Bad business goes beyond individuals

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Tycoon with an immense, combative energy, SMH April 29, 2009Many business dealings have recently been given personal faces.

The judgment against the James Hardie board over a statement declaring its provisions for victims of asbestos to be fully funded focused attention on the then chair of the Board, Meredith Hellicar. The illness and death of Richard Pratt focused attention on his collusion in price fixing and on the case brought against him by Graeme Samuel of the ACCC. The BrisConnections circus has focused on the faces of Nick Bolton and Trevor Rowe.

The focus on individuals risks losing sight of the social implications of the way business is conducted. It is easy to lose sight of the larger issues in seeking to blame or praise the individuals whom we identify with the companies. Worse, the personal focus makes it easy to assume that such things are an excusable or inevitable part of doing business.

In fact each of these cases is an object lesson in why larger economic principles, until recently regarded by their devotees as self-evident, are untenable. In particular, they show that it is naïve to place one's trust in the efficiency of the markets and to decry regulation.

They also show that it is absurd and wicked to limit the responsibility of company boards to the interests of share-holders. These conclusions should be self-evident, but the response to the recent cases suggests that the conventional and self-serving wisdom waits for its day to return.

There is nothing more efficient for a business, nothing more profitable in the short term for shareholders, than to have a monopoly or to collude with one's competitors in fixing prices. It is not surprising that in Samuel's estimation, a good deal more goes on that can be brought to light.

The business version of trustworthiness — the handshake that is one's bond — makes collusion virtually indetectable. It successfully channels resources from the community to businesses and undermines the trust that the community can place in business.

Although the tributes to Pratt as friend and philanthropist are properly generous and heartfelt, it is a pity that his friends at times have defended his reputation by vilifying Samuel or minimising the seriousness of collusion. The tacit acceptance of price fixing suggests why markets need regulation and why regulation will be opposed.

The focus on Meredith Hellicar in the James Hardie affair has also lost sight of the larger issues involved. The central issue has been seen as the duty of boards and their chairs not to deceive their shareholders or investors. People have then asked whether it is appropriate for the then members of the Board of James Hardie to be appointed directors of other companies.

The discussion has virtually ignored the duty of a company to make proper provision for the employees whose health has been ruined by the conditions under which the company employs them.

That is surely the central issue in this affair. The press release was part of a plan to exempt the company from its obligations to its employees. There seems to be no public discussion whether collusion in such a plan by board members of a company should disqualify them as board members of other companies.

There is little to be said of the devil's brew of self-interest, calculation, conflict of interest, deception and bad process that is BrisConnections. But if this is the efficiency of the markets at work, and if this is an example of how executives and boards of large companies work, and if those involved are appointed to other boards and public offices, then restoring trust in our financial institutions and big companies will be a big ask.

Participants in the market have social responsibilities, as do executives and boards of companies. The loss of face by individuals in business shows how important it is for society to persuade or direct businesses to discharge these responsibilities.


Andrew HamiltonAndrew Hamilton is the consulting editor for Eureka Street. He also teaches at the United Faculty of Theology in Melbourne.

Topic tags: richard pratt, brisconnections, james hardie, Meredith Hellicar, Nick Bolton, Trevor Rowe, Graeme Samuel

 

 

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It’s more than collusion that 'successfully channels resources from the community to businesses and undermines the trust that the community can place in business.'

Here’s a personal anecdote about how trust is broken: schools create enormous amounts of waste paper as anyone involved with education knows, but schools are also some of the most environmentally conscious institutions in the nation. At the school where I served for 20 years and was involved in the recycling project there, the registrar announced that it had become unaffordable to collect and recycle the tonnes of paper produced each year. Not only did the school remove foreign matter such as staples, sort the paper and cardboard to make sure it was ‘clean,’ donate tonnes of waste annually, but it paid for the VISY truck to come to collect it! To give raw material for free is one thing but to pay for its removal is another.

When the school was looking for ways to save money, this was the first to go. It caused a great deal of heartache for both staff and students because of the school’s commitment to the environment. It might seem only a small thing in the context of a man’s life, but wasn’t there someone who said something about being trusted with small things, so you can be trusted with larger?
Anne Hamilton | 30 April 2009


De mortuis nil nisi bonum.

Instead, admire the stage managing of an event: Judd, Kernahan, Meldrum, the Prime Minister. The good and the great, flower festooned, faces oozing solemn sincerity, watched approvingly by the fawning third estate! What the bikies would give for that kind of treatment.

And older citizens of our second city might be able to recall a contrast with the rags of those who attended a similar occasion when the previous owner of the mansion passed away.

Sic transit gloria mundi.
Frank O'Shea | 30 April 2009


A timely and perceptive article from Andrew Hamilton, particularly in light of the demonisation of a business regulator doing his job.

Richard Pratt, like most of us, had his strengths and weaknesses and seems to have excelled in both. It seems his very public dying has caused some simplistic responses from those wanting to shield him and his family from his weaknesses and to understandably stress his undoubted strengths. However, as Andrew Hamilton points out, the focus on individuals in assessing business behaviour 'risks losing sight of the social implications of the way business is conducted'.

Good leadership modeling strong values is nonetheless a critical factor in achieving responsible and honest organisational behavior; that leadership must be present throughout organisations and society. ‘A fish rots from the head’ is a both an ancient Chinese saying and a modern business maxim that reinforces the responsibilities of those in leadership positions. We expect our elected governments to provide a regulatory environment that minimises abuse of corporate power. The Visy case, the Hardie case, HIH, Enron, Harris Scarfe, OneTel, etc are the public evidence of the need for effective regulation of the market place.

The role of governments must be informed however by the attitudes of the society they govern. Recent events may indicate that businesses are reflecting a social culture that is not sufficiently demanding of either governments or businesses.

Andrew Hamilton defies much conventional wisdom in stating that “it is absurd and wicked to limit the responsibility of company boards to the interests of share-holders.” But he is right and I hope he provokes a debate on this issue which is critical in clarifying the social responsibilities of both individual and corporate citizens.

Peter Johnstone | 30 April 2009


De mortuis nil nisi bonum.

Instead, admire the stage managing of an event: Judd, Kernahan, Meldrum, the Prime Minister. The good and the great, flower festooned, faces oozing solemn sincerity, watched approvingly by the fawning third estate! What the bikies would give for that kind of treatment.

And older citizens of our second city might be able to recall a contrast with the rags of those who attended a similar occasion when the previous owner of the mansion passed away.

Sic transit gloria mundi.
Frank O'Shea | 30 April 2009


While I appreciate Andrew Hamilton's call for focus on board-level structures, duties and ethics in the way business is done, I think it is no less appropriate for there to be publicity about the wrongdoing of individuals than there is on their 'success'. We are regularly treated to depictions of corporate 'geniuses' and 'champions' whose success is seldom scrutinised in terms of moral criteria. When these business leaders do well, they are often treated like gods, so when their clay feet are discovered, it is perfectly legitimate they be exposed. The role of the media in both types of exposure is itself in need of critical examination.
Myrna Tonkinson | 30 April 2009


Thank you Andrew for this succinct non-aggressive analysis.
Paul Ghanem | 01 May 2009


Hellicar's case is particularly poignant as she was installed as Chair specifically to be a female face to the company during the height of the litigation. She was used - and no doubt handsomely rewarded - but the question is just how knowing she was of the use or abuse of her persona.
Jeff Mueller | 01 May 2009


What’s all the fuss about? A top executive of a large company was fined $36 million in civil proceedings before the head of the Australian Competition and Consumer Commission (ACCC) for admitting to a price-fixing agreement with its ‘rival’ and partner in a duopoly packaging company in 2007. This year the chairman of the ACCC was considering the question as to whether the guilty executive had perjured himself during the inquiry into the collusion.

Is the overall character of the person involved a matter to be taken into account, particularly in view of the death of man as the issue is still a matter of concern? We are told that the man had an impeccable character and contributed large sums to charity. On this point I am reminded of the story of the widow’s mite (Mark 12 38-44). At the same time we have been told that many small businesses suffered as a result of the high price of cardboard as a result of the price fixing arrangement.

On another level it is interesting to reflect on the ongoing impact of the world’s economic crisis involving the activities of large corporations world-wide. Catholic Social Teaching has, since Pope Pius XI, warned against the power of corporations. It is the attempt by the two companies in Australia to ignore the laws governing their activities that should sound the warning bells for us. Bakan, author of The Corporation and producer of the TV documentary of the same name, spells out the serious nature of the dangers of corporations in an interview in Socialist Review below. If we are going to get serious about our approach to climate change I fear that the action required may well involve strong legislation with regard to corporate activities in matters of much greater import than cardboard boxes!

Watch this space on the forthcoming Papal encyclical.

http://socialistreview.org.uk/article.php?articlenumber=9104

Ken Thomas


Ken Thomas | 02 May 2009


There is a 'slight' difference here.. Bris Connection and James Hardy are companies with thousands of shareholders enjoying the profits...Visy on the other hand was Richard Pratt. RIP.
john m costigan | 07 May 2009


Pratt, like Skase, is a "scapegoat". Perhaps this is the real purpose of the ACCC.
cronos | 15 June 2009


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