A rottenness has crept into the heart of boardroom Australia, spurred on by a system of crony capitalism embedded in Australia by stealth. The interests of investors and the community are continually being jeopardised by corporations going rogue and politicians have turned a blind eye to reforming the system.
The recent reputational implosion of Qantas is just the latest in a long line of corporations that have succumbed to greed — ethical failings papered over by prioritising shareholder value. After all, profits are the essence of corporate existence. However, the culture has become one of profits-at-all-costs. The dangers of this have been ignored.
Few could have predicted the extent of Qantas’ fall when its controversial, high-profile former CEO Alan Joyce posted a company record profit of $2.47 billion in May. But behind its historic turnaround lay its ruthless culture: allegedly selling tickets for cancelled flights; illegally sacking ground staff; continually downgrading customer service; muscling up on government to fend off competition; and dragging its feet on returning credit to customers. It’s a quagmire of rogue behaviour — but it helped deliver the record profit.
The Qantas scandal came on top of an even more shocking one. Giant consulting firm PwC was found to have brazenly traded confidential information it gained in the course of consultancy work for the federal Treasury. It disclosed sensitive information about the government’s attempts to crack down on multinational tax avoidance to the very same multinationals.
Go back a few years and two royal commissions were required to clean up the mess of corporate malfeasance in the financial services and aged care sectors. In fact, corporate scandals have plagued Australia since the “corporate cowboys” of the 1980s captured the public’s imagination with their debt-fuelled, daring company raids until the risky business model imploded. Along for the ride, the media loved their lavish lifestyles and turned them into business gurus and lovable rogues. But the bankruptcies of just two — Alan Bond and Christopher Skase — amounted to several billion dollars.
Instead of learning from the ’80s and the crony capitalism that corrupted politics in several states, successive governments have persisted with the corporate-friendly model that has continued to expose investors and the public to unnecessary risk.
Having studied 13 of the biggest corporate scandals of the past 40 years, I’ve identified a range of common drivers of rogue corporate behaviour: the rise of celebrity CEOs with their flawed personalities; excessive CEO remuneration packages; poor corporate culture focused on aggressive pursuit of short-term profits; poorly performing boards; weak regulators; inadequate penalties for bad behaviour, and corporate capture of government policy processes.
In effect, too many corporations have been allowed to grow too powerful, too greedy and too unaccountable.
For decades Australia’s corporate boardrooms have been bastions of the American economist Milton Friedman’s neo-liberal doctrine that the only responsibility a corporation has is to make a profit for its shareholders. Taken to excess, it’s a dangerous idea for the community, the health of the planet and the long-term sustainability of corporations.
The sheer greed driving many corporations is simply staggering, but what’s often missed is how greed has warped corporate behaviour.
The Russell Withers-owned 7-Eleven became a $4-billion-a-year empire in Australia on the back of a company-wide underpayment of wages scam. Yet Withers denied knowing the practice was going on. Bupa collapsed standards in nursing care around the country to chase high profits — widespread suffering was the inevitable result. Westpac scrimped on buying state-of-the-art anti-money laundering technology. Its cheaper product gave a green light to paedophiles sending small amounts of money cheaply to the Philippines for live child-sex streaming. Executives claimed they didn’t know it was happening.
And as banking royal commissioner Kenneth Hayne said of the Big Four banks: too often they were motivated by greed “at the expense of basic standards of honesty”. Crown Resorts built a business model knowingly based on attracting Chinese high-rollers, some of whom were connected to criminal triad gangs. Money laundering through Crown’s casinos was their real game. Star casinos have been exposed for engaging in the same business model.
Rio Tinto blew up the Indigenous archeologically rich Juukan Caves in WA to boost its bottom line. The China boom beckoned. Rio’s CEO Jean-Sébastien Jacques commissioned a report on the significance of the caves but then claimed he hadn’t read it before lighting the fuse on Indigenous heritage.
As these examples show, shareholder value has become a mantra for many large corporations. Qantas is a classic example. Under Joyce’s 15-year reign, the company’s share price rose from $1 to more than $6 — impressive in anyone’s book — until the ruthless cost-cutting that it produced is taken into account.
Joyce ripped $2.1 billion in costs out of the company by squeezing customers and sacking thousands of workers and then rehiring many through Qantas-owned labour-hire firms on reduced salaries and benefits. Maintenance and cleaning costs were also said to have been stripped to the bone. All the while Joyce’s take-home pay swelled to more than $20 million annually. Some began asking if Joyce was running the company to increase his personal wealth. It’s impossible to know, but the potential conflict of interest is glaring.
Too little attention has been paid to the downside of excessive CEO remuneration. In 2010, after the global financial crisis, the Productivity Commission examined the issue. While it found a range of contrasting views, it noted that the excessive remuneration encouraged “a short-term approach by senior executives, including undue risk-taking”. Its comments fell on deaf ears.
Why don’t boards stop corporations from going rogue? Richly rewarded board life is too often regarded as a sinecure. Payment for being a (part-time) board member of an ASX100 company ranges between $160,000 and $300,000, and many have multiple board memberships. In too many cases, board members don’t sufficiently challenge management. They collectively buy into the shareholder-value corporate eco-system and get overwhelmed by autocratic, ego-driven, celebrity-enhanced CEOs.
Too many board members are also drawn from elite business circles, networked as if they are members of a private club. Too few want to rock the boat. When a corporation plunges into scandal, it is rare for board members to be made accountable.
Of course there are ethically run corporations in Australia, but a warped corporate culture has become an embedded feature of how power works. Sections of the economy have taken on the feature of crony capitalism — a symbiotic relationship established between large corporations and governments such that corporate business ventures get favouritism in return for political donations and lucrative post-political careers.
Corporate “dark money” has flooded the political system and corporate lobbying is on steroids. And Joyce’s invite-only Qantas lounges brought all the elites together. Both soft and hard power cement politicians to corporate interests. But what about the public interest?
Carefully managed, crony capitalism doesn’t breach any rules around corruption. Scandals come and go; disgraced executives walk away with their bonuses; government outrage produces the odd inquiry. Nothing changes.
It’s way beyond time this system was reformed and corporations were made to meet community standards.
Is this sort of behaviour corrupt? Let us know by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
Quentin Beresford is the author of Rogue Corporations: Inside Australia’s Biggest Business Scandals, published by NewSouth and available next month.
As a (long retired) union leader I was the victim of management hostility, purely out of antagonism toward unions. We very rarely took any industrial action. We wanted to act responsibly. But unions in the 70s, 80s, 90s were seen as the bad guys who were bringing Australia down.
Now we see the real problem. These boards and managers are worse than any unions were. These crooks are causing immense damage to Australia. It’s high time they were brought to account.
The Unions of the 60s 70s 80s brought Australians decent wages that allowed for the highest rates of home ownership in the world.
Then Australia voted in Howard followed by 9 years of ATM blunders.
Lot of truth in all that. The Milton Friedman style of corporate conduct has replaced all the corporations that used to take a pride in the quality of their business, their relationship with customers and the long-term prospects for the business and the society in which it operated. There is a monomaniac focus on short-term profit at any cost.
The result is corporations that do not develop the economy, they strip-mine it. They rip it to bits, take all the wealth, and leave a wasteland of devastation: individual lives, environments and communities all ruined. Their greatest monument is the looming catastrophe of irreversible global warming. They know it, but they do not and cannot care: this year’s bonus is their whole world.
Worse than Friedman, it’s Kochs adopting ‘segregation economist’ James Buchanan as their muse ‘The Architect of the Radical RightHow the Nobel Prize–winning economist James M. Buchanan shaped today’s anti-government politics’ (July/August 2017)
https://www.theatlantic.com/magazine/archive/2017/07/the-architect-of-the-radical-right/528672/
It’s made too easy by economically, data and science illiterate RW MSM following and broadcasting RW think tank talking points….
Thanks for the excellent article, Quentin. I look forward to reading your book.
The experience of studying 13 of the biggest corporate scandals of the past 40 years must have been quite a depressing ordeal. But the corporate malfeasance that you describe in your essay here is nothing new. Karl Marx was referring to similar behavior by the capitalist class well over 150 years ago.
We saw corporate excesses in the 1920s which ultimately led to the stock market crash of 1929 and the Great Depression of the 1930s. Then the business sector seemed to realize that it needed to ’pull its head in’ during the war years. We had some degree of economic stability for a couple of decades or so following the war period but then what passes for ‘normality’ in the capitalist world returned with the introduction of neo-liberalism some 40 or more years ago. So, the behavior that you describe in your piece is, if anything, simply ‘business as usual’, and to be expected.
One point that I simply do not understand Quentin and it is a recurring theme here at Crikey; there is always much criticism, (all completely warranted of course), ‘hand-wringing’, ‘furrowing of brows’ and ‘throwing of arms up in despair’ at out-of-control corporate malfeasance. But, never does anyone ever seem to question the role that the capitalist system itself plays in allowing this inexcusable behavior to continue. As I have remarked before, complaining about the capitalist class putting profits before people or the environment, is akin to the brothel owner complaining that the staff are having sex with the customers. It is simply what is supposed to happen.
Also, Quentin, I cannot believe that someone with your experience cannot be aware of the fact that it is an assortment of oligarchs and plutocrats who really run this country. The purpose of the main political parties is to provide the charade of a democratic choice. How long would any party last in this country if it were to take on the business rorters and legalized scammers in any serious way? Perhaps the experience of, inter alia, former Prime Minister of Iran, Mohammad Mosaddegh, in 1953, or former President of Chile, Salvador Allende in 1973, might give you some clue.
There is only one way to deal effectively with the problems that you so eloquently describe here Quentin and that is to change the whole system – and radically. Essential services should be publicly owned, controlled, and operated as public services and utilities for the benefit of the citizens not for the benefit of the robber barons and greed-merchants. The private sector should be heavily regulated with strong penalties for wage theft and other forms of criminality. Endlessly whining and grizzling about this company’s behavior or that corporate executive’s excessive remuneration or the political donations from some industry, will solve nothing in the end. Personally, I would be looking for a socialist solution to this problem.
I couldn’t agree more. But as soon as you say that word “socialism” then there’s a label to be attacked and the whole discussion gets sidetracked (as intended). Reminds me of Barry Jones’ well intentioned diagram of the “Education Nation” proposal…which allowed it to successfully be reduced to “meatballs and spaghetti”.
Perhaps we could simply recognise the existence of natural monopolies (eg water supply, sewage handling, gas reticulation, electricity transmission and reticulation, rail, public transport, airports, land titles registries, to name but a few) and that they are in the natural province of government and are not to be artificially mangled into a simulated market (as if the physical supply of water or electricity could actually be competitive).
Further we could stop pretending that separating out billing as a competitive market makes any sense at all. It is the equivalent of filling your car up at the local service station then driving around to decide who you are going to pay for the fuel!
We could do all these things and still be in a capitalist economy for those sections of the economy where competition makes sense. There’s no need to socialise the entire economy, just those areas where it works better than fake competition. In some markets it’s probably good to have some government owned businesses operating as well (with specific legislated obligations) to provide competition and the services that private capital doesn’t seem that keen to provide affordably. The ACCC could probably lift its game a bit and oppose the four appointed goliaths of the banking world continually swallowing the minnows that pop up from time to time to compete.
Agreed. And whinging about whinging about it is equally useless.
This is the answer to all our capitalist-induced woes!
Nothing will change until directors are jailed. Make corporate laws so that for any such behaviour, two directors do 12 months each and are barred from the AICD for 5 years. That will fix things very quickly. Imagine the talk around the board table as to who gets to do the time!
Unfortunately the people who are committing these crimes own the politicians who make the laws. Hence, no matter how tough the laws are there will always be backdoor loop holes for those sufficiently connected and wealthy to escape through. We do definitely need to put a few of these guys in gaol but how to get the Mr Bigs is the issue. We can get all the little blokes we like but we need to lock up some big fish to get a change in behaviour.
Lets see Crown Casinos former executives explain what they did under oath!
the big scandal is the resources sector where the actual products free.. its a finite commodity that’s treated like a magic pudding.. the excessive windfall is then used via lobbying to retain the status quo.. its a death spiral for our country..
It is not true to suggest that any mineral commodity is going to run out. In fact we have plenty, including enough fossil fuels to wreck the climate over, and over, and over. The climate crisis has nothing to do with renewability, but everything to do with the most limited resource in an overcrowded world – space. We are running out of places to dump our gaseous waste.