hih, asic and aussies are getting cynical

  1. 855 Posts.
    Betrayal of trust

    January 18 2003

    It's not our fault. Really it's not. The criticisms are unfair, unreasonable, unbalanced. No sooner had the royal commission lawyers presented their submissions about what - and who - went wrong at HIH, than the targets were returning fire.

    Don't blame us - or at least don't blame me. Blame, er, him, or, er, them - or just circumstances beyond anyone's control.

    Such lack of contrition may be understandable as a legal tactic. Who wants to give the Australian Securities and Investment Commission or the Director of Public Prosecutions more ammunition? Apologies might constitute admissions of culpability. Heaven forbid.

    But the attitude is broader and more disturbing than that. More irritating even than Rodney "Ski-Poles" Adler shrugging off the commission from Switzerland this week as lacking clear evidence against him. More alarming than Brad "Motormouth" Cooper trying to put together more deals in New York.

    Instead, the response reveals a corporate culture that seeks to evade responsibility - personal or professional - despite the evaporation of quite extraordinary amounts of money and of any apparent vestiges of common sense.

    Nor is it just the predictable fast-money men saying he-went-thatta-way.

    As Wayne Martin, counsel assisting the commission, pointed out, every single safety mechanism failed in the HIH implosion - whether it was senior management, the boards, the regulator, the professional advisers such as the auditors and the actuaries and the lawyers, not to mention all those well-paid financial consultants.

    No wonder so many people in the community are puzzled about just who they are supposed to trust.

    Dr Simon Longstaff, from the St James Ethics Centre, says the principal reason for the clear decline of trust in almost all institutions is the perception of hypocrisy on the part of the people who run them. What they say or supposedly stand for is so different from what they actually do.

    "They lose sight of the central purpose for which they exist," Longstaff says.

    In the case of companies, that central purpose should be to make money and provide services for people other than those lucky enough to be in at the trough.

    This increase in public cynicism hardly just affects business leaders, of course.

    Witness the bitter disillusion with the various Christian churches over their handling of sexual abuse allegations based on a determination to protect church property and hierarchy.

    And just a few years ago, governments were a far more despised breed than they are in these more security-conscious times.

    Now, not only have terrorism attacks and the prospect of war reminded people that government is required for national security but some of the problems with privatisation and the market have made for a rethinking of the fundamental role of government in protecting consumers.

    That role can still fail spectacularly. Just ask the folks at the Australian Prudential Regulatory Authority. And even the Prime Minister, John Howard, knows how fickle public affection can be for any politician.

    But despite the problems, the desire for more effective regulation and government control seems likely only to increase, given how unpopular business leaders have become of late.

    And with good reason.

    Forget the drama of HIH - or the poof-and-it's-gone frenzy of the dotcom era - and think about the recent behaviour of far more prestigious and establishment institutions.

    Surely, a suggested $30 million payout to Brian Gilbertson, the departing chief executive of BHP Billiton, after a grand total of six months, for example, is enough to make everyone choke over their own paypackets. But what about the ever-so-well-connected and qualified board which happily authorised the payment, the details of which are still to be revealed?

    Wasn't the chairman, Don Argus, the same man who had lengthy discussions about the company's strategic direction with Gilbertson before the BHP merger with Billiton went through?

    Why were these "irreconcilable differences" so hard for Argus to see at the time? Even a really bad marriage usually lasts longer than six months. Some of the money relates to Gilbertson's previous employment with Billiton, but the board had somehow also allowed the equivalent of the world's most absurdly generous pre-nuptial agreement.

    Guess who pays? No threatening legal action is at stake here. But there is no sign of "sorrys" from the board let alone offers to contribute financially - even as a gesture - from any of those who made such a shockingly expensive error of judgement .

    And then there's always the continuing soap opera of Coles Myer ... What a mess. The board has managed to get rid of Solomon Lew for the moment in a vicious proxy battle but he's sure to be back to fight another day. Meanwhile, try getting some decent service at K-mart or maintaining some faith that the country's largest retailer is eventually going to get its act together.

    Longstaff points out that compulsory superannuation means a much broader range of people are troubled by the collapse of HIH or the vast pay-outs to chief executives exiting in ignominy, than those shareholders or policy-holders directly affected.

    But corporate debacles don't have to be huge to have a massive pschological impact. It is even greater when they are the shattered symbols of a community-minded approach that seems to be disappearing.

    Demutualisation may have made some executives at NRMA very rich, for example. The main impact for the rest of us seems to be paying more for road service and insurance. A bright new ad for NRMA showing at cinemas is presumably supposed to give drivers a warm inner feeling about the excellent road service as part of a long tradition of being the motorists' friend. All very warm and fuzzy it is, too.

    So do we just politely ignore the incredible brawls on the board, the wasteful expenditure and the annual general meetings that seem more like episodes from the World Wrestling Federation?

    It's true that some of the banks such as Westpac are finally getting the message that they need to appear more socially responsible in their quest for profits, if only out of commercial self-interest, and are trying to reform their image.

    After the past few years, it is still a tough sell to a very disenchanted group of customers.

    Part of what enrages people, of course, is sometimes just the inevitable and desirable force of competition, the ending of many illogical subsidies and the commendable need for greater efficiency. Capitalism needs regular destruction and renewal, winners and losers.

    But while that may be hard enough for those immediately affected at times, a belief in the greater good or the reality that it will produce longer-term benefits can help make change more palatable.

    And that's precisely where the business fiascos of the past few years have proved so destructive of public trust.

    What's the point of change just to let the greedy guys get rich?

    A new report on the national experience of privatisation this week by the Committee for Economic Development of Australia warns of the risks that come from privatising monopolies. Think of increased landing charges at Sydney Airport and charges for toll roads in the sensitive hands of a rapacious Macquarie Bank.

    Yes, such issues can usually be handled - but certainly not just by happily trusting business or even government to do the right thing.

    The Australian community is not alone in its growing sense of cynicism about what's supposed to be good for them.

    If the 1990s was the time of the great stockmarket boom, the new century so far has been the time of the great hangover.

    The collapse of the US energy giant Enron has become the global standard bearer for a corporate culture out of control, the sense that the much praised free market was in fact hopelessly rigged against the ordinary guy.

    Arthur Andersen, the disgraced auditors for HIH, was also the auditor for Enron. Its even more elaborate accounting tricks in the US did much to undermine the basic confidence that must accompany capitalism. Accounts shouldn't lie. There is such a thing as financial truth.

    Since then, the worm has turned a little.

    Wall Street, pushed by a crusading New York attorney-general, is now going through one of its periodic purges of the behaviour of investment banks and analysts and accountancy firms in an attempt to restore that confidence.

    That will happen to some degree along with an improvement in the economy and the stock market.

    Australia will be affected by the same mood that enough is enough. The changes should restrict some of the more venal excesses for a while - at least until a whole new business cycle begins.

    Yet any modern community can never regain the trust that comes from knowing the banker or the neighbourhood firm intimately. For all the "think global, act local" jargon, large businesses still rarely act like that.

    That means some degree of cynicism and lack of trust has to be a necessary protection in today's world. At its best, this develops more sophisticated consumers more able to judge for themselves what is in their own interests.

    But Longstaff says it often becomes a sense of helplessness about the larger world reflected in a greater reliance on the bonds of family and local community.

    People concentrate on influencing what they can around them rather than trying to battle problems beyond their span of influence.

    Then something really galling like the inexcusable collapse of Ansett or the saga of HIH or a massive payout to a failed BHP or AMP chief executive comes along.

    And the whole world feels a little bit grubbier.

    Trust? Forget it.

    This story was found at: http://www.smh.com.au/articles/2003/01/17/1042520776329.html
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