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The banking royal commission confirms our worst fears about many business executives and crony capitalism.

John Menadue.

IOU in a piggy bank. Images Money. flickr cc.

A revealing heading appeared in an article a while back by Ross Gittins, the economics editor of the Sydney Morning Herald, Faster growth demands better chief executives. He concluded his article by pointing to the need for business leadership to seize the economic opportunities. “Our overpaid and underperforming chief executive officers are getting (it) wrong”.

But it is all much worse than we thought, as the incompetence and greed of  some of our senior business executives have been revealed in the banking royal commission.

We also now know why the Liberal Party resisted a royal commission for so long. It was to protect their business mates. It’s called ‘crony capitalism’.

Gittins says:

Deloitte Access estimates that if the gap in management quality between Australia and the US were halved today, our productivity would rise to 80% of the US level, up from its present level of 77%. Achieving such an increase today would lead to a 5.3% increase in gross domestic product over its present level. This represents an increase in GDP of about $70 billion, equivalent to about $3,000 a person per year. … Deloitte Access concludes from other research that fast-growing businesses “take an attitude that success is in their hands and nobody else’s.” But so often our business sector keeps running to government for help. The rubric it invariably uses is ‘getting rid of regulation and red tape.

In this blog I have often remarked that some business people and particularly the Business Council of Australia spend a great deal of time lobbying governments to advance their business interests rather than running their businesses, or ‘sticking to their knitting’.  With their incessant lobbying they preach ‘small government’ but practise ‘big government’

Most recently the lobbying has been to secure company tax cuts and reduced weekend wage penalties. In each case, it worked to tilt the business system in its favour. The BCA initially called for budget repair, but that morphed into a call for a cut in company taxation. It has said very little about multi-billion tax avoidance by many of its members. It rails about excessive family welfare, but very little about family trusts, or the multi-billion annual fossil fuel subsidy to mining companies, or the remarkable subsidy proposed for shipbuilding in SA that puts the automobile industry subsidy in the beginner class.

Pale, male, and stale

Business people often give lip service to our future in Asia and how we need to respond. But I have yet to meet or hear of a senior executive or board members of any of our ASX 200 companies with fluency in any of the languages of our region. That is appalling. Survey after survey reveals how inadequately Australian business is prepared to seize business opportunities in our region.

Some 9.6% of the Australian community is of Asian origin, yet only 1.9% of Australians of Asian origin are senior executives of our ASX 200 companies. (See links to ‘John Menadue. Pale, male, and stale’, and ‘John Menadue. Bamboo ceiling and the old boys club’.)

Tim Soutphommasane of the Human Rights Commission tells us in this blog that his research showed that ‘of the 372 chief executives or equivalent we identified, 97% have an Anglo-Celtic or European background’.

Asian students have dominated our school results for years, yet few of them make it to the top in our major companies. By paying high fees to private colleges, many parents secure privileged access for their children to business positions. They buy access to the exclusive ‘male, pale, and stale’ club. And company executives with limiting social backgrounds and experience appoint people like themselves. These are the real closed shops.

Capital write-offs

We have seen spectacular capital write-offs in recent years among our mining companies, not primarily due to poor trading conditions and lower commodity prices, but to poor management. The write-offs have been on an epic scale. BHP wrote off billions of dollars, a big chunk of it due to bad management in high risk purchases, such as in the US energy market.

2MG Asset Management estimated that ‘Up to the end of 2015, BHP, Rio Tinto, and Fortescue had spent $US28 billion on CAPEX, but shredded $US19 billion in annual profits.’ They thought they were playing with monopoly money. Like Treasurer Peter Costello and WA Premier Barnett, they wasted the mining boom. We are now paying the price.

In June this year, PwC commented ‘While PwC weighted commodity price index declined 25% in year on year 2015, the combined market capitalisation of the top 40 miners plummeted by 37%’.

Many of our major business enterprises have decided in recent years against expansion and increased investment. Instead, they have handed back billions in dividends and share buy-backs.

On top of it all is the failure of the big banks

The major players in our non-resources sector, of course, are the banks and superannuation funds. Yet we know that, year after year, in the trillion dollar superannuation sector, industry super funds have consistently and substantially outperformed retail funds, which are mainly banking funds. So now the banks want the rules changed to give their retail funds a leg up.

The Reserve Bank chief Philip Lowe has drawn attention to the culture of Australian banks which leads to under-performance. Speaking of the banks, he said;

There have been too many examples of poor outcomes, particularly in the wealth management and insurance industries. … I think it comes down to incentives within the organisations and … remunerative structure. And that’s a responsibility of management. … Banking has historically been a profession, a profession of stewardship, custodians, service. … It’s not a marketing or product distribution business.

And we have now had dreadful insights in the Banking Royal Commission of the greed and incompetence of our inflated and padded banking system. Adele Ferguson, in the SMH of 17 April 2018, pungently highlighted what has gone wrong with the banks. She spoke of the ‘poor culture of greed, a lack of respect for the law, and breaches of trust’. She spoke of the behaviour of the banks being so grubby and cynical that their social licence must be questioned.

Malcolm Turnbull, Scott Morrison, and their colleagues voted 28 times in Parliament between April 2016 and June 2017 to block a banking royal commission. What gall now to be criticising Bill Shorten for populism and much worse.

It has been a sorry story of the Liberal Party looking after its millionaire mates. Perhaps that is not surprising, when we see gross incompetence and greed dressed up in ideology. The Liberal Party platform tells us that ‘only businesses and individuals are the creators of wealth and employment’. Just like banks and bankers!

The big new honeypot business and particularly construction companies and financiers want to access, of course, is ‘infrastructure’. Unless we are very careful, we will find their lobbying will continue as in the past, resulting in billions of dollars of wasteful road-spending. The NSW Government is in the middle of a growing infrastructure debacle. The Infrastructure Club, with its incestuous links to ministers and advisers, is making whoopee. It may all turn out to be as disgraceful as the banks.

The business risks of climate change

Some businesses are slowly responding to risks their companies are running with rising temperatures. But many have played along with the climate politics of Tony Abbott and Malcolm Turnbull.

In this blog, Ian Dunlop has described the problem:

Company directors are personally liable for failing to assess and act upon climate risk, but the green wash continues. Major corporates parade their credentials in support of serious climate action, but none of their scenarios and policies are in line with the Paris objective of constraining global temperature increases well below 2C above pre-industrial levels, and to pursue efforts to limit the increase to 1.5C… If business genuinely wishes to regain/gain trust, it must proactively face up to the challenge posed by climate change, and initiate emergency action. Beyond that, it must open up honest debate on a new economic model to replace conventional growth. It is the only way business will be sustainable in the 21st century, with a real social licence to operate.

It is surely time for the BCA and other business interests to lift their game and focus on running their businesses. And stop pleading to governments for help. They and the country would be better off if they ‘stuck to their knitting’. This would be of enormous help to business in regaining public trust.

We have a lot of overpaid and underperforming business CEOs, as Ross Gittins writes.

Unfortunately, many economists and business analysts are embedded in the corporate sector and reluctant to expose that under performance.

This article is republished form John Menadue’s blog, Pearls and Irritations of 23 April 2018.

 

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Posted by on Apr 27 2018. Filed under Economic issues, Feature, Politics. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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