Property prices have dominated conversations in Perth for the past five years. Over the past few weeks, however, Briefcase has seen the next central topic, especially if rising interest rates start to bite and property slows. The new theme will be management and service quality, and just how low can it go before we have our next Rothwells-style disaster.
To be partially fair to the people of Perth, the event that triggered this line of thought did not start here. It originated in Queensland and then spread across the country in the form of how the investment regulation system failed to cope with the Rocklands copper discovery.
Non followers of the penny dreadful end of the mining market will not know about Rocklands. So, as a potted history the saga goes like this. A small exploration company called Australian Mining Investments stunned investors when it announced on June 29 a fabulous copper strike which sent the stock soaring from $1.79 to $10 over four glorious days of rampant speculation.
The problem with Rocklands and AMI was that the quality of the results was not quite what it should have been. On July 5, trading was halted, and on July 6 AMI was suspended while the regulators found the time to look at the original June 29 report. Not surprisingly, they found fault. AMI duly recanted on some (but not all) of its claims. When trading resumed on July 17 the stock dropped to $2.55.
What astounds Briefcase is not that AMI gilded its copper lily but that no-one at the Australian Stock Exchange had the initiative, or time, to fossick around inside that original Rockdale discovery that was questioned by seasoned analysts, but sat unchallenged by ASX regulators for four uninformed trading days. To rub salt into the wound, it appears from the exchange of correspondence that AMI (renamed CuDeco) has Perth as its home exchange.
‘We can’t do everything,’ is the defence from the ASX, to which Briefcase says sorry, but that’s actually what you’re paid to do. You have a monopoly franchise to run a national stock market and that imparts power, and responsibility. If you encourage small mining companies to list, and charge them a fat fee for the privilege, then you must use some of that cash to police the market and protect investors – even if it means protecting investors from themselves.
The problem with AMI was one of quality. The company’s management should have been more careful with what it reported and ensured it complied with the guidelines of the Joint Ore Reserves Committee. And the ASX should have reacted more quickly when the stock started rising sharply.
Another serious breakdown in management quality can be found in one of Australia’s oldest companies, AMP. Last week, the business, which once traded as Australian Mutual Provident Society, was scolded severely by the government regulator, ASIC, for providing “unacceptable” advice on switching superannuation funds. Costs were not disclosed properly and possible conflicts of interest not fully revealed.
AMP is fixing the problem but the question remains – how did it happen? Was there insufficient knowledge inside one of the countries biggest financial institutions on how to comply with government regulation?
Yes, appears to be the answer. The why seems to be that AMP, like so many other organisations, is running too lean; either because it can’t find good people, won’t pay enough for good people, or the good people are simply not available because of the acute skills shortage, which is biting into every facet of our lives.
If AMP and ASX got it wrong, and they’re supposed to be at the top of the management food chain, imagine what’s going on at the bottom where junior workers are defying the immutable law called the ‘Peter principle’ and being promoted beyond their level of competence.
Laurence Peter, who conceived the concept named after him, actually wrote in 1969 that: “In a hierarchy every employee tends to rise to his level of incompetence”. Translated, that means that by the time we hit our top job we are doing something at which we are hopeless.
For example, look no further than how the skills shortage means staff with zero people skills are allowed to serve customers in a retail outlet, or a government department. Briefcase will not name any particular government departments or major banks, but we’ve all encountered the clods they put in the frontline.
Once you recognise that this is the best material an organisation can put out front to deal with customers, you must ask the question about what’s going on in the background. It is a Briefcase theory that something rotten at the customer level is rotten all the way back up the food chain.
What you see in business you also see in the academic world, where good teachers are dropping out (poor pay) and the less talented are filling the vacancies, right up to the top of our best universities. A flat, uninspiring and downright boring address by one of our leading academics was, in Briefcase’s opinion, a perfect example of the ‘Peter principle’ at work.
A final thought on the skills shortage and how it is starting to bite takes us down to some of the lower ranks of society or, at least, the place where excellent service is expected from poorly paid people. No prize for guessing that Briefcase is referring to teachers, nurses and police.
How, it must be asked, can we truly expect competent people to take up jobs like these when the pay rate is less than $50,000 a year, and an assistant cook in a mining centre can earn $80,000.
True, there are the issues of continuity and conditions but that argument only applies when the pay gap between two types of jobs is a lot less than what we’re seeing today. As for the argument about performing a civil service for the good of the wider society, try that one on today’s younger generation, which thinks no further than acquiring a new iPod.
“I have never seen a situation so dismal that a policeman couldn’t make it worse.” Brendan Behan