Profit? Yes! But Must be Clean

The Royal Commission Report into Misconduct in the Banking, Superannuation and Financial Services Industry will be released to the public this afternoon (4 February 2019). The Commission had already published an Interim Report in September 2018.

The Interim Report had hardly anything good to say about the industry. Rather, the Commission used the word “greed” to describe the industry’s behaviour and how the industry largely treated the ordinary customers. Otherwise, how can one explain fees charged for services not provided? Fees charged to dead people?

The Australian banking industry had been politically very successful for decades. In the post-GFC years, the industry used the excuse of  ‘rising costs of funds’ in international markets for raising their interest rates asynchronous to the RBA’s rate decisions. Nobody raised an eyebrow when the major four banks reported record profits year after year while still crying poor about rising costs of funds. The crux of the matter is the banking industry fell into a culture of profit at any cost and bank executives’ remunerations were linked to profit and revenue.  Thus, the bank executives in Australia all they cared for was whether they were contributing to the bank’s revenue and profit. Bank leaders did not care enough whether their employees were doing the right thing for their customers. If the bank management were thinking that they were more focused on creating shareholder wealth, shareholders thought differently.   ANZ, NAB,  and Westpac – all received a ‘first strike’  2018 under Australia’s ‘two strikes’ rule.  CBA  received a ‘first strike’ in 2016.

So, the bottom line is: yes, we want our banks to be profitable and financially strong. Yes, we need strong banks for a strong economy. But the profit must be clean.

People who don’t look like you

On 11 April 2018, the Australian Human Rights Commission released it report on cultural diversity.  According to the report, the Australian population comprises 58% Anglo-Celtic, 21% Non-European (including Asian,  Africans, Middle Eastern, Latin American), 18% European, and 3% Indigenous. However, Australians of Anglo-Celtic and European  backgrounds continue to dominate the senior leadership roles in Australian  public and private organisations by as much as 97%. Race Discrimination Commissioner  Dr Tim Soutphommasane has rightly pointed out,  “It also challenges  Australia as a nation whose prosperity relies upon international trade, capital inflows and mobility of people.” Needless to say, if you don’t look like the Anglo-Celtics or the Europeans, your chances of reaching to the top in Australia are pretty slim.

Research into diversity tells a  different story. There is a  business case for cultural diversity. Culturally diverse leaders  can bring  in international experience, alternative perspectives, and skills that can complement  the skills of the dominant population group. But breaking the glass ceiling is not an easy task. Corporations choose their leaders through networks and informal processes. When you look different and talk differently, it might be difficult to get into those “inner” networks.

 

Who benefits from One Nation?

With the declaration of all of the 93 seats in  Queensland’s recent election, the sensation over One Nation Party is over. At least, for now. The question now is not why One Nation failed to live up to its expectations; instead, the question is why the LNP was unable to get a majority. While political pundits and party strategists will, no doubt, offer many reasons, one thing is clear. While premier Palasczuk distanced herself from One Nation and ruled out any alliance with it, the LNP leader Tim Nicholls kept the door open. Did it help the LNP? Did it improve the LNP’s chances of winning the election?

From Labor’s campaign strategy and Palasczuk’s unequivocal position on One Nation, Labor supporters clearly knew a vote for One Nation was not a vote for Labor. It may have been not so clear for the LNP supporters. The conservative voters who traditionally remain faithful to the LNP may have found a more conservative party in One Nation to hand over their precious ballots.  Moreover, mandatory preferential voting did not necessarily deliver the primary votes of One Nation to the LNP candidates.  In the end, both the LNP and One Nation lost while the ALP snatched a decisive victory.

So did the rise of One Nation really benefit the LNP?  ABC’s election analyst Antony Green could not be more precise.  In a  radio interview  with Steve Austin, Green said, “Whenever One Nation is in the field and polling well, the Coalition loses.”   Thus, the rise of One Nation is not a threat to the ALP or the Greens, it is a threat to the LNP and the Coalition.

Corruption, Politics, and a Word Font

Next time you prepare a document in Microsoft Word, be careful as to which font you use. The very use of a specific font (Calibri) apparently cost  the prime ministership of Nawaz Sharif. Well, there is nothing wrong with the font per se, it’s something else.

Remeber Panama papers? If your name appeared there, you must be a very rich person. The Panama papers listed some of the influential political leaders in Pakistan including Nawaz Sharif.  Critics alledged that Nawaz Sharif and his children were associated with some offshore companies that had been used to buy posh flats in central London using  corrupt money smuggled out of Pakistan.  Panama papers suggested Maryam Sharif, Nawaz’s daughter and considered to be his  successor in the political dynasty, was the owner of an offshore company. She claimed she was only a trustee, not an owner.  She presented a deed that was typed in 2006. And it was typed using the font ‘Calibri’!  The beta version of this font was availble in  2004, but the font was publicly available only in 2007.

Yesterday, the five-judge bench of the Pakistan’s Supreme Court gave an unimous verdict that Nawaz Sharif  failed to give a transparent account of his assets and hence, he is incompetent to run public office. Within an hour of the verdict, Mr Sharif resigned from his Prime Ministership.

Corruption is not foreign to South Asia. Based on Transparency International’s   17-month long survey, Forbes magazine reports South Asia has the five most corrupt economies of Asia. The dangerous cocktail of politics and corruption in Asia transforms politicians into tycoons and offers business tycoons the centre stage in politics (See also political connections and family firms in Bangladesh).

The curious case of Mr Ahmed Fahour

As media and commentators are busy analyzing whether Mr Ahmed Fahour was pushed or he jumped, the crux of the matter is executive pay. Mr Fahour  resigned this week amid controversy over his $5.6 million pay-packet. ABC news radio  this morning (24 February 2017) dubbed him the ‘highest paid postman in the world.’  Prime Minister Malcolm Turnbull  commented that  the pay is excessive. Other political leaders such as Senator Nick Xenophon commented “that’s  a lot of postage stamps…” Senator Pauline Hanson was also disgusted with the pay-packet which consists of $4 million salary and $1.2 million bonus.

Whether Mr Fahour is a postman or not, he should be given the due credit  of turning around Australia post from last year’s $222 million loss to $36 million profit this year. This is no mean feat – an improvement of $258 million in one year!  So what went wrong with Mr Fahour?

There are always two sides of the argument. As questionable pay practices are abundant, there is also an element of jealousy when we talk about executive pay. The average citizen or the average shareholder is baffled  by CEO pay. It appears as a mystery why CEOs are paid so much. CEO pay process is highly complex. Firm size, firm profitability, firm growth, firm’s business risk,  and business complexity – all contribute to CEO pay.Besides, we need to value the talent and  the strategic leadership they bring to the corporation.

Whether we like it or not, although Australia Post is a government-owned entity, it has to make a profit, otherwise taxpayers would be subsidizing its operations. And Australia
Post has to survive in a world of  digital disruption where we are increasingly abandoning the tradition ways of communication (‘snail mail’), thus adversely affecting postal business. If Mr Fahour  had been the CEO of a public-listed company, he  would have no issue of receiving this pay-packet. Further, it  is wrong to compare his salary with other government executives or political leaders such as the Prime Minister because  company CEOs and political leaders (or government officials) have very different jobs.

While  there is legislation  such as the “two strikes” rule to  rein in questionable pay practices ( see Monem and Ng, 2013) in public-listed corporations, there is no similar regulation for government-owned entities which are expected to be self-sustained and economically viable. Hence, whether Australia Post is a government office like Centrelink  or a profit-oriented business corporation needs to be settled first.