Over Half a Million Careful Owners: A 75-year history of PSIS, 1928-2003 (review)

Gordon Boyce traces the history of New Zealand's PSIS, the Public Service Investment Society, in a book commissioned by the company. Boyce, now Professor of International Business at Queensland University of Technology after thirteen years of teaching business and economic history at Victoria University of Wellington, is well qualified for the project. His recent publications include Co-operative Structures in Global Business (2002). Boyce fulfills his commission well, narrating an engaging story. "Vignettes" provide personal and anecdotal details that former staff and members may be seeking, without disrupting the narrative and analysis others will seek. This deft balancing of the interests of different readers could be considered by other authors of company histories.

PSIS began modestly as an investment and savings club for central government public servants. After modest early growth in membership, it grew rapidly following World War II as the public sector expanded, and PSIS allowed union members in state-owned firms (for example, railways) to join alongside clerks and analysts from central government ministries. Until 1958, PSIS restricted itself to offering its members savings and loans facilities, mostly for home ownership. Within workplaces, agents—who were also members—solicited business and monitored accounts. Close monitoring of accounts, combined with liberalized membership criteria and a buoyant economy, gave PSIS a strong balance sheet. Its directors sought ways to diversify its asset base and services to members. The highly regulated and staid retailing sector appeared to provide good opportunities.

The first fifteen years of PSIS involvement in retailing, concentrated in appliances and housewares, were successful for the cooperative and for customers. By offering a rebate on purchases to members, financing options for larger purchases, and focusing on selling a high volume of a limited range of products, PSIS emerged as New Zealand's first major discount retail chain. It is ironic that a cooperative owned by public servants—part of an economy of regulation and public ownership—would be such innovators in retailing.

Continuing success in both retailing and financial services further strengthened the balance sheet of the cooperative by the late 1960s. In hindsight, this was when PSIS sowed the seeds of future problems by straying from the businesses it knew at a time of significant structural change in the New Zealand economy. Retailing led the cooperative into property investment—paying cash for some properties—and diversification into liquor retailing and travel services. Boyce narrates the fall of PSIS with aplomb, keeping the reader interested as PSIS lurched into insolvency. Government intervention, placing PSIS in statutory management, saved the cooperative from folding in 1979. Statutory management allowed PSIS to restructure its operations and balance sheet and emerge in 1987 focused again on retail and financial services. Retail operations were dropped in 1993, and membership criteria eased even further, culminating in 1995 with membership being opened to all. Despite the rapid structural changes in New Zealand's economy, and a highly competitive financial sector, over the past decade PSIS has been a small, profitable firm offering households a range of financial services.

Commissioned histories of individual companies cannot offer widely generalizable conclusions on the topics they cover. Drawing on his previous research, Boyce adds value to the story by connecting the challenges PSIS faced to those common to cooperatives. Essentially, the problem cooperatives face is governance. Members must be both owners and consumers of the firm. If members use their ownership power to set prices too low—benefiting themselves as consumers—they can undermine the cooperative's financial stability.

While theoretically clear, in practice the troubles PSIS faced in the 1970s were from managers and directors taking the company into unfamiliar business operations without adequate internal controls to monitor the profitability of operations. Publicly traded and privately owned firms that expand rapidly can, and do, encounter these problems. It was only in 1979 when PSIS was clearly in trouble that its unusual...