Size isn’t everything when it comes to the established order in business, but Perth is making headway.
Corporate clout is hard to measure.
Sometimes the established view holds sway, other times new money wins the day.
Perth has largely been on the ‘new money’ side of that equation. In modern Australian terms, it’s the new kid on the block – last to be colonised and a laggard in so many other ways in much of its contemporary history.
As a result, Perth has struggled over the years to make a big impression on its older, eastern cousins. And if it has, it’s mainly been for the wrong reasons.
In a corporate sense, it is only in the relatively recent past that anyone has taken notice of what happens in Western Australia, beyond the occasional mining boom.
In the 1950s, even the iconic Swan Brewery, which virtually had a beer monopoly in the state, was a Victorian entity.
But power bases have their limits, and as the state’s economy has grown, so too has its place in the corporate power structures of Australia.
Perth appears to have finally become a player in the national context, with research showing that just two years ago the city had a case to be considered the third most important corporate capital in the country.
In the intervening period, of course, there have been between 150 and 200 new local listings on the Australian Securities Exchange.
In 2005, the state capital was home to five companies listed in the ASX top 100 companies, representing more than 5 per cent of the shareholder equity of those entities and 3.6 per cent of profits.
A distant third, it might be, given Sydney was home to 58 of the top 100 and Melbourne 28, but it represents an undeniable upward trend over the past 50 years – though it did peak during that unique period of 1980s when six top 100 companies were domiciled here.
In 1953, Perth was headquarters to just one of the country’s top 100 listed companies, representing less than 1 per cent of the equity and profits of Australia’s biggest listed companies.
By December 2005, companies such as Wesfarmers Ltd, Woodside Petroleum Ltd, WA Newspapers Holdings Ltd, Alinta Ltd, and Iluka Resources Ltd were flying the flag for WA. Since then, Paladin Resources Ltd and Fortescue Metals Group Ltd have joined the top echelon, at the expense of the downgraded Iluka and delisted Alinta.
While by no means the biggest companies in the top 100, Wesfarmers and Woodside, which moved headquarters here from Melbourne in the mid-1990s, currently sit among the top 25 by market capitalisation. Wesfarmers’ position may rise significantly if its audacious bid for Melbourne-based Coles Ltd is successful, as now expected.
To be fair, the change has not all been about WA’s rise. Sydney has become Australia’s corporate capital in the past five decades on the back of industries such as financial services, communications and transport, just as Melbourne has waned with the decline of manufacturing.
It’s a story well outlined in Jim Bain’s recent book A Financial Tale of Two Cities: Sydney and Melbourne’s Remarkable Contest for Commercial Supremacy.
According to research by Professor Matthew Tonts, from the University of Western Australia’s School of Earth and Geographical Sciences, and the University of Birmingham’s Professor Michael Taylor – who have updated a 1978 study by Professor Taylor and Nigel Thirft – Melbourne and Sydney have largely traded places in terms of the concentration of shareholder equity between 1953 and 2005, with Sydney taking the ascendancy in the 1970s.
But for those whose economic fortunes are tied to the west coast, that shift between the two titans of Australia’s urban landscape has corresponded with a significant change in balance of what professors Tonts and Taylor refer to as the second-tier cities.
More than 50 years ago, 12 of the top 100 companies were based outside of Sydney and Melbourne, with Adelaide and Brisbane dominating that second tier.
In the next 52 years, Adelaide and Brisbane lost ground, the latter more in terms of profitability and equity.
Adelaide is now headquarters to just two ASX 100 companies, including Futuris Corporation Ltd, which moved there from Perth with the takeover of Elders in the 1990s, compared with six in 1953. In terms of equity concentration, South Australia has largely reversed that of WA, though its current position is lower than Perth’s more than 50 years ago. In profit terms it’s a similar story.
Brisbane remains unchanged during that period with regard to headquarters – it had four in 2005 – but its shareholder equity has halved and share of profits slumped by one third.
“By contrast, the isolated city of Perth has rapidly increased its status over the past three decades,” professors Tonts and Taylor report.
“It is difficult to offer a precise explanation for Perth’s rise as a corporate player, although a combination of natural resources has been critical in underpinning growth and expansion strategies.”
It is worth noting that Perth’s corporate clout has not been one of steady growth over the period. In the late 1980s, when the likes of Alan Bond and Roberts Holmes a Court built short-lived corporate empires, WA had its foot on a bigger piece of the action than it does now – with six of the top 100 companies based here. Our share of equity and profits were correspondingly higher, too.
That was a peak which Perth has yet to reach again, though all the signs are that the state remains a growth story at the corporate level.
The long-term growth story is underscored by activity at the smaller company level, with the city having grown significantly at the lower end of the scale.
It now has close to 30 per cent of all listed companies in Australia, largely matching Sydney by number, even if it is well short in market capitalisation.
In the past two years, something like 200 Perth-headquartered companies have floated on the ASX, taking state’s tally of listed entities to almost 800.
Australian Institute of Company Directors WA president Fiona Harris confirms that growth in commodity prices had driven corporate activity here, and not just in the listed sector.
“While there has been some significant companies move their headquarters here, not a lot of them are listed companies, so we don’t see them in a public sense,” Ms Harris said.
Furthermore, many large divisions of multinationals – BHP Billiton Ltd and Rio Tinto Ltd for example – are based in Perth.
These bring executive clout, though Ms Harris admits their presence is not so apparent in terms of directorships, which have grown considerably in WA according to recent figures.
In WA alone there was a 49 per cent growth in AICD membership, or 9.7 per cent average per annum, between June 2002 and June 2007.
In the same period the percentage of overall membership growth was 34 per cent, or 6.8 per cent average per annum.
WA has had the second largest AICD membership growth rate after Queensland, which recorded 11 per cent per annum during the past five years.
But numbers don’t mean everything when it comes to corporate clout, which can be affected by perception.
“I hate to say it but those two words – ‘wild west’ – are still there,” Ms Harris said. “I thought we were making progress, but then Alinta came along.”
Ms Harris was a director of Alinta, which was engulfed in a storm of controversy earlier this year due to a management buy-out involving its chairman, John Poynton. The drama, which extended through until a recent shareholder meeting to approve a takeover by an alternative consortium, was the subject of much national discussion, much more so than similar events at the bigger and higher profile airline Qantas Ltd.
Ms Harris said WA also still ranked highly in the number of Australian Securities and Investments Commission prosecutions that took place.
“Our reputation is still a long way away from where we would like it,” she said, reflecting on the east coast view of Perth.
“They do still think of us as cowboys.”
Mapping power
Geography’s link to Australia’s boardrooms may seem as a tenuous as a postcode, but one Perth academic is using that information to try and map corporate power.
Professor Matthew Tonts, from the University of Western Australia’s School of Earth and Geographical Sciences, and University of Birmingham’s Professor Michael Taylor, have updated a 1978 study by Professor Taylor and Nigel Thirft, as part of a deeper study into identifying areas of corporate influence.
Professor Tonts wants not just to map the location of business headquarters and their size, but also who the directors of these companies are and how they are networked into the business fabric of Australia.
“If Perth is becoming more important we need to know more about the individuals involved,” Professor Tonts said.
“We are addressing the networks of all the people, the individuals who are directors in the top 100.
“We want to know who is calling the shots and where they live and what the relationships are between them.
“We can’t find out everything but we might find out something about how these individuals are connected.
“How much are our networks beginning to intrude on the arrangements, the networks, of Melbourne and Sydney?”
Again, this is just part of a bigger picture Professor Tonts is seeking to map as he examines the economic geography of power.
“We are trying to understand Perth as an economy,” he told WA Business News.
“We have been doing heaps of work on skills shortages, mapping hotspots and cold spots.”
“What are the implications of that in terms of growth?"
