Business faces decade-defining choices

The synchronicity of the economic data and Longstaff’s message neatly demonstrated the double challenge facing Australia’s business community: How to drive growth in a sluggish domestic economy, while at the same time restoring the trust of a community that has, rightly or wrongly, come to see business culture as broken.

The choice for business that was effectively presented by Longstaff – and reinforced at several points across the two days of the sold-out Summit – was between profits and people. Or to be more specific: How does business balance meeting the expectations of investors with meeting the rising expectations of customers and employees?

The current environment would suggest that how the business community addresses this choice will go a long way to defining the environment it will operate in for the next decade.

Today’s heightened anti-business sentiment in political circles, the push for increased regulation in areas such as financial services, energy and industrial relations, and the diminished levels of trust within the broader community, are arguably a result of the way business has allowed the balance between people and profits to tilt since the GFC.

Qantas CEO Alan Joyce, left, and Boral CEO Mike Kane told The Australian Financial Review Business Summit that a return to industry-wide bargaining would damage the economy. Lucas Jarvis, Eventive Photography

But the Summit also set out a series of other decade-defining choices that the community, politicians and the private sector will make in the next 12 months, in Australia and abroad.

Pitched political battle

The most immediate of these were crystallised by the addresses by Prime Minster Scott Morrison and Opposition Leader Bill Shorten.

Morrison portrayed May’s federal election as a choice between enterprise and envy; what he described as pro-business, pro-growth Coalition versus Labor’s plan to increase the nation’s tax take.

Shorten presented a more traditional choice between workers and bosses, declaring that “the next election will be a referendum on wages. It will be a contest about who the economy should work for, whose interests the system should serve.”

Niall Ferguson, left, Keyu Jin and Prime Minister Scott Morrison were among those at the sold-out Summit in Sydney. Louise Kennerley

There would be few business leaders who would disagree with Morrison’s view that voters are coming to grips with alternative views “for the economy that they will live in for the next decade”.

But if Morrison’s relatively policy-lite speech was worrying, Shorten’s focus on boosting wages through changes to the industrial relations system was even more concerning for the business leaders at the Summit.

Boral chief executive Mike Kane and Qantas boss Alan Joyce were quick to hit out at any suggestions that a return to industry-wide bargaining would do anything other the damage the economy.

Joyce said such a move would reduce the ability of business to innovate and could lead to “unintended consequences that actually have a massive knock-on effect on a lot of industries”.

Ethics Centre CEO Simon Longstaff says boards are still struggling with culture.  Louie Douvis

Shorten’s support for the Australian Council of Trade Union’s idea of a living wage – which would likely manifest as a big jump in the minimum wage – also immediately rang alarm bells with those business leaders at the Summit.

Seeking balance

But these leaders also fumbled to give concrete solutions to the problem of stubbornly low wage growth, currently running at just 2.3 per cent.

This was perhaps best illustrated by Chris Sutherland, chief executive of Programmed Maintenance, who employs 25,000 people around the country and works across 136 enterprise agreements running across every sector of the country.

Sutherland provided the Summit with a real-world example of how companies are dealing with what he described as the balance between doing the right thing for the business, and the right thing by workers.

Tony Shepherd says wage growth won’t come without productivity growth.  Lucas Jarvis, Eventive Photography

Recent wage negotiations at his company have seen workers receive page rises about 0.5 per cent above the inflation rate, Sutherland said.

“We know that might mean it’s 2 [or] 2.5 per cent [wage growth], and that seems quite low compared to historic threes and fours, but it still has been an increase,” Sutherland said.

“But the issue that we face, like all businesses, is that to pay any more, we have to find some real productivity improvements in what we do.”

Vicious circle

It was a common refrain – without a pay-off from improved productivity, sustainable wage growth is impossible.

But, as well-known company director and Virgin director Tony Shepherd explained – perhaps inadvertently – this is where the argument starts feeding back on itself in a particularly ugly way.

Productivity, Shepherd said, is hard to deliver without private investment. But private investment is hard without confidence. And business confidence is low because of political uncertainty and poor consumer sentiment.

But this political uncertainty and poor consumer sentiment is, at least in part, a reaction to a lack of economic growth and a rising sense of inequality.

Which takes us straight back to the lack of wage growth.

Business Council chief executive Jennifer Westacott and the Financial Review‘s Michael Stutchbury. Jessica Hromas

The problem for the corporate sector is that it appears the public’s level of trust in business has been eroded to the point that Australians are increasingly demanding the government steps in to do something about low wage growth.

Indeed, research prepared by PwC for the business Summit showed 34.5 per cent of the population believes the best way to lift wages is for the government to lift the minimum wage.

Boral’s Kane may well be right when he says that a belief that the government legislate wage rises shows a “deficit in economic education in society … they misunderstand where wages come from”.

But it’s little wonder Shorten feels emboldened to support the union-driven living wage push against the backdrop– even if it would sap business confidence, which would feed through to lower investment and lower productivity growth … and start the loop all over again.

Tony Shepherd was one of a number of executives who said it was important to recognise that Australian business was also at the mercy of global forces, and it is worth remembering that it is not just domestic choices that will impact Australian business in the next decade.

Global choices

A string of choices to be made around the globe in the next 18 months could be decisive too.

The Federal Reserve, which swung from raising US interest rates in December 2018 to effectively signalling an extended pause in January, faces a series of delicate choices over the remainder of the year, as it balances the need to keep the US economy rolling without a breakout in wages growth and inflation.

Economist Niall Ferguson told the Summit he believes that the Fed has decided to live somewhat dangerously, betting that inflation will continue to undershoot estimates, as growth returns.

But Ferguson argues the biggest long-term geopolitical choice facing Australia is between China and America, whose current jousting over trade masks a much deeper battle over which country becomes the world’s pre-eminent technology superpower, and therefore economic leader.

“This is a profound dilemma for Australia, which for reasons of history, naturally gravitates to the US, but for reasons of economics, is powerfully drawn to China,” Ferguson says.

“It is going to become a central problem of Australian politics, regardless of who is prime minister.”

Hunting a narrative

Of course, these big picture issues must seem somewhat remote for executives and directors who are bracing for a bout of pre-election business bashing.

The Summit served as a reminder that unlike the election, the battle to win back trust will be fought over years and not months.

A big problem is finding the right strategy.

Mike Kane declared the narrative around business in Australia – which he says “suggests that business is exploitative, that business is insensitive, that business doesn’t create wealth” – is pitiful.

Kane wants business to stand up for itself, and doesn’t belief it needs to feel a sort of collective guilt for cultural problems in specific sectors or at specific companies.

But this was not a representative view. While many leaders said business should not be shy about talking about its positive contribution, some soul-searching is warranted in the shadow of the royal commission.

As one chief executive argued on the sidelines of the Summit, the business community’s great hope might lie in encouraging its employees to reinforce the contribution it makes to the community.

Business Council of Australia president Grant King said that while these workers are loyal and supportive of their individual companies, many appear to have lost faith in the broader idea that business is force for good.

Winning back this key electorate of the business community, and turning employees into advocates and ambassadors, might provide a way for businesses to demonstrate connections to the society its serves through action, and further deepen these ties.

Attitude crucial

BCA chief executive Jennifer Westacott is right when she says that business cannot hope to simply talk its way out of its trust deficit.

But it also cannot afford to keep its head down and business leaders implored their colleagues to continue to join in the political debate, and explain how changes in government policy would affect their businesses, their employees and their sector.

It was a cry taken up by former Labor minister Craig Emerson, who recalled the spirit of co-operation between business, Labor and the unions after the election of Bob Hawke’s government in 1983, and told the Summit industry could show leadership by getting involved in any political changes that might be introduced by a future Shorten government.

“My invitation is: Get involved. Don’t sit on the sidelines and say, ‘this is the total deregulation of the labour market, I knew this would happen’,” Emerson said.

“Get involved, and help shape the outcome.”

The attitude that business brings to this type of discussion – and really any public debates for the next few year – will be crucial. Forelock tugging might not be warranted, but arrogance won’t fly either.

Business must show that it can make the right choices to balance profits and people.

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