The misconduct of directors and CEOs has resulted in a change in Australian corporate culture, writes Dr Kim Sawyer.
ON DECEMBER 8, 2016, Greg Medcraft, the president of ASIC at the time, Gave a speech on the importance of corporate culture. Medcraft said culture is important because it can be the engine of bad behavior.
Almost every day we see evidence of corporate misconduct in royal commissions like the Royal Banking Commission or in the sole proprietorship collapses. There is a recurring problem. It seems that business regulation doesn’t matter, at least to some.
Culture is a loose term. Culture generally refers to values. A good corporate culture is represented by things like transparency, honesty, maybe even social responsibility – characteristics that seem to have disappeared from the company’s balance sheet. Medcraft was not the only one calling for cultural change. It has been recommended by all surveys of business practice over the past 20 years; for example, the 2014 Financial System Survey. Yet, there is little evidence that Australia’s corporate culture is changing.
In last year’s budget, $ 70 million was given to ASIC set up a working group on governance. One of the first actions of the working group was to insert a psychologist in board discussions of more than 20 major Australian companies, including Qantas, Loan-lease and Woolworths and report to the regulator on behavior on board by September.
There are two problems with such a study. Alessandra capezio of Australian National University pointed out that administrators are likely to behave differently when observed by a psychologist. They are likely to be on their best behavior. But there is also a second problem in the fact that the corporate culture depends on the Chairman and CEO. In small businesses like start-ups and small resource firms, the CEO tends to be more important to the corporate culture. In small businesses, shareholders and creditors are less protected from director misconduct. They are at the mercy of the Council.
This is amplified by two recent high profile cases involving two high profile individuals. Both cases concern companies in the for-profit education sector which now have 65 registered companies (Higher Education Quality and Standards Agency). The first case is that of Acquire learning, a Victorian registered education provider that collapsed in May 2017 in debt of $ 145 million. The case is during the hearing at the Supreme Court of Victoria. There are three aspects to this case that show the problems with Australia’s corporate culture.
Acquire has become what it was thanks to the generosity of taxpayers. The Gillard government stimulated professional learning by enabling private college students to use the VET FEE-HELP scheme, which cost $ 325 million in 2012 but soared to $ 2.9 billion in 2015. Enter the rorters. Acquire targeted students through telemarketing and there were red flags everywhere. The Australian Competition and Consumer Commission took Acquire to court for its targeting of students and won, but it was too late for shareholders and creditors.
The psychologist inserted by the corporate regulator into board discussions of more than 20 blue chip companies, including Qantas, Woolworths and AMP, warns that the culture of Australia’s financial sector is broken. @patrickdurkin #esg https://t.co/eNU7OJJAhS
– RIAA (@RIAANews) June 20, 2019
What Acquire Learning shows is the problem of misconduct. André Demetriou, the former AFL president, served as chairman of the company’s advisory board between 2014 and 2016. Also the CEO’s uncle, Demetriou was used to profile the company. They exploited it. He was paid $ 900,000 a year for a counseling role three days a week. He had a business loan of $ 311,000 currently in dispute at Supreme Court hearings. Taxpayers and creditors have subsidized the misconduct of constituents.
The second case is that of Vocation, a vocational training and skills company that collapsed in November 2015. The vocation was dependent on subsidies offered by the Victorian government to private vocational training providers. Grants were awarded subject to the quality of the courses. But a 2015 audit by Victoria’s Department of Education found Vocation had contracted out to cheaper third-party vendors, lowering standards. As a result, Vocation lost its $ 20 million government grant just ahead of a $ 74 million private placement. The vocation had 40,000 students. Students, shareholders and creditors have paid the price for the misconduct of constituents.
One of these directors was John dawkins, President of Vocation and architect of the Unified National University System of Australia in 1988, where colleges became universities and universities became colleges. The Federal Court concluded that Dawkins failed in his homework as Director of Vocation by failing to constantly disclose to the market that Vocation was facing subsidy cuts and enrollment suspensions for two of its largest training institutions. Dawkins faces a potential five-year ban from serving on boards and a $ 1 million fine. Sanctions remain to be determined. Like Acquire Learning, Vocation depended on subsidies from taxpayers, the ignorance of regulators before it was too late, and the ignorance of creditors and customers.
– Financial review (@FinancialReview) May 31, 2019
Corporate culture is much more than that exhibited during royal commissions. Corporate culture is also manifested by the fact that the average CEO earns almost 80 times what the average worker earns, by a third of large companies do not pay tax, and by executives of small companies who use the grants. taxpayers to commit crimes. I have long pleaded for a Misrepresentation Act which specifically targets those who destroy the government. The dissuasive effects of such a law are significant.
“Studies estimate that the fraud discouraged so far … amounts to hundreds of billions of dollars. Instead of encouraging or rewarding a culture of deception, companies are now spending substantial sums on sophisticated and meaningful compliance programs. This change in corporate culture … is perhaps the most enduring legacy of the law.
We need a Misrepresentation Act. Sure, that would be as good as psychologists in the boardrooms.
When we look at Acquire Learning and Vocation, we see the corporate culture of Australia. We see the networks at work. We see the use of taxpayer subsidies. We see the regulatory failure of a deregulated industry. We see the role of directors. Andrew Demetriou presided over the expansion of the AFL from 2005 to 2014, doubling its income. John Dawkins was Federal Treasurer. Both will be remembered for their contributions other than Acquire Learning and Vocation, which will only be footnotes in their stories. Yet Acquire and Vocation illustrate a culture ASIC wants to change. Because culture begins with leaders.
The shaky education company Acquire Learning planned to pour $ 1 million a month into the pockets of its shareholders, including former AFL boss Andrew Demetriou, shortly before its collapse left dozens of thousands of blocked students ” #WarrantyTAFE instead of https://t.co/7YrYblCOzs
– Adam Curlis (@TAFEeducation) March 7, 2019
Dr Kim Sawyer is Principal Investigator at School of Historical and Philosophical Studies at the University of Melbourne.
Here’s part two of our look at the state of corporate culture in some of the world’s largest economies with an overview of Japan, Australia, and France. https://t.co/H4SnPlApnl
– CorporateBoardMember (@CorpBoardMember) May 24, 2019
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