If the Business Council of Australia was a political party it would be in real trouble. Its president, Grant King, will leave the board of BHP because of investor concerns over Origin’s poor performance. King was managing director of Origin for 16 years before stepping down part way through the last financial year. The BCA’s agenda of cutting corporate taxes and cutting workers’ penalty rates is toxically unpopular and its membership is deeply divided on key issues like climate change, energy policy and same-sex marriage.
But luckily for the BCA, the Australian business community has a high tolerance for failure. Indeed, speaking on the lessons learned from the Global Financial Crisis at the National Press Club last week, former treasurer Wayne Swan made the point that in the last 10 years, less than 15 people have been voted off ASX 200 boards. There are in total 1500 seats on the ASX 200.
And while few directors get the axe for poor performance, the vast majority of CEOs get their bonuses for delivering average performance. It seems the same directors who rarely take responsibility for poor performance are reluctant to call out their management for similar failures. Indeed, so ingrained is the idea that CEOs get their extraordinary bonuses for ordinary performance that when the Commonwealth Bank was charged with more than 53,000 counts of failing to report possible money laundering, the “punishment” meted out to CEO Ian Narev was to deny him his annual bonus. Take that!
After decades of business CEOs lecturing the public about how to run a government, it seems those same CEOs are not so happy about the public lecturing them about good governance. But they better get used to it. The mining industry was happy to play hardball against the Rudd government over the mining tax. The banking industry is playing hardball against the South Australian government over its bank levy and the gas industry has been using the politics of fracking to conceal the price gouging they have been inflicting on Australian households and manufacturers.
Which brings me back to Grant King and the divisions in the Australian business community. According to Alberto Calderton, BCA member and CEO of the ammonia manufacturer Orica, the gas industry in Australia “hide[s] behind sophisms” to defend the inefficiency of the Australian gas market. In a recent speech, he pointed out that gas prices have risen so much in Australia that it would be more profitable for Orica to stop manufacturing in Australia, sell the gas it has already contracted to purchase to other gas users and import ammonia from other countries that produce it with Australian gas that they purchase at lower prices than Australian manufacturers have to pay.
Everyone knows the gas industry in Australia is a schmozzle. But not everyone knows that Grant King, the BCA president who likes to lecture governments about economic management and the need for long-term thinking, played a central role in destroying the efficiency of the Australian gas market when he sank tens of billions of dollars of others people’s money into one of three enormous gas export facilities in Gladstone, Queensland.
Until these export facilities were built, Australian households and industry had access to abundant supplies of gas at low prices. The whole point of Grant King’s $20 billion investment in the Pacific LNG facility was to drive up the price paid by Australians for gas from around $3 per gigajoule to what was then the world price of around $9 per gigajoule.
The only “problem” for the gas industry was that in order to justify more than $60 billion worth of export infrastructure they were going to need to export an enormous amount of gas, gas they assumed would come from coal seam gas (CSG) wells stretching over farmland from Queensland all the way down through NSW and Victoria to the wine producing regions of South Australia. Grant King and the other gas CEOs literally bet tens of billions of dollars on the assumption that communities and state governments would let them drill tens of thousands of new CSG wells. They also bet that the price of oil would never fall below $60 per barrel. And they lost.
But it is not just the shareholders in King’s Origin, as well as Santos and BG Group that are paying for those mistakes. While blaming environmentalists and state governments for a shortage of gas at a time of record Australian gas production, the gas oligopoly, like the banking and retail oligopolies that dominate the Australian economy, are now charging Australians far higher prices for their gas than they charge their export customers. Why? Because they can. Japanese gas buyers can shop around the world for the cheapest gas but the inability to import gas into Australia means that Australians are stuck buying gas from the locals, and paying through the nose for the privilege.
The captains of the gas industry, including the current head of the BCA, have managed their shareholders’ money and their investment decisions so badly that the Coalition government has been forced to introduce export restrictions in order to impose some control over the market for gas.
It’s not the first time the behaviour of big business has forced the alleged free marketeers in the Coalition into regulation. After business waged a war against Labor’s market-based solution to climate change, the Coalition came up with its Direct Action, pay the polluter scheme. And, of course, while the Turnbull government still resists calls for a royal commission into the banks, the poor behaviour and worse governance of the big banks has led the Coalition to introduce far more regulation of the banks and a new bank super profits tax as well.
Wayne Swan’s speech at the Press Club was not just about the cosiness of the directors’ club in Australia, it was about the lessons that we can learn 10 years on from the GFC. Together with former UK finance minister Ed Balls, Mr Swan participated in a range of events with Australian economists and policy makers organised by The Australia Institute to help ensure that mistakes are not repeated, countries learn from each other, and that a new policy agenda can be developed and implemented.
But while progressives are working hard to learn the lessons of the past, the BCA, which claims to be the leading voice for the Australian business community, is sticking to an old script that not even its friends in the Coalition are listening to. While there is disagreement as to whether it was doomed from the start or has simply run out of puff, everyone knows that the neoliberal policy agenda is dead. Yet this week the BCA launched a new campaign to cut corporate taxes and cut workplace conditions. If they weren’t so irrelevant it would be scary.
But the fact that the BCA has made itself irrelevant does not mean that the business community is. On the contrary, the renewable energy industry is investing massively in new technologies in regional areas. Start-ups are transforming the finance and energy sector. New investment from new entrants is driving down prices in the Australian retail sector and many business leaders are playing a loud and important role in debates about same-sex marriage, indigenous disadvantage and mental health.
Just as no political party should assume it will exist for ever, the same applies for peak bodies. If the BCA can’t fix itself, it will simply be replaced. It’s not too late for the BCA to learn from the past and embrace the future, but if Wayne Swan’s stats on board accountability are anything to go by, the odds of self-reflection and accountability are not good.
Richard Denniss is The Australia Institute’s chief economist. Twitter: @RDNS_TAI