A Quote Worth Noting

In the weekend AFR, James Thomson wrote about Commonwealth Bank board woes a ‘turning point’ for all directors.

In this article, Thomson wrote:

Investors told of meeting directors who had struggled to explain how their company actually made money, or what issues it was facing. They described how the appointment of former politicians to a board had become an early warning sign of trouble. Some even explained how they mapped the concentric circles that linked poor directors of one board to others.

Amazing.  No?

Once upon a time, in a galaxy far far away, when Spartacus was younger and with much less grey hair and studying for his economics degree, the language of business was military and the go to book was Sun Tzu’s The Art of War.  Nowadays however, the language of business is political and the go to book is Niccolò Machiavelli’s The Prince.

The strategy of business has “evolved” from defeating the enemy (competition) to capturing government to protect you from the enemy and the threat of potential enemies.  My how times have changed.

Expressions, within large and serious businesses, along the lines of shaping the environment abound as a polite way of saying we in da lobbying and government/regulator capture industry.  And the migration of members of the political and bureaucratic class has only gone one way – out of government and into business to further perpetuate this evolution.

Yes.  This can only end well.

Much has been written about the lack of financial services experience on the board of AMP.  Citizens and shareholders should rest comfortably in the knowledge that the Chairman of one of Australia’s largest banks is a former career public servant.  But at least he has changed the the rules for the board:

A practical example on the NAB board is its “two plus five” rule, where reports presented to the board can be no longer than two pages, plus five pages of attachments.

It’s the big things that count.

Oh yes.  This can only end well.

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27 Responses to A Quote Worth Noting

  1. Turtle of WA

    Atlas Shrugged.

  2. entropy

    The strategy of business has “evolved” from defeating the enemy (competition) to capturing government to protect you from the enemy and the threat of potential enemies.

    This is probably the biggest problem with Australia today. How many of our problems would erode, crumble away, correct without intervention, if this smothering, cosy felt blanket of corporate love in between Big Business, Big Union and Big Government was outlawed?

    BTW what was fascism really? Because an ever growing Big Government controlling who and what kinds of, and how industry operates sure smells like it.

  3. I well remember having to study The Art of War and, while I don’t remember everything about it, much still remains as a subconscious memory, which I think I still apply.

    It’s not a text for the SJW.

  4. Myrddin Seren

    A practical example on the NAB board is its “two plus five” rule, where reports presented to the board can be no longer than two pages, plus five pages of attachments.

    I recall one of the directors at a public company I worked at did lodge a complaint about the ever-growing size of the monthly board report – masses of stuff layered in to it and growing. To the point where arguably they were getting bogged down in process.

    That NAB suggestion is not bad as a Step 1.

    Nothing stops the Board from calling for more detail on a particular issue.

  5. RobK

    Sparty,
    I agree with your observation of directorship that all too often has slipped from being expert in the field of service delivery in their industry, to one of lobbying and regulatory impost on competition (ring-fencing). It makes a mockery of merit based selection and values the Machiavellian as you suggest. And yes, I always take a cautionary note when I see a recycled pollie on a corporate board.

  6. entropy

    Increase the size of the corporate bureaucracy and the size of reports increases. Its Entropy’s Law of Useless Corporates.

    The volume of unproductive activity, reports, risks identified and the scale of risk mitigation effort required in any large organisation grows in proportion with the size of its Corporate departments.

    I just made it up.

  7. RobK

    The 2+5 policy I expect is a reaction to the verbose jargon development in bureaucrats. I believe it has some merit to rein in this disease. Report writers need to communicate, not make-up impressive sounding word salads, that don’t help anyone.

  8. Bruce of Newcastle

    Expressions, within large and serious businesses, along the lines of shaping the environment abound as a polite way of saying we in da lobbying and government/regulator capture industry.

    That works two ways…what Australian bank would not fall over themselves to lend money to green projects these days? If they didn’t the political class would take them to the ecocleaners.

    When government is the 800lb gorilla, and da gorilla wants a banana, you give it one. Especially when you don’t really have a choice in the matter anyway.

    Meanwhile if any Cats intend to apply for a loan soon I have some advice for you. I suggest you find someone with an iPhone and borrow it for your interview. Via Lucianne:

    Own an Android Phone? You Might Not Get That Loan

    A recent paper by Tobias Berg of the Frankfurt School of Finance and Management in Germany and his collaborators showed that a person’s digital footprint can be as predictive of financial behavior as a credit score. One of their findings, for example, is that the difference in loan default rates between iPhone and Android owners “is equivalent to the difference in default rates between a median FICO score and the 80th percentile of the FICO score.” iPhone ownership, apparently, is a reliable proxy for higher income and thus for creditworthiness.

    Fintech companies already trust big data more than traditional scoring methods. The financial industry will increasingly make judgments about us from the minutest, most innocuous traces we leave on the internet. And it’s likely the algorithmic decisions that use the statistical analysis of these traces will often be wrong. That means we should seek out research like Berg’s and give the algorithms based on it much more thought.

    Given the banks are currently being given stick for lending money to people who lied on their applications I suspect more of this sort of thing will be going on. Just make sure when you flash your borrowed iPhone that you didn’t arrive to the interview in a clapped out Mitsubishi Magna.

  9. Myrddin Seren

    Report writers need to communicate, not make-up impressive sounding word salads, that don’t help anyone.

    Would love to have seen what CBA Board reports looked like, as millions of $$ was laundered by drug cartels through their Cash-Drop-and-Transfer Offshore ATMs, amongst a host of other issues.

    ‘We had a very successful stand at the Galarganbone School Fete, and are making great strides in gender diversity – by getting rid of as many pale, stale, hetero males as we can – starting with the Risk Management Dept’.

  10. Entropy

    One of their findings, for example, is that the difference in loan default rates between iPhone and Android owners “is equivalent to the difference in default rates between a median FICO score and the 80th percentile of the FICO score.” iPhone ownership, apparently, is a reliable proxy for higher income and thus for creditworthiness.

    Only because bloody iPhones cost so much you need cash flow to afford one.

  11. Dr Fred Lenin

    Entropy I bought a Huawei for my daughter for less than half what , asamsung or iPhone would cost. She informs me it does everything they do . Just because they are Chinese doesn’t mean they are rubbish . They are huge sellers internationally , iPhones are probably made in China too. I have had a Huawei for four years without any trouble ,doe all I want it to do.

  12. Myrddin Seren

    A screen somewhere in a Ministry of State Security complex in China:

    I have had a Huawei for four years without any trouble

    Operator: Comrade Commissar – that nice Citizen Lenin in our southern Co-prosperity Sphere continues to disseminate good news about Huawei !’

    Commissar – ‘Excellent. Let him keep the contents of his bank account for another month. ‘

    Jokes – jokes.

  13. Singleton Engineer

    A former GM (not a director) refused to accept submissions that were not in the approved multicolour format, accompanied by PowerPoint slides of all graphics (and more), again to his own standards – not corporate, but in order to inflate his own sense of self-importance.

    The result? I prepared all my stuff in black and white, always avoiding distractions like multicoloured logos, except perhaps on the cover sheet.

    When asked by the AGM, in front of various Executive Directors, why I did this, I responded that my section did not employ staff with that ability, then made an observation of my own. Back in the day, managers were able to make reliable decisions without multicolour electronic presentations; only in recent years have some managers appeared to lose that which previously was a universal skill – the ability to read words, without requiring them to be reduced to comics.

    I was never invited back to the annual “Strategy days”, though the MD/CEO and I continued to work closely together for years afterward. That suited me fine.

  14. RobK

    iPhone ownership, apparently, is a reliable proxy for higher income. 
    Will it replace the school tie, ‘you think?

  15. Entropy

    I actually interviewed a graduate once who wore the school tie. I was cluelessly unaware until informed by one of the panel. I didn’t give the wanker the job.

  16. Entropy

    My privacy is worth the iPhone dollars, Mr Lenin. I use DuckDuckGo and don’t use google either.

  17. Jock

    I have written many Board Papers and few would have met this criteria. This sounds like someone who does not wish to deal with the granularity of a company. Makes me wonder how he copes with PDS or Annual Reports.

  18. Rococo Liberal

    Spartacus, here in Oz the idea of using the government as a tool of trade has a long history. The Art of War era was a deviation from the norm.
    For decades Australian businesses did deals with governments to ensure that there were high tarrifs which shielded inefficient industries.

  19. Art Vandelay

    The strategy of business has “evolved” from defeating the enemy (competition) to capturing government to protect you from the enemy and the threat of potential enemies. My how times have changed.

    True. However, with ever-expanding government, more powerful regulators and more and more red tape, it makes sense to have lobbyists and former politicians on boards to attempt to protect the company from the government itself (or at least to mitigate the damage somewhat from deranged government policy).

  20. Pyrmonter

    Sparty would be better to read the language of Hancock’s Australia, and Shann’s Economic History. They set out the long, sorry story of our descent in detail.

  21. with ever-expanding government, more powerful regulators and more and more red tape, it makes sense to have lobbyists and former politicians on boards to attempt to protect the company from the government itself (or at least to mitigate the damage somewhat from deranged government policy).

    Disagree Art. With government/regulatory capture to protect from competition, regulation is required to pretend to the masses that business is behaving. Competition is the only thing necessary to make business behave. If they misbehave, customers go elsewhere. Works much better than ASIC, APRA, Austrac, ACCC and the rest of the regulatory alphabet.

    This is not a chicken/egg situation. The chicken came first and got its mates to stomp on any new egg that came along.

  22. Art Vandelay

    Disagree Art. With government/regulatory capture to protect from competition, regulation is required to pretend to the masses that business is behaving. Competition is the only thing necessary to make business behave. If they misbehave, customers go elsewhere. Works much better than ASIC, APRA, Austrac, ACCC and the rest of the regulatory alphabet.

    I’m not saying that it’s good for the economy that boards are stacked with lobbyists. I’m just arguing that it makes sense from the company’s perspective to do so in this environment of large government.

    I agree that the best solution is competition: abolish the ACCC and the other alphabets and slash red tape and let the market sort it out.

  23. Art Vandelay

    This is not a chicken/egg situation. The chicken came first and got its mates to stomp on any new egg that came along.

    Sorry, I missed your point here. I definitely agree that business in Australia has a cosy relationship with government and used it to create barriers to entry (having seen it up close in my previous job) and that they brought about this situation. I should have made that clear in my original post.

  24. Dr Fred Lenin

    Years ago criminals used to rob banks , now I suppose banks rob criminals ,they rob everyone else .

  25. anonandon

    Ken Henry knows a lot about wombats though so he has got that going for him.

  26. James Hargrave

    Once upon a time, annual reports and accounts were uninformative in their brevity, now they are uninformative thanks to prolixity and long statements about corporate governance, ethnic/diversity targets, etc. (all the ever-increasing number of boxes ticked, but what about the xxxxing business?), and accounts prepared to impenetrable standards. Frankly, I prefer to have a small piece of wool pulled over my eyes, not a blanket.

  27. J.H.

    … I have a Microsoft phone that uses Windows 10, the same OS as my computer. Makes everything easy to use… not that I us it much for online stuff.

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