06/11/2007 - 22:00

Greed not so good after all

06/11/2007 - 22:00

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Greed not so good after all

Wall-to-wall Labor government in Australia and flat-management theory do not appear to have much in common. In fact, as Briefcase will demonstrate, they have everything in common, because one caused the other.

You start by assuming Kevin Rudd will win the November 24 election – a certainty in the same category as the sun rising tomorrow.

You then look at why voters have deserted John Howard and conservative politics at a time of record low unemployment, rapid economic growth, and the prospect of decades of boom times to come.

That’s when you realise that the good times, as in the really, really good times, are being confined to fewer, and fewer, Australians – a people proud of their classless roots and mateship values.

Not only are the spoils of growth being unevenly distributed, some people at the top of the corporate tree are actually being rewarded for non-performance while the man-in-the-street is certain to be punished should he not deliver.

Wrap all that in an industrial relations policy that no-one really understands, except that it seems to be very business friendly and anti-worker (or, at least, that’s the way it has been successfully portrayed) and you create a climate of distrust – and for government that’s the kiss of death.

These are assertions that contain a greater-than-normal application of brainpower by the readers of Briefcase, so we’ll go through them slowly and by example to illustrate how business, a traditional ally of conservative government, actually killed its best friend by being too greedy.

  •••

Let’s start with flat management theory. This emanated in the US when it was discovered that the traditional “inverted pyramid” of workers at the bottom and rising layers of bosses atop could be dispensed with in an era of high-speed communications.

Massive cost savings were delivered to companies that adopted flat management because entire layers of middle managers were dumped and a select few rose to the top.

Nothing wrong so far, because this is a theory that really does work.

The problem came in sharing the spoils, and this is where management got greedy. Rather than ensuring that the savings were evenly shared, the top dogs in business took most of the loot for themselves.

Evidence for this claim is everywhere. It was refreshed last week when another newspaper ran its annual survey of executive remuneration in Western Australia, using a $1 million cut-off.

The result was a list dominated by people who contributed very little, or didn’t have to work too hard, to walk away with piles of pay – leaving behind a list their employees would have found deeply annoying.

We’re not alone.

In the same week as the people of Perth saw fresh evidence of executive excess, there were brilliant examples from overseas.

  •••

In London, an annual survey of executive pay revealed that the bosses of the top 100 British companies rewarded themselves (or, should that be coerced their boards into rewarding them?) with an average pay rise of 7.6 per cent, to deliver an average salary of more than £3 million, or around $A6.8 million.

At first glance that 7.6 per cent doesn’t look too much; but it is, according to The Times newspaper: “more than twice the average pay settlement for working men and women of 3.5 per cent last year”.

Get the picture?

Here was stark evidence that the people in charge of business, and therefore the people closest to conservative politics, were thumbing their noses at the average worker.

In Britain, where a class system can still be found despite strident denials, this is something that business might get away with.

In Australia, where we delight in our class-free (and occasional convict) roots, there is widespread abhorrence at the sight of people taking more than is their fair share.

Of course, that raises the question of what’s fair, and this is where business really does have a problem best shown some months ago when a survey of executive pay revealed that salaries and bonuses paid to the top brass actually exceeded the returns to shareholders.

Not only have the captains of industry been greedy compared with their workers, they have been greedy compared with the owners of the business.

  •••

The US, however, is where we get the best recent example of how business has lost touch with people, and, by association, how conservative politics has also lost touch with the people, who just happen to be the voters in a democracy.

Stan O’Neal was, until recently, the chief executive of Merrill Lynch, the world’s biggest stock broking firm. He lost his job (whether pushed, or jumped really doesn’t matter) after Merrill Lynch reported a loss of $US2.24 billion for the September quarter; it’s biggest ever.

Worse than the loss, Mr O’Neal had been talking about merging his firm with a rival US bank – without consulting his fellow directors.

Goodbye.

But, as Mr O’Neal headed for the door, stained by the loss and by the mistake of not consulting fellow directors, he was handed a retirement package of cash, shares, and options, valued at around $US161 million.

What an appalling signal to send to the average worker. Here’s a man who has obviously failed to deliver what he’s paid to deliver – profits – and who has not followed correct corporate protocol.

His punishment? A fistful of dollars that would instantly make him one of Australia’s richest people.

Mr O’Neal’s case is an example of how business has disconnected from the people (taking conservative politics with it). And while it happened in the US, it is repeated regularly in Australia, leading to two final points.

  •••

The average worker sees how business is applying a double standard when it comes to allocating rewards, or dispensing punishment – and while envious of his boss, he hates the hypocrisy (as does Briefcase).

The error being made by business in treating people unevenly cuts to the very core of how we are brought up with rewards for doing well and punishment for making a mess. Most two-year-olds learn that principle of life.

Even the defence mounted by business, especially boards of directors, is futile. They argue that executive remuneration specialists say they have to pay high salaries to get good people, and because that’s what a rival firm offers.

Try that argument, in support of a process called “pattern bargaining”, in the world of unions and average workers, and you will find that it is illegal under the Howard government’s WorkChoices laws.

That is perhaps the ultimate example of how business has ensured that it will inherit unfriendly government for years (perhaps decades) to come. It has encouraged the government to put into law a rewards system that is illegal at the bottom end of the spectrum but legal at the top.

  •••

“Vote for the man who promises least. He’ll be the least disappointing.” Bernard Baruch

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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