Jul 13, 2022 | Governance, Leadership
Building a culture of……. (insert your own word)iIs a bit of a cliché. I have seen it in many documents that purport to be describing the mission, purpose, and all the rest of a business. Often it becomes a melange of meaningless words that offer no sense of direction to anyone, no sense of what you do around here, and what you do not.
Culture emanates from the senior levels of an organisation, particularly the person at the top.
Walking the talk is the absolutely essential ingredient in creating a culture.
Walking through a significant Sydney factory with the businesses MD some months ago, one that has a culture, and resulting productivity to which other manufacturers should aspire, he made a simple gesture that personified the culture.
The factory bashes metal, so is inclined to accumulate dust, off cuts, and debris in many forms, but this one is clean enough to eat your lunch off the floor. As we were walking, he bent over and picked up a small piece of paper, looked up at me and said: ‘Culture becomes what you are prepared to tolerate’
Nobody in that factory would walk past a piece of paper, or any other sort of litter on the floor.
If you want an orderly factory, keep everything orderly.
If you want accountability, give people the authority to get the job done, and hold them accountable.
If you want to remove gossip, never talk about someone unless they are in the conversation
If you want transparency, be transparent.
People may listen to what you say, but their behaviour is driven by what they see you do.
Culture is like a house of cards: hard to build, easy to destroy, really hard to change.
Jun 27, 2022 | Governance, Leadership, Personal Rant
The ‘Insiders’ program on the ABC yesterday morning featured considerable debate about the coming wave of inflation, the increasing wages gap, the structural deficit now built into the national budget, and an interview with the new treasurer Jim Chalmers. I was struck again by the narrow focus of the conversation on the expenditure side of the equation, irrespective of the specific topic of the moment.
It seems to me that while we have an expenditure problem, about to become worse with the combination of inflation and the promises made to get elected, the real problem is with revenue.
While it is both sensible and well overdue to chop out the waste and costly lifestyle cushioning of liberal ‘mates,’ that will not solve the problem.
Long term we need a more productive economy, which does not mean less jobs, but it does mean that we need to edge up the international productivity ladder. This requires further investment in education, technical training, and investment in science and the means to commercialise the outcomes of that science.
Unfortunately, this takes investment at a time when investment is challenged by the scarcity of money. Anyone running a business understands this to their core. They also understand that to dig out of the hole, they need to generate added revenue to enable the investment, as cutting costs can only be useful at the fringes, and longer term is well documented as a failed strategy.
The government simply must examine revenue and put in place measures to increase it. Politically, and practically, increasing personal income tax is off the table. In addition, the temporary cut in fuel excise will end on 28 September, adding to costs throughout the economy and no doubt creating howls of protest.
The obvious way to generate revenue is to really bite the bullet politically and chase multinational companies that currently pay little or no income tax in this country. That would invite a huge PR response from these companies, comfortably headquartered in many of the tax havens around the world, exercising transfer pricing, related party loans, and the many other rorts that go on. They will claim that the competitiveness of investing in Australia has been destroyed, and deliver a litany of tales about the damage to the economy the withdrawal of that capital will deliver. Remember the effort the Minerals council made to force the Rudd government to abandon the mining ‘tax’? That would pale into insignificance compared to the shouting a real across the board tax collection effort would bring.
Bring it on I say. I am sick of seeing multinationals use the infrastructure, resources, and capability of Australians to benefit a group of obscure owners and shareholders hiding behind the curtains of tax minimisation and avoidance possible as a result of the simple reality that tax rules are national, while money is international, aided by political hubris.
Header Cartoon credit: Scott Adams and Dilbert.
Jun 22, 2022 | Governance, Management
Often, we hear the claim that government should manage the budget better, after all it is just like a hugely complex household budget.
The last election was full of the Liberals claiming to be better managers of money than Labour, despite the ample evidence to the contrary. Irrespective of who won a few weeks ago, we currently have a great big shit sandwich to deal with.
The basic difference between our households and the country is that as a household we look at the investments we make, from the new house to a cup of coffee down the road. Each is a simple and discretionary choice. When things are Ok and we have a bit extra, we have that coffee, and perhaps some avocado on toast for breakfast. When times are tough, we stay at home and have Nescafe and Wheat Bix. We judge what we spend by how much extra we have, and the return we get from making the investment. The more productive the investments we make the better in the long run we do, while suffering some squeeze in the short term to enable those productive investments to be made.
When we make a mistake and find ourselves unable to meet the debt repayments, nasty people with court orders come and take our stuff.
By contrast the government is making huge investments, increasingly as a proportion of the total government expenditure, on items with a very uncertain return beyond the moral one, such as aged pensions. Many others have a very long and hard to calculate payback, such as education and health care. Others such as defence, are a bit like insurance. When they are needed you are glad you paid the price, but if not needed, the payments have just been a waste.
When the government spends more than it collects by way of taxes and direct charges over the course of the economic cycle, nobody comes to take the furniture. In effect, the government just ‘creates’ more money by crediting the Reserve Bank account, which then enables the Reserve to release the funds publicly via the financial institutions. Commonly this is called ‘printing money’ or more confusingly, ‘quantitative easing’. The downside is that we then risk the corrosive impact of inflation that over time reduces the value of what we owe, while increasing the short-term costs of borrowing more, which is where we are right now.
The key is the ‘productivity’ of what is spent. Money circulating in the economy has a multiplier effect, the extent of which depends on whether the money is spent on consumption, or is reinvested in some way. The multiplier varies from very low, 1:1.5 or so, to 1:10, or 15 and up. We are spending way too big a proportion of the national tax revenue on items at the low end of the multiplier scale at the expense of investments at the higher end.
In addition of course, are the investments made in assets that are used by enterprises that make no profit to be taxed. No positive multiplier applies here, it is a negative number, dragging down the total productivity of the economy. Profits by multinational resources and technology companies spring to mind. It is like someone breaking into your house and stealing your wallet. You have worked for the contents of said wallet, but get no benefit from it. The robber sticks your money in an envelope and mails it (via the internet these days) to their friend in the tax-free zone of the Bahamas, Delaware, London, or some other exotic no tax on ‘foreign earnings’ regime to be spent on luxury homes, yachts, soccer teams, and more investments in the tax free cycle that depletes the productivity of their host economies.
That is why your household budget is different from the national one. Once burgled in our homes we tend to put up barriers to it happening again. Bars on the windows, alarms, and a big dog with teeth. We take no such measures in the economy. Indeed, we encourage more investment upon which we guarantee not to demand any return by way of tax from the investors.
How stupid are we?
Jun 1, 2022 | Change, Governance
As the new government beds in, the usual hymn-sheet of ‘the budget position is worse than the previous lot let on’ is being sung.
All the public discussion will be about nips and tucks around the edges of the tax system, when the reality is that fundamental change is needed.
There is an institutionalised imbalance between the outgoings and the sagging tax base from which those outgoings are funded, and the position is deteriorating. Deficits are supposed to be a cyclical balance, not baked into recurring expenditure as interest bearing debt. Kicking the can down the road must end at some point, and the longer the rot is left, the nastier the antidote.
The British government has announced a 25% levy on gas profits, being driven up by the war in Ukraine, an option ruled out by new Finance Minister Katy Gallagher.
Perhaps hasty, given the twin facts that the exporters of gas typically do not bother the tax commissioner beyond GST and the PAYE of their local employees, and that the resources they are selling are, or should be, the sovereign property of all Australians, including those yet to be born.
You can only sell the gas once.
Part of the new governments policy package is to crack down on the tax minimisation practices of multinational corporations. This has also been a common theme for the last 5 or 6 elections, yet little has changed.
Key to every (legal) tax minimisation scheme is the simple fact that legal systems are limited to individual countries, while money is global. The money therefore finds the gaps in the system and slides through, assisted by the armies of very smart lawyers and accountants who make piles for themselves assisting this legal but immoral practice.
Yesterday (May 31) Michael West media published yet another item outlining the tax performance fairytales of Google, Facebook and Netflix in the year ended December 31 2021.
The money fleeced from Australian schools, hospitals, and other essentials services by just these three is only a tiny amount of the total that goes walkabout. The tax loopholes enabled by places like Bermuda, Delaware, London, Malta, and many others that have low to zero tax rates, and hide the identities of the beneficial owners of the profits have created the loopholes. Those that hide in plain sight in developed countries, particularly the UK and US, should be the subject of the next round of bilateral conversations.
At the very least we should expect some changes to these practises to be made by the new government. The simple fact is that offshore tax havens and most tax management vehicles exist only to allow people and corporations to do things that are not allowed onshore.
Presumably, the new government will also act on its undertaking to create a Federal ICAC with teeth. The first target of such a body should be the ‘shopping bag’ payments and kickbacks made to individuals, who then can use the same tax loopholes to hide those payments from tax authorities.
Dirty money uses the same loopholes as less dirty money to avoid scrutiny.
Aggressive action is required. The lobbying response from those about to lose if changes are made will be sophisticated, well-funded, and effective at highlighting the ‘cost’ of such changes in the willingness of multinationals to invest in Australia. There will be short term costs, and some very loud losers, but we need to do this for the sake of our grandchildren.
I must be dreaming!
May 30, 2022 | Governance, Leadership
There is no situation that requires a decision that cannot be enhanced by asking two simple questions:
Is the information right?
Is it the right information?
These are different questions that often become confused.
An accurate piece of data is of no value if it does not relate to the question being asked, or is related to a symptom of the problem rather than its core.
Often it seems that people use data to back a point of view, and just because they have data, the critical analysis of the assumptions and methodology behind the data is not seriously questioned.
It also pays to closely observe who is asking the question, and their attitude to an unexpected or uncomfortable answer.
Charlie Munger, Warren Buffett’s brilliant offsider is credited with the quote: “In God we trust, all others bring data”. I think this is absolutely right, as far as it goes. You just need to ensure it is the right data, and you do not mistake the data for the outcomes of crystal ball rubbing, self-interest, or optimism.
Header cartoon credit: Gapingvoid.com.
May 23, 2022 | Governance, Management
Bureaucracy evolved to enable operations to be scaled as mechanisation started to slowly take over from individual effort in the 1800’s.
It enabled tasks to be allocated, completed, and managed where the expertise resided, rather than one person doing everything. That role remains vitally important to the productivity of the resource investments we all make.
It does not matter if the bureaucracy is a private one, or a public one, they are equally potent at working in their own best interests.
The challenge faced by the bureaucracies that dominate our lives, both private and public, is the advance of digital, and the ability for data to make routine roles redundant. However, the people who lead bureaucracies have not evolved at the same rate. They use the technology as a means of control, and expansion, not as a means to reshape the operations of the bureaucracy and risk doing themselves out of a job.
Not unreasonable, but they miss the essential truth that technology is just a tool, and like all tools requires smart trained people to use them well.
The problem they need to solve is that the disruption that is occurring is making these hierarchies cost heavy, inflexible, and unable to change. As a result, they are being ‘cleaned up’ by the organisations that are evolving without the overhang.
Don’t let yourself be a part of the ‘overhang”
Header cartoon credit: Gapingvoid.com
