Hayne backwash: Managing distrust of big business after banking royal commission

It is increasingly clear that the parade of sham and shame revealed by the Hayne commission into the banks and financial services sector will require a much broader base of renewal of public standing and social licence.

The confidence-sapping disrespect released by an executive cohort blind to its own shortcomings and therefore to the moral disintegration of their individual organisations is rippling across the wider Australian business landscape.

One lead indicator of this compounding erosion of trust is the language and tactics of government. We now have, for example, a supposedly conservative federal government sitting in competitive alignment with arguably the nation’s most left-wing state government on electricity prices.

This would have been unthinkable just 18 months ago and would have been avoided had the federal government not disintegrated rather than embraced the opportunity of an energy policy that aligned security of supply with climate outcomes.

Instead we have Prime Minister Scott Morrison and Victorian Premier Daniel Andrews in a race to reintroduce a level of price control on the retail power industry. Both governments have done this after making commitments privately to the industry that they would not. Both have used a blaze of colourful rhetoric to justify moves that masks their unique and individual ownership of the problems that generated higher electricity prices. And most importantly, both governments are headed to elections in the first half of next year. That big business is a bogyman is evidently a message that has resonance in voterland.

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Mind you, that a Labor Premier of strident origin like Andrews might revert to the language of the CFMEU is no surprise. That this narrative has become a default position for a shattered and miserably opportunistic Liberal party room says billions.

Business, both individual and as a collective, is not blameless here. The double-digit price power prices hikes of 2017 were not effectively explained or justified by the electricity retailers. And, more generally, the promotion of corporate tax cuts rather than a return to the ramparts of social licence was misjudgment given the message landed with a community whose incomes seemed frozen in time.

The hang-wringing and finger-pointing triggered by Canberra’s shameless populism is fair enough. But that is not going to even start solving the challenges that will flow from business’ collapse of public standing. And neither will simply focusing on financial performance and shareholder returns.

Reputation rebuilds

As it turns out, this is the sort of reputation rebuild that the Australian mining sector has become pretty good at.

Mining is, by its nature, destructive to the physical environment. No matter how you cut it, mining cannot prosper without a community welcome born of informed consent and demonstrably shared wealth creation.

This week, in what is timely coincidence, the product of a previous concert of regional and global challenges to big mining standing, the International Council of Metals & Mining, will hold its biannual council meeting in Melbourne.

The ICMM grew out of the prices recession of the late 1990s that triggered a capital investment drought that arrived in concert with a growing tide of host community agitation that was effectively fanned by separate but often aligned first nations and environmental lobbies.

A couple of initiatives aimed at co-ordinating a response to the growing demand for a more environmentally sustainable mining sector that was more responsive to the interests first owners through the back end of the last century eventually consolidated under the ICMM flag in 2001. The membership now stands at 27 big miners and a whole world of national peak councils. The ICMM was to emerge as a shaping force for the good and productive in global mining.

The emperors of Australian mining were front and centre of the ICMM’s formation.

The need for a collegiate response to issues that threatened access to existing and future mines had been made clear through the Bougainville tragedy and the sector’s flawed and excessively frightened response to the Mabo decision and its implications.

Given that relatively recent history, it is telling, I think, that the re-ignition of Australia’s ever-smouldering suspicion of big business has seen the big miners actively stand up for themselves. They are not leaving the battles ahead to the peak councils. And, at the same time, they have pushed the likes of the ICMM push its brand in the places where mining happens. That is why they are in Melbourne this week.

The shock-and-awe generated through early 2017 by Western Australia’s apparently active contemplation of a retrospective tax on their iron ore revenues offered Australia’s two biggest miners an anticipatory lens on Australia’s mood swing.

As a result, Rio and BHP have recovered brand advertising campaigns that have taken subtly different paths to the same end. And each is working feverishly to erect the new standing stones of public knowledge.

Rio’s big contribution

This week will see Rio market one of the products of that effort. Earlier this year Rio invited ACIL Allen Consulting to prepared a model-driven assessment of the Anglo-Australian’s contribution to Australia in its parts and sum. While the data is based on Rio’s 2017 numbers and thus will need resetting, the headline numbers are compelling and digestible.

ACIL assessed that in 2017 Rio made a bigger contribution to Australian gross domestic product than did Tasmania. Rio’s contribution of $42.7 billion represented 2.5 per cent of total GDP. Directly and indirectly, Rio accounted for 12 per cent ($27.3 billion) of WA’s state domestic product. Rio is about 2 per cent of Queensland’s economy. And the data rolls on.

The report says Rio increased the real incomes of Australian’s by $10.5 billion, that it spent $13.2 billion on goods and services here, that it paid more than $3 billion directly to employees, that it increased the real incomes of Western Australians by $4.6 billion.

By itself, this sort of analysis might have fleeting impact. But the data points here are aimed at informing Rio’s wider missions both external and internal. And they will become a routine part of the Rio narrative with the Australian report to be repeated annually and likely to be broaden to include similar affirming analysis of the company’s contribution to its other cornerstone hosts, Canada and Mongolia.

As we flagged recently, Rio’s next board meeting will be held in Brisbane early next month.

Ahead of that gathering, Rio’s board will visit the Ranger uranium mine which is a delicate closure in progress. Ranger’s standing as a target of anti-uranium ire make the success of its rehabilitation project a priority. But the incentives for success stretch far beyond the task at hand in the middle of the Kakadu. Rio has some pretty tricky mine closures ahead, none more obvious that the similarly isolated Argyle diamond mine. That the closures and the community dislocation they will trigger are managed effectively sits critical to Rio’s reputation, and thus to its future welcome.

Once the formalities of this November meeting are done, Rio’s board will host the company’s first ever annual general meeting for employees. That this pioneering venture in internal communications is being launched in Brisbane reflects the potentially disruptive pace of transition of its Queensland outposts. Rio is encouraging employees around the globe to tune in and it is understood that chairman Simon Thompson and chief executive Jean-Sebastien Jacques will take questions from the floor.

With the novel AGM done, Thompson will head south to Sydney where he will repeat an environment, social, governance (ESG) roundtable that was held with London investors last week. These are not new events but this time investors will be invited to discussions with both management and board present. The hot-button issue there will be Rio’s membership of industry associations and exposure of any points of difference in policy positions on climate change.

On the climate front, it has been an interesting week or so for extractors other than Rio, which has punctuated its drive to some level of carbon neutrality by selling out of the coal business.

There were signal moments in Sydney and New York that revealed the shifting sands of carbon disclosure and their ramifications for emitters big and small.

The lesson announced at Whitehaven Coal’s annual general meeting in Sydney on Thursday was that no matter how obvious and intractable a company’s carbon toll might be, investors are going to push boards towards making transparent account and risk analysis of emissions on a scope one, two and three level.

There are local lessons too from New York State’s headline-grabbing assault on ExxonMobil for alleged gaps in the way the oil major said it took account of carbon emissions in making investment decisions. And that lesson is that if you are exposed in any way to US capital markets, then you risk being called to account for failures of public commitments that link emissions management to investment decisions.

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