JOHN MENADUE. Continuing corporate failures.

Jun 5, 2018

There is a growing and unfortunate litany of corporate failure in Australia – and not just the banks and wage theft on a large scale. One continuing failure has been an unwillingness by our corporate sector to equip itself for the Asian Century and beyond. Instead of addressing their serious failings ,business executives  invariably respond by accusing critics of business bashing.

But before we consider the failure in our business relations with Asia, we need to consider the growing range of failures by  our corporate sector. 

  • From  the odious 2018 Rich List in Australia, we learned that there were very few who accumulated their wealth through entrepreneurial activity. Fifty-one of the 200 most wealthy Australians made their fortunes from  real estate where , with the help of lobbyists ,success depends on twisting the arms of governments for zoning and re-zoning. Very few of the rich list were from the services sector, which we have been lead to believe is the industry of the future. Probably the most distasteful feature of this Rich List was that it highlighted again that the fortunes of the Rich Listers had increased by 21.2% in the last year. At the same time, wage increases were at a lowly 2.1%. None of this could be described as a corporate success.This rich list,perhaps unwittingly  also makes a strong case for inheritance taxes. Many of the rich listers commenced life on third base!
  • The banking royal commission revealed incompetence, greed and dishonesty on a large and wide scale. The royal commission has also demonstrated how directors of our major companies have been more concerned to advance their own careers and the careers of their friends rather than the interests of the companies they should be serving. 
  • Deloitte Access estimates that if the gap in management quality between Australia and the US was halved, our productivity would rise to 80% of the US level. This would represent an increase of GDP of about $70 billion which is equivalent to about $3,000 per person per year.
  • The Business Council of Australia spends an inordinate amount of time trying to secure corporate tax reductions which would overwhelmingly benefit foreign shareholders. The BCA campaign started as an attempt to generally reform the whole tax system but quickly morphed into a campaign to assist the Liberal Party in its political agenda. 
  • There has been a massive capital write-off by large companies such as BHP Billiton,  Rio Tinto and more recently Westfarmers
  • Industry superannuation funds which are jointly managed by employers and employees have achieved far better returns for policyholders than the retail funds, mainly the banks.
  • Many of our companies give lip service to the gathering storm of human-induced climate change. But there is little real action to address the Paris objective of restraining temperature increases to no more than 1.5%. Many business organisations have decided to play the Coalition political game on climate change whilst ignoring the corporate risks that climate change poses for their organisations and the planet.
  • The business sector has failed comprehensively to shape their companies and to employ the people who have relevant skills for the Asian century. I have been concerned about this issue for a long time. Now the problem is highlighted by the political campaign  headed by ASIO being run against Chinese influence in Australia. It was the same sort of campaign that I witnessed 40 years ago when Japan was achieving remarkable economic takeoff which was of great benefit to Australia.

Tim Soutphommasane, the Racial Discrimination Commissioner at the Australian Human Rights Commission put the problem this way in this blog on 11 April this year about how our business community leadership remains overwhelmingly Anglo Celtic.

Based on the 2016 Census data on ancestry, we estimate about 58 percent of Australians have an Anglo-Celtic background, 18 percent have a European background, 21 percent have a non-European background, and 3 percent have an Indigenous background.

However, our examination of almost 2500 senior leaders in business, politics, government and higher education shows only very limited cultural diversity. Almost 95 percent of senior leaders at the chief executive or ‘c-suite’ levels have an Anglo-Celtic or European background. Of the 372 chief executives and equivalents we identified, 97 percent have an Anglo-Celtic or European background.

Here’s a breakdown. Within the ASX 200 companies, there appears only to be eight CEOs who have a non-European background – enough to squeeze into a Tarago. Of the 30 members of the Federal Ministry, there is no one who has a non-European background, and one who has an Indigenous background. It is similarly bleak within the public service, where 99 percent of the heads of federal and state government departments have an Anglo-Celtic or European background (that’s one of 103). Universities don’t fare much better: just one of the 39 vice-chancellors of Australian universities has a non-European background.

All up there are 11 of the 372 CEOs and equivalents who have a non-European or Indigenous background. A mere cricket team’s worth of diversity.

There are numerous ways to address our national and corporate failings as we try to come to terms with the Asian century. The 1989 Garnaut Report ‘Australia and the North East Asian Ascendancy’ and Ken Henry’s White Paper ‘Australia in the Asian Century’ both made many recommendations on how we should respond to Asia, including skilling Australian companies for the job ahead. But unfortunately, both reports disappeared almost without trace. The media and our corporate sector sat on their hands.

I have often emphasised that sending promising staff to overseas appointments is the best way to drive cultural change provided the process is well organised, including the return home. That wise planning also involves support for spouse/partner and children. If they are unsuited or unhappy it will greatly impair the success of the overseas posting.

But too often those executives returning from overseas are not supported and  often leave the organisation. They have changed their outlook and worldview but on return, they find their organisation as insular as ever.

Figures from the US suggest that 70% of executives returning from overseas assignments leave their organisations within three years. An Ernst & Young survey of 2012 pointed to the very high cost to organisations of executives sent overseas and then leaving soon after return to the organisation at home.

The Senate’s Legal and Constitutional Reform Committee report, ‘Enquiry into Australian Expatriates’ several years ago drew attention to their corporate failure.

‘The committee is surprised at the level of disappointment of many repatriates concerning the job opportunities available to them on their return to Australia. Many of them left Australia precisely because of the greater employment opportunities on the world stage, the higher incomes, the greater job satisfaction or the enhanced career opportunities. Even if they have returned to Australia, as many undoubtedly have, with more experience, enhanced skills, better contacts and greater cross-cultural understanding, this does not necessarily mean that openings will have developed in Australia in their absence.’

That Senate report, and my own reading and experience, confirm the difficulties of expatriates returning from an overseas assignment. Many have told me that they felt unwelcome and their organisation quite unsympathetic. There was often resentment that they had had the benefit of an overseas posting whilst executives at home really kept the business going and did the hard work!. The result was that many with acquired Asian skills resigned. Many went to Singapore and Hongkong.

I hope Julie Bishop’s Colombo Plan in reverse will work but the problem is likely to be that the young Australians returning from living,studying and working  in Asia will have difficulty finding interested employers.

Many Australian companies do not understand that if they want to change their organisational culture to make it more sensitive and understanding of the countries in our region, they must take greater care on the returning home process. It is just as important as the selection of executives to go overseas and support them when they are overseas.

If we want to adapt and change organisational culture in Australia to  better  fit with our Asian geography, we need to effectively integrate business and human resource strategy at every stage. So often we waste the opportunity. Business strategy and human resource management so often work in parallel and not together.

Overseas experience in Asia can be the catalyst for organisational change in Australia provided it is done carefully and over a long period. If developed well, an overseas experience can progressively build a change team. At the moment we are just not building those change teams.

Australian corporations are still failing badly to equip themselves for Asia. They just don’t ‘get Asia’. We could count on the fingers of one hand the number of CEOs of our top 200 companies who can fluently speak an Asian language. They recruit people with the same backgrounds and limitations as themselves.

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