Australian law requires company directors to do all within their power – within the law – to maximise results for shareholders. There are legal obligations to employees too but of course there’s no legal obligation to employ someone indefinitely, regardless of economic imperatives.
Pacific Brands – one of few companies of size in Australia still making apparel here – announced its intention this week to continue its long-running process of outsourcing manufacturing, most probably to companies in the so-called People’s Republic of China.
Thousands of families will be hurt by their decision. It’s horrible. They’re sacking 1850 of their 6000 staff.
But for the heavily indebted company, it genuinely appears there wasn’t much of a choice. They’re in trouble and quite a lot of it.
WE DON’T CARE WHERE WHAT WE WEAR IS MADE
So ultimately the company, its shareholders and remaining employees will probably benefit from the decision. And that’s because for the vast majority of Australian consumers, we couldn’t care less where something is made, we care about its quality and whether it meets our needs.
We’re nationalists about sport but not particularly about the things we buy.
If you ask people whether they care about buying Australian, they’ll assure you they do. But if you snoop in their shopping basket or lounge rooms or wardrobes you’ll see they couldn’t give a toss.
That’s at the heart of why Australian businessmen – like Toorak billionaire Solomon Lew for example – can make a killing from importing stuff from China. Lew knows the power of brands in selling things so he licenses those from those few left who will do business with him. Then he gets the branded goods made as cheaply as possible in factories that he controls in places like Ningbo where workers are pretty happy with 80 cents an hour.
It’s a shame we don’t care more.
We like Treasurer Wayne Swan but we can’t agree that the CEO of Pacific Brands is acting obscenely by outsourcing. She’s just doing what she’s paid to do. She’s just doing what the Corporations Law requires her and all her fellow directors to do too. Govern in the interests of all shareholders. Not shareholders and staff and customers. All shareholders. Perhaps the law should be broadened out to include kumbayah considerations but as things stand it doesn’t.
The kill-the-witch stacks-on across-the-board criticism of the CEO is politically understandable but demonstrably unfair.
The kill-the-witch stacks-on across-the-board criticism of the CEO is politically understandable but demonstrably unfair.Â Â
WHY DO COMPANY EXECS GET SUCH LARGE SALARIES?
She’s paid a lot of money compared with the factory workers she’s laid off. That’s true. And it does seem silly at a certain point to pay people $40,000 a week or whatever it is. But there’s actually a reason for it that should perhaps be carefully considered by those who contemplate taking the regulation of corporate salaries out of the hands of shareholders and boards and giving it to politicians and bureaucrats.
And that is that there is ultimately only reason to pay big company bureaucrats big salaries and that is to keep them from doing what they might otherwise do and run their own enterprises, where there is no limit on their potential financial reward.
It’s not because they work harder or have more responsibility or whatever. Many of the lowest paid people I know work harder and have more stress and hassle than any company executive.
Those proposing CEO salary limits ought also logically be imposing a cap on how much money one could make from a single deal or sale of their business.
And no one in their right mind wants to strip incentive out of our economy in that Pol Pot kind of way. Not even the Greens political party advocate measures like that.
PERCEPTION CAN BE REALITY
The Pacific Brands CEO has probably been a bit of an oaf for not dealing with the PR implications of sacking 2000 workers as we stare down the barrel of a global financial crisis.
The politics of it – combined with a big payrise for the CEO and her colleagues – is toxic.Â The CEO of Woolworths, hardly a red-ragger has said the decision is a tragedy. Malcolm Turnbull said the decision was poor. Unions are threatening various illegal things to stop them from implementing their decision. That won’t go anywhere but it does indicate the strength of pain about this issue.
Combining that with increases in pay for the board as reported this morning in the Herald Sun was indeed a poor decision. An insensitive, indelicate, foolish decision that will do much jeopardise brand integrity for Bonds, Hard Yakka and the other brands that make up the stable.
Turnbull thinks shareholders should be able to vote down executive pay at company AGM’s. They elect the boards that set the pay but it’s still not a bad idea, an extra check and balance.
As a highly accomplished and effective female CEO, we should celebrate her success as a well rewarded company boss. And gratefully accept the enormous amount of tax she pays to help fund our national defence, education and welfare.
She made a tough – even ugly – decision. It was never going to be popular. She hired Evan Thornley’s old employer McKinsey & Co. apparently to advise on a strategy to announce to comfort and win the support of shareholders and lenders, worried about the company’s uncomfortably large indebtedness. God willing, it’s enough to keep the company going. It’s a big Australian company that employs many thousands of people and will continue to do so after they outsource.
DEMONISING ONE PERSON SOLVES NOTHING
Demonising Sue Morphet isn’t the answer. Most of her payrise was because she was promoted from one job to become the company CEO after all. Whether the outsourcing decision was right or wrong, we’ll probably never know but it’s safe to assume the CEO and her board agonised about scrapping so much local manufacturing and making 1800 people redundant.
Those who say the combination of her big salary and her decision to sack all those people justifies regulating all executive salaries need to think very carefully about what they could be doing to our prosperity in the long run.
Letting the hardly all-wise Commonwealth loose on deciding what shareholders and the boards that serve agree to pay their senior executives seems like madness with a capital M.
We will make our through these troubled times. Our natural resources – especially our best one, the Australian people – guarantee it. But we won’t get there through Pauline Hanson style populism.
These old words seem truer now even than ever in this briefly revitalised era of big government:
You cannot strengthen the weak by weakening the strong.
You cannot help small men by tearing down big men.
You cannot help the poor by destroying the rich.
You cannot lift the wage earner by pulling down the wage payer.
You cannot keep out of trouble by spending more than your income.
You cannot further the brotherhood of man by inciting class hatreds.
You cannot establish security on borrowed money.
You cannot build character and courage by taking away a person’s initiative and independence.
You cannot help people permanently by doing for them what they could and should do for themselves.