hangzhou while the rest of the delegation returned home. This addition to the trip was not raised with the Council and no further approval was sought.  At the time of requesting the detour, you did not mention to Mr Findlater your business links with Alibaba.com. 

It seems that some confusion has arisen, from you using the shorthand name “Alibaba” to refer to both the Alibaba Group, and Alibaba.com.
Alibaba Group is a family of internet-based businesses. Alibaba.com is a business within Alibaba Group which provides an e-commerce platform for small businesses around the world. You advise that Bissi Ltd has only been involved with one specific business in the Group (Alibaba.com).  Your visit was to the Alibaba Group Headquarters.

The trip took place as scheduled and while the rest of the delegation returned to New Zealand, you and Mr Findlater continued on to Hangzhou to visit the Alibaba Group headquarters where you met the President of the Group and some staff members.  You were given the standard company briefing and shown around the headquarters. No specific business opportunities were discussed and neither your involvement with Bissi Ltd nor your business connections with Alibaba.com were mentioned. 

Your private business dealings in mid-2012

You told us that in July 2012, four months after this trip, Mr Zhang approached you for advice on an e-commerce business venture. Subsequently, Mr Zhang proposed a joint venture between Bissi Ltd and Plaxo Ltd to establish an e-commerce shop on Tmall, which is a dedicated business to consumer platform online mall.  Tmall.com which operates the mall is a business within the Alibaba Group.

You accepted a proposal to become the Chairperson of a company to be newly created called NZ Inc. Shop Ltd, and agreed to be remunerated by way of a 15% shareholding to be held by your company Bissi Ltd. You have explained that Plaxo has a contract with Tmall.com to set up the NZ Pure Shop on Tmall.  NZ Inc. Shop is contracted to Plaxo to act as its agent for marketing purposes.  (We have not seen these contracts.)

NZ Inc. Shop Ltd was registered on the Companies Register on 23 August 2012. Your shareholding and directorship were entered into the Register on that same date. The Council’s Interest Register was updated to reflect your interest in the company in approximately September 2012 although there appears to be some discrepancy over when the Conflicts Register was actually updated.

Second official visit to China – September 2012

On 7 August 2012, Council considered an officer report recommending approval for you to participate in a second trip to China in September 2012 visiting Huangshi, Guangzhou and Miyazu. The report does not mention a visit to Hangzhou although a preliminary itinerary drafted in April included a two day visit to Hangzhou. You participated in the debate and voted on the report and elected not to declare a conflict of interest.

Although the Council was not asked to consider a trip to either Hangzhou or Longyou, you did in fact fly to Hangzhou and were booked into a hotel for the night. However, it seems there was a change of plans and you were met at the airport by officials and driven straight to Longyou to meet the Mayor and local government officials. You did not return to Hangzhou and did not meet with representatives from the Alibaba Group on this trip.

Our comments on the need to maintain a clear separation between private and public dealings

When a business person takes up a public office, such as Mayor, it is important to maintain a clear separation between the public duties being carried out and any on-going private business interests. Some overlap is likely if you have a locally based business, because pursuing economic development opportunities for the region you represent may also create personal business opportunities. If this separation is not well managed, the person risks being criticised for using the public office for personal gain.

The main areas of risk that need to be managed are:

• commercial transactions between the Council and your personal businesses;
• participation in decisions that could affect personal business interests; and
• use of Council time and resources to further personal business interests.

The Local Authorities (Members’ Interests) Act 1968

The first two areas of risk outlined above are regulated by the Local Authorities (Members’ Interests) Act 1968. There has been no commercial transaction between the Council and your personal business interests, and so that aspect of the Act is not relevant.

We have considered whether the facts that we have established raise any question in relation to section 6 of the Act, which regulates participation in decisions. In particular we have considered whether it was appropriate for you to participate in Council decisions to support your travel to China. We have concluded that the link between those decisions and any possible effect on your personal business interests is too remote to raise any concern under the Act.

However we do note that it would have been preferable for you to have declared to the relevant meetings that you had personal business interests in China and that you did not regard these as relevant to your participation in the trips. This would have made the situation transparent and ensured that it was on the public record.

Prior to your March 2012 trip to China when you received the invitation to visit Alibaba in Hangzhou, you failed to inform the Council of the proposed detour and your business links with Alibaba. You have explained that it did not occur to you to mention Bissi Ltd.’s involvement with Alibaba.com because you did not consider using its “open listing platform” meant that you had a direct company-to-company relationship with Alibaba.  The Council was therefore unable to make an informed decision about the benefits of a detour in light of your prior business dealings with Alibaba or consider the additional travel costs.  This would have been the appropriate course of action to avoid any perception of impropriety.

When approval was sought for you to visit China for a second time in September 2012, you did not declare a conflict. Nor did you mention your recent appointment as Chair of NZ Inc. Shop Ltd. The Conflicts Register had not yet been updated and councillors and officers were unaware of your new business interests. They were therefore unable to consider them when making the decision to approve the trip.

Use of Council time and resources

The other main risk for any person working in the public sector is that they may be seen to be using public resources to pursue personal interests. This risk is generally managed by careful and detailed management of expenditure that has the potential to create some personal benefits, along with careful record-keeping to ensure that the official records can show that a clear line has been maintained between public and personal activities.

Common areas of risk include travel costs (such as airfares, taxis, accommodation and meals), hospitality, and use of credit cards. Our office has published guidance on the principles that we expect the public sector to apply when managing these risks in Controlling sensitive expenditure: Guidelines for public entities (February 2007).

In relation to your travel to China, leading business delegations of this kind is a normal part of mayoral duties. However, when the first trip was extended to include a visit to a business with which you had a relationship, this brought your public work into contact with your private activities.

In our view, you should have taken some action to ensure that the record showed that you had identified the risk of overlap and how you intended to manage that risk. At its simplest, this would have been some form of declaration to the Council of the fact that you would be visiting the business, the nature of your private links with it, the purpose of the visit and who would be with you, and a commitment that you would not be taking the opportunity to discuss personal business matters. This would have ensured that the risk was recognised and managed transparently. It would have protected you from allegations that you were using a Council funded trip to China to pursue personal business links.

If the second trip to China had involved spending time in Hangzhou and meeting with Alibaba, similar steps would have been needed.

Conclusion

In summary, we are satisfied that you did not pursue any private business interests during your Council funded travel to China in 2012. However, we consider that these trips did bring your public work into close contact with your personal business interests and that you should have taken more care in the way you ensured proper separation between the two. We encourage you to seek advice from Council staff and, if necessary, from this Office if you are uncertain how to manage such a situation in future.

Yours sincerely

Nicola White
Assistant Auditor-General, Legal