There’s a vital lesson to be learnt from the latest episode in the saga of former chief executive Alan Joyce’s ignominious departure from Qantas last year: these days, no one’s in control of the capitalist ship.
It seems clear that, in his last years in the job, Joyce decided to give the size of his final payout priority over the maintenance of good relationships with the company’s staff and customers. He left Qantas suddenly in September last year with what was to have been a package of $23 million, including his final-year salary and bonuses.
But by then, many customers were complaining and the company’s behaviour was under investigation by the Australian Competition and Consumer Commission. The board decided to retain the right to claw back much of the payout, pending a review of the airline’s management.
Meanwhile, the High Court found that the company had illegally sacked 1700 ground handlers.
Last week the company announced the results of the review by Tom Saar, a former partner in management consultants McKinsey. He found that Joyce’s tenure as chief executive directly contributed to the erosion of the airline’s relationships with its regulators and customers.
He also found the board did not adequately challenge its executives and failed to acknowledge non-financial risks. The group’s management contributed to a string of failures that resulted in “considerable harm to its relationships with customers, employees and other stakeholders”.
The board decided to dock more than $9 million from Joyce’s final payout. It also decided to reduce the short-term bonuses of all current and former executives who were part of the leadership team last year. This included the new chief executive, Vanessa Hudson, who served as the group’s finance chief.
I recount all this because it’s just an extreme example of the licence chief executives enjoy because they work for companies that are owned by everyone in general and no one in particular. We know of billionaire company owners such as Rupert Murdoch, Twiggy Forrest, Gina Rinehart and Clive Palmer, but these are the exceptions.
In legal theory, the job of company boards is to represent the interests of the shareholders. In practice, as the Qantas case well demonstrates, boards defer to executives because they’re drawn from the same fraternity of managers.
It’s noteworthy that the person the board chose to review Qantas’ management was himself a member of that fraternity. Its board emphasised that his report contained “no findings of deliberate wrongdoing” but that “mistakes were made by the board and management”.
Considering the damage done to the airline’s reputation, and the abuse of its position as the dominant player in Australia’s domestic aviation, Joyce wasn’t docked as much as he could have been. And merely cutting other executives’ short-term bonuses by a third lets them off lightly.
In the phrase coined by the Australia Institute’s Dr Richard Denniss, we now live in a capitalist economy without any capitalists. This is true of all the developed economies, but it’s particularly true of Australia because of the way almost all employees are compelled to contribute 11.5 per cent, soon to be 12 per cent, of their wages to superannuation funds.
Those super savings now total more than $3.9 trillion, with about 28 per cent of that invested in listed and unlisted Australian shares, plus 27 per cent in foreign listed shares. This means those of us with superannuation account for about 38 per cent of the value of shares listed on the Australian stock exchange.
So, what say do people with super have in the running of the companies whose shares they own? Next to none.
Their super funds are run by trustees. Do members have any say in who gets to be a trustee? No. The trustees are under no obligation tell members which companies’ shares their savings are invested in.
Of course, almost all shares carry the right to vote at a company's annual general meeting. And at those meetings, shareholders do get to vote for or against the company’s proposed remuneration to executives. So, do the owners of shares via their super get the right to vote at company meetings? No, of course not.
Well, who does get that? Maybe the funds’ trustees, or maybe the managers of the “managed investment funds” in which your super fund has invested.
And do those trustees or investment managers actually vote at company meetings? Maybe they do, maybe they don’t. Who knows? Super members aren’t told.
It follows that, when they do vote, we aren’t told which way they voted. Did your shares vote for or against the big pay rises the directors and executives intend to award themselves? Did they vote for or against further investment in fossil fuel projects?
See what they mean about us living in an age of capitalism without capitalists? We live in a time when big business is run by executives, with surprisingly little to constrain their freedom of action unless they come to our attention by, like Alan Joyce, going way over the top.