Changing the conversation

  • Date:01 Oct 2013
  • Type:Company Director Magazine
A change of government looks poised to change the conversations in many boardrooms. Zilla Efrat asks a wide range of directors what they are expecting from the new government and what its policies could mean for their boards.

Director of Sydney Ports Corporation, Australia Post, BlueScope Steel and SCEGGS Darlinghurst.

The change in government will change some of the conversations of the boards I sit on. For private sector boards, such as BlueScope, it’s business as usual, but with a renewed interest in the implementation of significant policy changes, such as the removal of the carbon tax. And, of course, there is also the hope that business and consumer confidence will improve, bringing a much needed boost to investment and spending in Australia.

The effect of the removal of the carbon tax and the mining tax will be an interesting part of our strategy discussions at BlueScope. However, the Coalition win was no surprise so changes in policy direction have been well flagged and discussed in the lead up to the election.

As the election was effectively called such a long time ago, business has been engaged in policy dialogue with government and opposition parties for most of this year so I’m sure engagement will continue as new policies are implemented. There are always some new challenges and opportunities when the federal government changes, but I’m not expecting radical change.

I was pleased to hear of Prime Minister Tony Abbott’s intention to visit Indonesia as soon as possible and his emphasis generally on building relationships in our region.

For businesses like BlueScope that have significant operations and investments across Asia, sending that message to our neighbours is very important and welcome.

On the domestic front, according to peak infrastructure industry group Infrastructure Partnerships Australia, the Coalition government’s spending on infrastructure will increase by around 25 per cent relative to the previous government’s commitments. That should provide a substantial lift in activity for the construction sector and its suppliers.

The removal of the carbon tax should also reduce input costs, which will help make our manufacturing sector more competitive.

Non-executive chairman of Stockland Corporation, HSBC Bank Australia and EnergyAustralia Holdings.

Boards will expect more policy, stability and predictability from the Coalition government. There will be less distraction and anxiety around board tables about new regulation imposed without genuine industry consultation and mature consideration.

With Australian corporate balance sheets in good shape, this change should mean less hesitation about new investment decisions.

Boards will, however, remain wary about the current weaknesses in the non-resources sectors of the economy, the downturn in developing regional economies and the imperative to reduce federal spending, except on infrastructure.

The Coalition’s strong commitment to roll back duplicative, inefficient and unnecessary regulation means boards should ask management to prepare a thoughtful list of regulatory burdens on their businesses that need priority attention.

A review of laws imposing deemed director liability and reversing the onus of proof should be a high priority. The new federal government should follow the reform approach taken in NSW and Victoria.

Similarly, boards need to ask management to begin preparing thoughtful submissions for the proposed reviews of the financial sector, competitive law and tax policy.

I see more opportunities than challenges. Local and international investor confidence will rise with a more business-sympathetic government installed in Canberra. The prospect of fewer regulatory delays on new investment projects, coupled with the repeal of the carbon tax and mining tax, will cause boards to re-look at shelved resource projects, with greater potential to attract foreign capital partners.

There will also be greater opportunities for private sector investments in major infrastructure development projects.

A more balanced industrial relations environment will help confidence, but much needs to be done to restore Australia’s competitiveness before our full economic potential can be realised. 

Chairman of Stag Beef and Integrated Food and Energy Developments (IFed). Director of Queensland Energy Resources and the Reef Casino in Cairns. 

The first sentiment will be one of relief. The election is over, the feeling of suspended animation has passed and we can get on with life. And, after four or five years feeling like the enemy, especially in the resources sector, the feeling of relief for business will be even more palpable. Is it possible we really have a government that sees the virtue of a strong business sector creating wealth, jobs and government revenue?

These sentiments must lift confidence and that could lead to opportunities and growth. The public might start spending again and so might business. We need to move from a total focus on cutting costs and focus equally on growth. The topic of discussion in most boardrooms will be: How should we position ourselves for the next era? And, where will this new-found confidence manifest itself?

I am increasingly involved in the agribusiness sector and the one worrying aspect of the new government’s policy manifesto is a hardening attitude to foreign investment.

Foreign investment is indisputably positive for the country – all of the wealth, the jobs, and the taxes are created in Australia and yet the new government seems to be heading down a populist, anachronistic and self-defeating path.

Investment and trade go together and if we keep putting up barriers to investment, we are not only stifling growth, we are ensuring we get no free-trade breakthroughs, which are so crucial, for agriculture in particular. The US has just completed a free-trade agreement with South Korea which, when fully implemented, will give US beef producers a 40 per cent advantage over Australian producers.

There is talk of a deregulation revolution with the new government. Every director in Australia will be saying: “Bring it on!” It is the regulatory tsunami of recent years that has so pushed up the cost of doing things and made Australia internationally uncompetitive. But directors are a bit cynical – perhaps we have seen it all before. Words are cheap.

Deregulation is a tough game – there are rent seekers, bureaucracies and “save the planet” activists hanging off every regulation.

But relief and a new-found optimism is the overwhelming sentiment.

Chairman of Job Futures and the Australian Securities and Investments Commission’s Consumer Advisory Panel. Director of the Financial Ombudsman Service and Food Standards Australia and New Zealand, and a trustee of the Travel Compensation Fund.

Job Futures is a disability employment services provider that delivers about $80 million in employment and training services, primarily for the federal government.

The Howard government led the way globally in 1997 when it privatised the Commonwealth Employment Service. It actively sought to change the prevailing culture of welfare into a culture of work, or as the then Minister for Employment Tony Abbott said at the time: “We’re trying to replace an ethic of entitlement with an ethic of responsibility.”

This led to programs like Work for the Dole and the Green Jobs Corp, which Labor downgraded before ending.
Real Solutions, the Coalition’s blueprint for government, makes it clear that the Coalition will restore these programs and realign incentives.

As a result, the change of government signals a host of new opportunities for us. As a leading provider of Work for the Dole and Green Corps in the past, we will ensure we can quickly reassemble capacity to deliver these services.

The Coalition has announced incentives to ensure job placements last well beyond payments to providers. It will provide incentives for employers to take on young people, the long-term unemployed and older workers. It will also invest in advanced job skills training. And, it will renew focus on indigenous employment and expand opportunities in the disability sector.

These are strategic opportunities for Job Futures and discussion at board level will be on ensuring we have the capacity across the network to capitalise on these changes, all of which play to our core strengths – working with people with disabilities, with indigenous Australians and helping the long-term unemployed. Strategic discussions will seek to ensure we are innovation fit and change ready. The board is reviewing our internal resource base and capabilities. In responding to external change, we will keep focused on our core, at the same time as building capacity for emerging opportunities.

The change of government aligns well with our strategic planning cycle and by coincidence, we are renewing a number of our most senior roles, giving us a newly invigorated team to work with the new invigorated government.

We are optimistic that the Coalition will be receptive to our concerns about compliance costs that exceed benefits and that we will be able to engage in constructive dialogue to end unnecessary red tape, not only for us but for all employment services providers.

We expect the government to be very outcome-focused – that is, it will demand high performance and will seek creative problem solving from providers. All these issues will focus our deliberations at the board to ensure Job Futures continues its leadership in the sector and is ready to partner the new government as it implements its change agenda.

Director of RSL Care, Basketball Australia and Gillian McFee & Associates.

In terms of RSL Care, the major issue will be to get aged care on the Coalition government’s agenda because its policy on ageing came very late in the election campaign and did not make substantial links between the aged-care sector and the health system.

Another issue will be to understand the practical aspects of how a Coalition government will continue the aged-care reform agenda, embarked on in 2012 by the previous government and known as Living Longer Living Better.

An issue in aged care will be how we can move more quickly to a consumer-directed environment in all areas of aged care – not just home care, but also residential care. This involves a conversation about the amount of regulation that currently exists on the supply side of aged care.

A further issue will be how to make the most of aged care in terms of efficiency and effectiveness of the healthcare system. There is a lot that aged-care providers can do to avoid unnecessary use of hospitals and to enable a smoother discharge back home into the community.

A final issue will be to consider ways in which we can cut unnecessary red tape so that the staff in aged care can focus more time on the people they are serving and caring for.

The Coalition appears to be serious about boosting productivity and working in partnership with business to do that.

Cutting unnecessary red tape is vital so that staff can spend more time with consumers and so that good aged-care providers are rewarded and acknowledged for good performance rather than being pulled down by, or tarred with, the same brush as the very few providers that probably should not be in the business.

A challenge when working with the Coalition government will be to raise the profile and importance of aged care. We are facing a very significant demographic shift in our population. The first baby boomers turned 65 last year and the fastest-growing age cohorts are in the 80+ age group. We have, as community, a major challenge to meet the needs of that ageing population and it’s rather disappointing that aged care did not get more priority attention from the Coalition in its election campaign.

In terms of sport, I really don’t expect much change. The main issue for sporting organisations like Basketball Australia will be to  secure a commitment from the new government to focus on lifting the calibre of governance in sport and pursuing the very good work of the previous government in getting national sporting organisations to commit to its best practice governance principles.

Sporting organisations will also be looking to the new government to continue the policy change around the linking of funding of national sporting organisations to their performance plans, particularly in the lead up to the world championships and 2016 Olympics.

The issues for Basketball Australia around the boardroom table will be about understanding and comparing insights about the new government policy for sports and developing an advocacy plan to actually meet, at an early stage, the incoming minister and senior officials of the Australian Sports Commission.

Basketball Australia’s immediate challenges will be around governance, particularly with the issues that have emerged over the past year or so about the use of drugs and the infiltration of gaming and betting in sport. These issues really put the spotlight on the leadership of national sporting organisations to be accountable for having good governance at all levels of their organisations.

Chairman of Mirvac Group. Co-vice chairman of Yancoal Australia. Director of Melco and Crown Entertainment.

This isn’t an unexpected result in any way, except perhaps the future composition of the Senate. So it’s business as usual. This result was expected on every board I have sat on for the best part of the past 12 months. What I think we are all looking for now is confidence and to see its effect on our economy.

As result of this election, we have a majority government with a strong majority in the House of Representatives and a strong mandate. What business hopes to see is consumer and business confidence rebounding off the back of this and the fundamentally strong position of our economy.

The early signs from recent confidence indices are positive. No economist in the world has ever been able to put his or her finger on exactly how you manage confidence at the consumer or business level. But it is the most important variable in every macroeconomic equation. I don’t think projects start or stop as a result of elections. They start in an environment where you are confident and where uncertainty is removed.

The business community is looking to the government to foster an environment where our strong economic position, relative to the rest of the western world and in terms of its fundamentals, is the basis for a strong level of business and consumer confidence.

The challenge for the government is obviously going to be in dealing with the way the Senate is composed. But it does have experienced and skilled operators. The job of all politicians is to make their situations work. 

Chairman of YMCA Victoria, YMCA Victoria Youth & Community Services Inc and a director of Goulburn Valley Water. Managing director of Balcombe Consulting.

The Westpac Melbourne Institute index of consumer sentiment has jumped to an almost three-year high. I think that getting the election resolved is part but not all of the story, but interest rate cuts have also played a part. Around the board table we will be assessing whether we expect this to flow through to increased activity by consumers. At the YMCA, we continue to see increasing demand for quality services, such as to learn to swim and family health and wellness programs, but the price needs to continue to be affordable.

Like everyone, I expect my fellow directors will be pleased the election has finally occurred. Australian businesses have a tradition of delaying decisions pending an election outcome and this has been the situation since the start of the year.

The NAB Business Confidence Index reported a significant increase in business confidence in August, especially in the mining, construction, finance, business and property sectors. I think this is driven by a combination of the election, a falling exchange rate and selected signs of an improving global economy. The conversation around the board table will be to assess whether we expect this improvement in confidence to flow through to increased business activity.

While the comments I’m making here are my own and not associated with my directorship positions, I believe many industries have been in a holding pattern for much of the year. What is not known is how long it will take some of the policy changes proposed by the Coalition to be enacted in legislation as they need to negotiate the path through the Senate. This may delay increased business activity in some sectors.

Principal of Jing Meridian. Director of Golden Cross Resources and CFA Institute Society of Sydney.

The outcome of the election gave us a government with stable leadership. This helps boards to be more focused on business competitiveness and long-term growth issues. While we are still waiting for policy details, boards are looking for less red tape and lower tax and welcome Abbott’s desire to be an “infrastructure prime minister”.

An important issue for boards is to see clear government policies on foreign investments. Foreign investments have served Australia well and are essential for the growth of a country with a relatively small population, a large infrastructure backlog and some capital-intensive industries, such as mining and agriculture.

Businesses with Chinese interests are particularly keen to help the government to achieve an early conclusion of Free Trade Agreements with China, our largest trading partner, because it will bring many benefits to the agriculture and services sectors. They’d also like to see a better understanding of Chinese state-owned enterprises, with efforts made from both the Australian and Chinese sides.

Some boards are interested in details of the Coalition government’s “Economic Diplomacy” concept and are keen to understand what opportunities it could bring and especially how the government will market the brand of Australia. This is very relevant for agriculture, education, tourism, technology and innovation sectors.

Chairman of IOOF Holdings, Perennial Investment Partners, KeyInvest and Beston Pacific Group of Companies. Director of IBISWorld and TWT Limited, and a member of the Australian Accounting Standards Board.

The Australian business community has been looking to the federal government to put in place some new policy settings to enable the economy to adjust to the new economic order that is emerging with the rising economic power of China and other countries in Asia. These new policy settings need to be forward looking, growth oriented, productivity enhancing and encouraging of innovation. They also need to lower the cost pressures on business, including through improved taxation and regulatory policies, to enable Australian companies to be more competitive.

The Coalition, in its various pre-election statements and announcements, has indicated it understands the need to address these issues. Expectations are high among business leaders that the new government will be effective in delivering the policy changes needed to position Australia competitively in the Asian century.

The financial services industry has been subject to an enormous amount of new regulations and supervision in recent years. Adjusting to the new, increased regulatory environment has required significant changes in administrative and IT systems in the industry and has come at significant cost.

The previous government and its regulators formed the view in the aftermath of the global financial crisis that they needed to ensure financial service companies operating in Australia were well equipped to deal with any further shocks to financial markets, and thereby protect the interests of consumers. While the industry has readily accepted the new environment of increased regulation and supervision, it nevertheless expects regulators to understand the costs to businesses of meeting the ever increasing burdens of regulators.

The best regulators in any modern society want the financial industry to be successful and have the experience to understand the difficulties and challenges in managing and building businesses. The “economics” of regulation should be similar to that in business itself – that is, resources should be devoted to these areas where they can have the maximum effect in protecting consumers’ interests while balancing the need to allow businesses to generate profits and help build our economy.

The Coalition has indicated it will impose a moratorium on further regulatory changes to enable the finance industry to fully absorb and deal with the changes imposed in recent years. This moratorium will be welcome in the boardrooms of financial services companies as it will enable directors to focus more attention and resources on new strategic initiatives to build and grow their businesses.

A lot of the focus of the federal government in recent years has been on introducing new major social initiatives and redistributive policies, such as the Gonski Education reforms, the National Disability Insurance Scheme and the National Broadband Network. While these are all important for the future well-being of the country, there are many other “big picture” issues that also require attention from the nation’s standpoint. These include the challenges arising from the ageing of the population, the increasing trend towards a virtual consumer world with the greater use of mobile smartphones and the limitations imposed on Australia’s growth prospects by our ageing and obsolete infrastructure.

Demographic projections show that the percentage of Australians over the age of 60 will increase from 20 per cent to 24 per cent by 2030. Investments in superannuation will rise from $1.4 trillion to $5 trillion by that same year.

Yet even then, it is clear that the average Australian will not have adequate savings to have a dignified and self-sufficient living in retirement and may have to rely on the government-funded age pension to supplement their needs.

One of the key reasons Australia faces this situation is the constant changes which successive governments have made to the rules governing the retirement savings system. Indeed, since 2008 alone, there have been more than a dozen substantial changes to Australia’s superannuation laws. Governments cannot expect retirees to take responsibility for their own retirement incomes, rather than be a burden on the public purse, via the pension, if they keep changing the rules.

Our country aspires to be a part of the Asian century. As such, it needs to take an example from highly successful Asian countries like Singapore and create an environment for savers and investors where there is clarity about the rules and certainty that they are not going to be changed at whim so that people can have confidence in the decisions they make about their financial affairs.

Financial services firms can play an important role in enhancing the quantity and quality of the nation’s retirement savings (for example, through funds management and product initiatives). They can also play an important role in assisting with the adoption of new processes and products for managing the financial affairs of individuals in the virtual world of social media and with the introduction of arrangements and initiatives for the funding of new infrastructure projects.

Developments in these areas can also be exported, of course, to capitalise on the demand for savings and investment products arising in Asia with the emergence of a new and rapidly growing middle-income class in Asia.

The challenges for Australia in these areas can be turned into new growth opportunities for businesses and the nation, given the right sort of proactive exchange on policy ideas and thinking between the new government and the financial services industry. This is a conversation that should happen in the near term between the leaders in our financial industry boardrooms and the leaders in the new Coalition government.

Vice chairman, Australia and New Zealand, of Deutsche Bank AG. Chairman of Wilson HTM Investment Group. A director of the Australian Broadcasting Corporation, Hexima and several not-for-profit boards.

Given my very diverse portfolio of boards, what I am looking forward to from the change of government is: improved confidence, action on cutting red tape, actually developing infrastructure and reforming the taxation system.

An improvement in confidence is expected and seems to be occurring. The real question is whether such an improvement is justified and a more optimistic outlook can be maintained. Clearly, lower interest rates and a lower Australian dollar may see a pick-up in domestic demand, which may, to a certain extent, offset slowing mining-led growth.

Resources still have a very long way to go. Looking at demand from China, a seven per cent growth rate in what is today a much larger China ought to be better than a 10 per cent growth rate of what was a much smaller China. Even if China manages the structural change to a more consumer-driven economy, there should be ongoing serious demand for our natural resources because a massive economy will still be growing at a substantial rate, continuing to require a very large volume of resources from us. It seems that Chinese steel requirements may approach a normalised utilisation between 2018 and 2020 and thus production costs will remain the key. However, structural change in China implies rising demand for other commodities and energy, which Australia has in abundance.

A slowdown in overall economy activity in Australia is a call to arms for infrastructure to be developed for three different reasons. The first is raised by the questions: “Are there limits to the role of government in infrastructure?” and “To what extent does government spend the public moneys to stimulate economic activity?”. The new government has said it is prepared to use its balance sheet and credit rating to support infrastructure. Clearly, there are capacity constraints on Commonwealth and state balance sheets, but this does not mean the public purse cannot stand behind certain risks inherent in major projects that the Commonwealth mandates. Equity investors may well require some comfort that risks, such as patronage risk, cannot entirely destroy their investment. If the Commonwealth judiciously uses its credit standing, rather than its borrowing power, it may well be able to get the best of all worlds while still leaving infrastructure development principally to the private sector. The Commonwealth can also support projects by considering tax advantages for infrastructure investors using, for example, project or infrastructure bonds, facilitating tendering processes that do not require the commitment of so much capital before awarding the tenders, faster approvals and creating a one-stop shop for infrastructure. This will require the government to foster more cooperative relationships with state and local authorities. The second reason is that we have people with higher skills in developing and building mining infrastructure, and these can also develop, build or improve our roads, ports and others infrastructure. Needed infrastructure projects can engage our very competent workforce and enhance the skill base rather than let it dissipate if overall growth in mining slows. Thirdly, there is an ever present requirement for our economy to facilitate greater productivity improvement, including through the utilisation of world-class infrastructure. Development of such infrastructure is a never-ending process and a necessity for a modern society.

The questions asked:

  • How do you expect a change of government to change the conversations of the boards of which you are a director?
  • What issues will need to be discussed at your next board meeting?
  • What challenges or opportunities will a change of government create for the organisations of which you are a director?