Remuneration season might bring the virtuous unstuck
To their growing horror, some corporate leaders will soon discover their virtue signalling comes at a very personal price. Their Faustian pact with environmental, social and governance activists is about to hit them where it hurts, right in their hip pockets. And big time.
Unless, of course, they admit, as many of us always suspected, that the “social licence to operate” guff was only ever intended as a marketing ploy, and never meant to have a serious impact on real corporate decisions, such as executive remuneration. It was meant to be the equivalent of a heartwarming musical for the corporate world with corporate leaders parading on stage spouting sweet-sounding monologues in synch about their social responsibility. When the curtains went down, it was back to the real world.
Coinciding with the end of the financial year, many of Australia’s largest corporations will be making decisions about remuneration for their high-flying executives in the next few weeks. Specifically, when deciding how much, if any, to award in bonuses, the words of Australian Council of Superannuation Investors chief executive Louise Davidson will be ringing in their ears: “We would expect boards to be using discretion to review variable remuneration outcomes over the coming months, taking into account the appropriateness of any payments in light of the experiences of their investors, staff, customers and the broader community.”
Even for those directors who have not been told the news directly by proxy advisers, industry super funds and other adherents of the environmental, social and governance movement, no translation is necessary because money talks. Given that ACSI advises non-profit super funds with something in the region of $1.5 trillion in assets on how to exercise their votes on AGM decisions such as remuneration reports and director elections, there is nothing subtle about the message. If you don’t take an axe to remuneration, ASCI members will vote against you.
Now, for companies in trouble, or for those cutting or suspending dividends, this may be perfectly appropriate. And many chief executives, senior executives and boards have taken a whopping cut to their pay already. That is as it should be. Despite activists deriding the shareholder primacy theory, the law has, for many centuries, held that boards can, and should, have regard to the interests of other stakeholders, and to their reputation, when making these kinds of decisions.
But the ESG industry has latched on to the “social licence to operate” theory to go much further. It tells us that shareholder primacy is dead, and the interests of shareholders is just one factor, and not a specially important one, among many that boards should take into account.
When the US Business Roundtable released its Statement on the Purpose of a Corporation last August, it proclaimed that the 181 chief executives who signed it “commit to lead their companies for the benefit of all stakeholders — customers, employees, suppliers, communities and shareholders”. It was not accidental that shareholders came in last.
Never mind that this amounts to expropriating shareholders’ money for social purposes. Under this new dispensation, what ACSI calls “the broader community” takes precedence.
Why is this frightening the pants off virtue-signalling corporates? Because they may be forced into taking pay cuts, or at least accept pay restraint, even though their own corporation is in terrific shape and even though it’s not in the interests of their own shareholders to take a pay cut.
It’s not hard to see the ESG industry, or the anti-shareholder primacy gang, saying that in times of widespread unemployment and significant social hardship, paying executives big bonuses would not be in the interests of “the broader community”.
Ignore for one moment the rank hypocrisy of this view emanating from obscenely well-paid fund managers.
Ignore too the sheer chutzpah of ACSI and industry super funds setting down prescriptive corporate governance rules for listed companies while studiously rejecting similar governance standards for themselves.
The key issue for this remuneration season is that the activists will say executives of listed companies wallowing in handsome bonuses while many are on the dole will be in breach of the “social licence to operate”.
You might think this is all terribly far-fetched. Surely the corporate musical called “social licence to operate” can’t require executives of strongly performing companies to take pay cuts just because of a pandemic. It makes no sense. But that’s the point, and the beauty, of the phrase “social licence to operate”. Like that awful Hollywood movie-musical La La Land, it conjures up dreams. It can, and does, mean whatever activists want it to mean.
Maybe it’s fair enough that a company that has maintained its dividends by laying off workers, or increasing prices to consumers, or reducing services, will get a bollocking if it pays bonuses. But even companies that haven’t laid off staff, or cut costs, will be at risk if they pay bonuses in a time of social misery. In a world of co-equal stakeholders, community pain could outrank sound business practice.
Those corporate executives who have spent years waxing lyrical about their commitment to a “social licence” will now, like Kurtz in Joseph Conrad’s Heart of Darkness, be screaming “the horror, the horror” for their advocacy. “Social licence to operate” wasn’t supposed to mean this, they will plead. It was meant to warm hearts, allow us to hold our heads up high at Toorak dinner parties, or to justify voting for Zali Steggall or the Greens. It was only a marketing ploy, they will beg. It wasn’t meant to justify pay cuts in the interests of “the broader community”, they will wail.
Well the ESG industry has news for you. Whether your company is doing well or poorly, you have to take one for the team. It doesn’t matter if you worked all the hours God gave you, if you produced a stellar result, or if your company discovered the cure for coronavirus due to your work. Inclusivity means pay cuts for all.
Alternatively, this might be a wake-up call for some executives about virtue signalling.
Perhaps they will be less effusive about the social licence industry and start admitting it was never meant to be taken seriously if it costs real money. Here’s a novel idea for the pre-COVID-19 virtue signallers: they might stand up to the corporate equivalents of Antifa.
It’s hard to know which alternative will be more fun to watch.
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Coronavirus: Palaszczuk shines while Queensland Labor goes low
Remember March? Punch-ups in aisle 12 over a packet of bog roll? Shopping trolleys used as battering rams? It was a kinder, gentler time.
Yesterday, Premier Palaszczuk announced Queensland borders would be opening to all but Victorians on July 10.
Remember in March, too, those who claimed that COVID-19 was no worse than your run-of-the-mill flu?
The flimsy juxtaposition and many others like it were posed as part of an overall argument that locking downs our communities, our cities, our states and our country was an act of economic vandalism.
Imagine for a moment if these people had been placed in charge of public policy, if they had been allowed to do what they agitated for — keeping cinemas, gyms, pubs, clubs open with people milling about and the inevitable super spreading event occurring, here, there and pretty soon everywhere.
We don’t see the specious comparisons so much these days. That was a March thing. Now, in July, this pandemic has caused half a million deaths globally with 10 million people infected. And we are just six months in.
Much of the thinking in March and then in April was based on the absurdity that a pandemic has only a past and a present – a neat set of data, a beginning and an end with no thought given to what was yet to happen, supported by a media fascination with headline data that begins and ends with numbers of recorded cases and numbers of deaths.
One of the points I have tried to stress is that while 5.3 million people are listed as having recovered, many will have serious ongoing medical problems. These range from loss of cognitive function to renal, cardiac and respiratory illness. Serious stuff that will a) require medical care, complex surgery even lung, heart and kidney transplants and b) will take years off their lives.
When you’re in the public policy business, all you can do, all that can be expected of you is that you listen to experts and respond accordingly. You have to do so knowing that failures will occur, humans make mistakes or ignore advice outright.
Some people are wilful. Let’s be honest here. There are a lot of idiots about.
In my own neck of the woods over the Easter holidays, I was stunned to see people milling about in town. I can tell the tourists from the locals. It’s not hard. The blow-ins, most of whom come from Sydney, were dressed from tip to toe in their latest winter finery, scarves, jumpers and jackets so new you’d expect to see the price tags still dangling from them, while the locals got about in T-shirts.
They were sitting in cafes or strolling around shops, spending money. That’s the good news. But they were also walking four abreast along footpaths. Social distancing was ignored.
Having been told by experts that the COVID-19 pandemic was likely to last for a year or more, people chose instead to assume it was over on the basis of a month’s worth of data.
Governments were pressured to open up their borders and resume business as usual.
Which brings me back to Palaszczuk. At her press conference yesterday, she took a big swipe at the federal government. When asked about the pressure that had been applied to Queensland she answered, “I think, for a start, these border wars have got to stop. I think a national leader should be able to bring all states and territories together.
“Frankly, I’m a bit sick that Queensland has been singled out as opposed to South Australia and Tasmania just to name a few.
“And perhaps if Victoria had been almost self-quarantined or quarantined, then the Prime Minister cold have set a date for all of the other states and territories once Victoria was under control.”
“At the moment, what we have is a bit of confrontation where fights are being picked with different states and, frankly, I don’t think it’s good enough.
“I’ve been silent for a long time and I will not be silenced for standing up for what I believe to be right, for the health advice that I am being provided for by (Queensland Chief Medical Officer Dr Jeannette Young).
“And Dr Young and the advice that she has given us has put Queensland in a very good position. We’re not out of it yet. We know that.”
What Palaszczuk has done is consistently followed expert advice. This is even more remarkable given she will face Queensland voters on October 31. It’s a tough time to make hard decisions. She deserves credit for it.
But the party she leads, Queensland Labor, is another matter. Within hours of the Queensland premier’s press conference, social media started seeing advertisements like this:
“Deb has been calling for the borders to be open for months. Negative Deb’s constant criticisms are a genuine risk to the health and economic warfare of Queenslanders. “If it was up to Deb, QLD would be flooded with Victorians.”
Warfare? I presume what they meant was welfare. But who knows what’s going on in the minds of Queensland Labor.
In case you’re thinking this is a piece of harmless Queensland parochialism, then substitute “Victorians” for indigenous Australians or elderly Australians or non-Australians and see how it reads.
Deb, of course is Deb Frecklington, the opposition leader who is facing off with Palaszczuk in the Queensland election. Two weeks ago, LNP internal polling was leaked to the Sunday Times showing Frecklington was heading for defeat in the election.
Now, I can’t speak for the veracity of the polling but the fact that it was leaked is a sure sign that, to use a Gareth Evanism, a section of Frecklington’s own party is, “pissing on her swag.”
The advertisement came down off Twitter last night. But a version of it remains on Queensland Labor’s Facebook page, albeit with the warfare/welfare mention removed.
Politics need not be a scorched earth caper. And politics in times of pandemic must be collaborative, consensus building with the creation of evidence-based policy. The old adage in politics is: “When your opponent is drowning, throw them an anvil”, but in times of pandemic, politics doesn’t need to kick people and it should never seek to divide Australia on the basis of political clannishness.
By the way, this is not a case of cancel culture. I’m not advocating Labor takes its advertisement down. In fact, I think it should stay up as a general reminder that there really are a lot of idiots about and there is no shortage of them in Queensland Labor.
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Abolish stamp duty and lift the GST, says key tax reform review
NSW will struggle to fund essential services in difficult economic times unless it embraces urgent and wide-ranging tax reform including the abolition of stamp duty and an increase to the GST.
That's the finding of a year-long review of federal-state financial relations, ordered by NSW Treasurer Dominic Perrottet and chaired by former Telstra boss David Thodey, which will be released on Wednesday.
The report puts the state on a potential collision course with the Morrison government by recommending the state's most crucial source of revenue – the GST – be broadened and its rate lifted above 10 per cent. It also recommends stamp duty should be abolished, with homeowners given the option to opt-in to a land tax.
Federal Treasurer Josh Frydenberg has previously ruled out an increase in the GST, and said if the states wanted to embark on tax reform they would get no financial support from the government.
Mr Perrottet launched the review last year to identify ways the federal-state financial system could be improved and the overall national tax system could be made more efficient.
The report recommends that state governments, in consultation with the Commonwealth, consider options for lifting the GST rate and expanding its base over the medium to longer-term.
Overhauling the GST would see a move away from "harmful taxes including inefficient state taxes". But the extra GST revenue should go to lower-income households to ensure equity, the report says.
The NSW government should also replace stamp duty, which last year raised $7.5 billion for the state's coffers, with a broad-based land tax, the review committee recommended.
The review panel said there were various models to phase out stamp duty. "These included an option to allow homeowners to voluntarily opt in to land tax or pay transfer duty at the next purchase," the report says.
The report also calls for a "strategic national approach to payroll tax reform". The NSW government estimates it will raise $9.8 billion in revenue from payroll tax in 2019-20, out of a total $32.5 billion in state taxes collected.
Another recommendation in the report includes the introduction of user-pays road charging for electric vehicles as the federal government faces a projected shortfall in the $11.3 billion fuel excise. Forecasts show 60 per cent of all new cars sold to be electric-powered by 2046.
The report warns that state and territory governments face an era of higher debt, "challenging their ability to sustainably deliver essential services and infrastructure".
"The review recommends reforms at the state level that are challenging but necessary, as the states need to show, in good faith, that they are ready to carry their part of the load," it says.
The NSW Treasurer Dominic Perrottet believes dumping stamp duty is a crucial move in getting the state's economy moving again in wake of the coronavirus pandemic.
Mr Thodey said there was a new impetus to overhaul federal financial relations.
"The summer bushfires and the COVID-19 pandemic have exposed the best and worst of the federation and have only added to the urgency to undertake significant reform," he said.
"The status quo will only exacerbate the challenge faced by the states in funding the essential services their citizens expect and deserve."
He said the review panel, which included former New Zealand prime minister Sir Bill English, found clear areas where federalism "can and must be improved for our long-term prosperity".
"Over months of consultation, we have found a consensus that our federation has served the nation well and, properly calibrated, can remain one of the most economically efficient forms of national government," Mr Thodey said.
Mr Perrottet said the pandemic proved "federation is strongest when states aren't afraid to lead".
"We all know our federation needs fixing. This is our once-in-a-generation opportunity to change it for the better," Mr Perrottet said. "As a government, our priority is clear: we want taxes that are lower, fairer, smarter and fit for purpose in the 21st century.
"It’s very fitting that on the 20th anniversary of the introduction of the GST we have the opportunity to consider what course we chart to revitalise our economy and deliver prosperity for the next generation."
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Australia's summer of extremes pushed grid to the limit, AEMO says
After several coal-fired power generators were decommissioned, this was to be expected
Australia's energy operator says the electricity grid barely made it through last summer's extreme temperatures and bushfires without major outages, with resilience to be further tested in the future.
The Australian Energy Market Operator's annual summer operations review found the nation's physical gas and electricity infrastructure was "being increasingly challenged", with "environmental limits and temperature tolerances for coal plants ... increasingly being approached and exceeded".
AEMO issued 178 directions to deal with actual or potential supply or system security issues, 10 times more than the previous three years. Of eight actual shortfalls — or a level 2 lack of reserves — half were in NSW, with three in Victoria and the other in South Australia.
The summer was Australia's second hottest on record, trailing only the previous summer, with maximum temperatures 2.11 degrees warmer than the 1961-90 average. December 2019 alone had 11 days when temperatures averaged above 40 degrees, equalling the number of such days during all previous years since 1910. Bushfires also charred large swathes of the forests of eastern Australia.
AEMO's managing director and chief executive, Audrey Zibelman, said the grid had to cope with longer lasting and more extreme climatic and bushfire conditions that also made forecasting more difficult.
“The industry and AEMO’s preparation contributed to mitigating the potentially extensive and significant power-system impacts of a season characterised by record high temperatures, catastrophic bushfires, significant smoke, dust, and violent storm activity,” Ms Zibelman said.
The avoidance of major blackouts was a key achievement of the summer, particularly after a heavy storm knocked out six transmission towers in south-west Victoria on January 31. South Australia was effectively cut off from the rest of the National Electricity Market for 17 days.
The addition of about 3700 megawatts of new capacity — mostly wind and solar — compared with the summer of 2018-19 helped provide additional supplies during peak demand.
While coal-fired power plants had their output cut during extreme heat, some wind farms were also curtailed, the first time AEMO had observed this.
"Dust exacerbated by the drought and bushfire smoke, ash and dust storms also materially impacted grid-scale and rooftop photovoltaic solar generation forecasts," AEMO's report said.
Prior to last summer, AEMO increased standby reserves - known as its Reliability and Emergency Reserve Trader (RERT) mechanism - by buying 137MW of long notice reserves for Victoria and 1698 MW of medium and short-notice reserves across the market.
During four days of high demand, AEMO activated such capacity at a cost of $39.8 million, avoiding blackouts that would have affected as many as 92,500 homes at an associated cost of $77 million, the report said. Those RERT expenses cost the average household in NSW $3.24 and $2.43 in Victoria.
The summer generated a host of other lessons for power operators, including the need to improve forecasting to adjust to the swelling supplies of renewable energy.
Some of the forecasting challenge is meteorological, with agencies struggling to pick the top of the temperature peaks.
For instance, Penrith in Sydney's west hit 48.9 degrees on January 4, the hottest temperature recorded in an Australian metropolitan area, or several degrees more than predicted.
"The results demonstrate a bias towards under-forecasting at high temperatures and are indicative of challenges in accurately assessing generation reserve on peak demand days throughout summer," AEMO said.
"This under-forecasting is coupled to the increasing weather sensitivity of electricity demand as the use of airconditioning grows."
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Posted by John J. Ray (M.A.; Ph.D.). For a daily critique of Leftist activities, see DISSECTING LEFTISM. To keep up with attacks on free speech see Tongue Tied. Also, don't forget your daily roundup of pro-environment but anti-Greenie news and commentary at GREENIE WATCH . Email me here