Speech - Launch of Curtin Research Centre Essay











Good evening,

Thanks Henry for that introduction.

I thought I’d start with a newspaper article which I think captures both, why corporate governance in Australia is in need of a major shakeup and also why worker representation on company boards is crucial for Australia’s future economic prosperity.

In March of last year the Australian Financial Review gathered prominent members of the Business Council of Australia (BCA) for a round table discussion.

During the discussion the now former Chief Executive of the Australian Stock Exchange, Elmer Funke Kupper, lamented Australia’s current economic climate “it’s almost a shame we didn’t have a deeper downturn to wake us up to the heavy lifting we’re going to have to do.”

I couldn’t believe it when I read it.

One of Australia’s most senior business leaders was bemoaning the fact Australia avoided the worst of the economic downturn since the Great Depression 70 years earlier.

The Great Recession or Global Financial Crisis reduced economic activity across 23 high-income countries to the point that it was the equivalent of the entire German economy simply disappearing.

During the Global Financial Crisis, I sought to work as closely as I could with senior members of the business community to develop a package, which would shield Australians from the worst effects of the global calamity.

While there was some immediate public support from the business community for our stimulus package in subsequent years the BCA there was a steady stream of opposition, particularly from their new President Tony Shepherd.

Their interventions masked a strong desire in sections of the business community for the cleansing power of a recession to sweep through the economy.

None however were brazen enough to declare this publicly.

It was and remains a surprisingly resilient idea in some circles.

The idea of wishing a recession upon the Australian economy is morally hideous in itself but coming from the likes of Elmer Funke Kupper and the BCA who wouldn’t find their jobs in danger in the event of a recession was disgrace.

The BCA followed this performance up with another one earlier this year when the leadership group of the Business Council of Australia, with a combined salary of $65 million gathered at parliament house to lobby the parliament into accepting the Turnbull government’s proposed $65 billion corporate tax cut.

And doing this simultaneously with calls for lower wages…

Imagine being a forklift driver, or shelf packer or a waiter who is at risk of having their penalty rates cut and you turn on the news one night and see a group of individuals who earn more in a day than you do in a year arguing for a corporate tax cut and lower wages.

Imagine the rage and frustration which must fill those people when they see this.

It is little wonder given this abrasive policy position and the recently exposed behaviour of the Commonwealth Bank and BHP, two of Australia’s biggest companies that trust in business is at an all-time low.

For me it is clear that Trumpification has taken a firm hold in far too many board rooms in Australia.

The grotesque enlargement of executive pay and packages over the past decades has fuelled the resentment of working people towards the business community.

In the United States, the average CEO is paid more than 300 times the average worker.

While the industry averages for Australia are unpublished, last year the head of the Commonwealth Bank received $12.3 million, or the combined salary of 250 Commonwealth Bank tellers.

To combat this phenomenon some have proposed enforcing higher company tax rates the higher that this pay ratio goes.

Interestingly it was only when the Austrack scandal broke the the Commonwealth Bank board acted to cut bonuses for senior executives.

In essence CommBank thought they were too big to charge. They thought they were above the law and that’s why only after the scandal became public the board acted.

But seriously if a chief executive has received over $55 million in salary and bonuses how effective is a $2 million clawback as a form of justice?

It’s very clear in the case of CommBank that the Board wasn’t fulfilling its oversight roll and had allowed executive salaries to spiral out of control.

And this brings me to Australia Post where departing Chief Executive, Ahmed Fahour, received a $4 million bonus simply for doing his job!

Instead of creating value and competing too many businesses have adopted a merge, purge and gouge mentality which is economically counterproductive and deeply damaging to our social cohesion.

Breaking this mentality requires breaking the most powerful closed shop in the Australian economy; the directors club.

To give you some idea of how insular this club is in the last 10 years, less than 15 people have been voted off ASX 200 boards out of 1500.

Similarly the average incumbent ASX 200 directors get 96 per cent of the vote.

If there was an outcome like that out across three parliamentary elections it would be fair to say we have an autocracy, not a democracy.

Right now a board director is the safest electoral office in Australia and with a militant anti-union Turnbull government the result is worker voice being drowned out and resentment is rising.

And we’ve seen where this road leads.

Recently I asked an American friend, a 40 year veteran of the US political process, whether the rise of Donald Trump would eventually lead to a more moderate and balanced political discourse in the US. He said “No, it will only get worse.”

He went on to explain that increasingly we are seeing leading business figures lazily adopt positions based on populism and ideology rather than evidence-based economic analysis.

And we’ve seen this here already with the Turnbull government’s $65 billion unfunded corporate tax cut.

To tame this corporate excess and root out Trumpism in Australian business it is crucial that workers’ voice is heard and that competition is introduced into the directors market.

And I think Nick’s paper hits the nail on the head – one of the quickest and most effective ways to guarantee that workers’ voice is heard and ensure there are balanced views in corporate management.

And this goes for public and private boards; for example the Reserve Bank Board once included the head of the ACTU.

Today all six of the RBA’s non-executive members are private company directors.

Giving workers a voice on boards isn’t just a practical proposition it makes economic sense.

When workers are allowed to communicate their demands to managers without fear of dismissal, not only can workers benefit, but businesses can improve their processes, benefit from collaboration and give employees a sense of ownership of their work.

I believe we could also look at other models such as the one used in Sweden where leading shareholders propose a shortlist of alternative candidates for a company director positions.

A similar system could be proposed in Australia and this would bust up the directors’ club quick smart.

Doing so would boost competitiveness in our economy and go some way to restoring balance to the share of income between labour and profit where the wage has 53 year low.

Earlier this year I spoke about what policies we need to restore balance to the division of income between labour and profit at the ACTU Congress in Sydney.

For me we must build our policy around four key pillars of Australian Laborism:
1. Sustained full employment, defined as a level of unemployment of 3% or less.
2. A stronger voice for workers, codified in new rules and institutions – which I think is exactly what Nick’s paper identifies.
3. Taming corporate excess, from oligopoly power to executive pay.
4. Defending and advancing our world-leading progressive tax system.

But as I said to the ACTU congress we need our message to be clear, bold and credible how we as progressives will strengthen economic growth and spread opportunity.

Labor economic team of Chris Bowen, Jim Chalmers and Andrew Leigh under Bill Shorten have taken the lead on economic policy by seeking to close debt deduction loopholes and increasing ATO compliance activities.

But we must continue to lead the debate and advocate for progressive policies which show clearly and unambiguously whose side we’re on.

So Nick I want to congratulate you and Curtain on this paper – it’s the kind of discussion we should be having and it’s certainly worth exploring and interestingly enough Theresa May is going down this path.

We have to make the case that middle income consumers, not just rich people, are job creators.

A broad range of middle income earners is a source of prosperity and wealth creation, not a consequence of it.

If all the public hears is social justice rhetoric that the only reason to help workers is because we feel sorry for them, then that message will lose.

We need to say clearly and unambiguously whose side we’re on.

We are not anti-wealth creation – we are anti-wealth concentration.

The Coalition worships wealth, but the difference between us and them is that we respect and reward the hard work that creates it.