Deloitte Australia’s Adam Powick makes a shock admission about his $3.5 million pay packet, more than Australia’s PM.
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I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.
This is episode number 25 in our series for 2023 and today’s date is Friday July 21.
First, I’ll be talking to Anita Wingrove, the managing director of leading search and leadership advisory firm Russell Reynolds Associates, about how boards can get a new breed of leaders. And I’ll be talking to Rabobank economist Michael Every about why China’s recovery is sputtering.
So what’s happening in the news.
Mounting speculation around the Reserve Bank’s leadership concluded on Friday with headlines lighting up to confirm Michele Bullock’s appointment as Australia’s next governor of the central bank. Michele Bullock describes herself as a country girl who once found the idea of going to the city daunting. But she will make history when she takes up one of the biggest jobs in the ‘city’ as Reserve Bank of Australia (RBA) governor on 18 September. Bullock started at the RBA in 1985 and has held a number of senior management positions. She will be the first woman to hold the post after previously breaking new ground when appointed deputy governor last year. Bullock will have the challenging job of steering reform as well as the unfinished task of returning inflation to target Inflation has passed its peak but was still growing at 5.6% annually in May, well above the 2-3% target range. Most economists agreed borrowers could expect to see a continuation of monetary policy decision-making, with Bullock involved in all the meetings in the present tightening cycle. UNSW Business School associate professor Mark Humphrey-Jenner said none of Bullock’s communications to date suggested her views deviated much from those of her predecessor. He told the Australian Associated Press that the tightening cycle will likely have ended by the time she takes the reins, and her first test as a leader will be determining how long to keep interest rates high before cutting them. Former treasury official and economist Steven Hamilton said Bullock was the best option, but there was a valid argument to bring in an outsider to “shake things up” in light of the review findings. He told ABC TV the decision to go with an insider, who was still able to implement change but unlikely to “scare the horses”, was the right one given the uncertain economic environment. Hamilton said the review did call for some “pretty dramatic” cultural and governance changes, and appointing someone who had been at the institution for 40 years raised a “legitimate question”. But he said Lowe should not be criticised for lifting interest rates to tackle high inflation as the RBA has been doing since May 2022. National Australia Bank economist Ivan Colhoun believes there are likely to be few implications for the hiking cycle but said she was likely to be seen as “more practical and less theoretical than her predecessor”. The intense focus on who would lead the RBA for the next seven years highlights just how important key individuals are in the policymaking process of central banks. Past luminaries around the world including Alan Greenspan, Ben Bernanke, Mario Draghi, and Janet Yellen, and current leaders such as the European Central Bank’s Christine Lagarde, show how personalities can influence monetary policy. Even with a robust and best-practice operating framework, the execution and interpretation of central bank policy always comes down to individuals, and their work is to be commended. But aside from the twin pillars of process and people, another influence on policy is the difficulty in managing uncertainty. Monetary policy must weigh potentially costly outcomes as part of the decision process, none of which can be known in advance.
On Friday Michele Bullock said a big part of her role as new governor of the Reserve Bank would be leading the central bank through a period of change. The comments were made in small talk in Anthony Albanese’s Parliament House office, moments after being named the ninth RBA governor. Change and renewal inside the RBA is the big theme, explaining why Treasurer Jim Chalmers bucked the convention and opted against extending the term of a sitting RBA governor. Outgoing RBA boss Philip Lowe has another two months before his term officially ends, including heading off this weekend to India to attend the G20 finance minister meeting with fellow central bank governors. Later in her statements, Bullock, 60, said she intended to oversee an RBA that delivered on its operational and policy objectives for “the benefit of the Australian people”. Communication counts for everything with central bankers. Former long-serving US Federal Reserve boss Alan Greenspan developed what was called “Fed speak” – the art of saying nothing and keeping public comments to a minimum for fear of setting off a violent reaction in markets, or even worse, politicians. This was the standard even in Australia under several RBA governors. Lowe, by comparison, has delivered a prolific flow of speeches covering policy and economics through his tenure, and it was this frankness that got him into strife. Bullock is expected to continue with the open dialogue, and it was a positive step by Chalmers on Sunday to finally defend her right to do so. Her recent comments that the unemployment rate would need to rise to 4.5% to reach a sustainable balance point were “relatively uncontroversial” given they were consistent with Treasury and RBA forecasts, Chalmers told ABC TV. The bank that Bullock inherits and is about to undergo the biggest restructure in decades is also dealing with a new and more aggressive inflation problem that most developed countries thought they had not only tamed but finally killed off before the Covid pandemic hit. Ultimately it’s the nine-member Reserve Bank board that sets interest rates, but the governor has the casting call and influences the future direction and expectations of rates. This will be a whole new test when the RBA’s new Monetary Policy Board is established in about two years. Bullock’s appointment has been widely endorsed by business, markets and RBA watchers as delivering much-needed continuity. However, her relatively short apprenticeship for the top job as deputy governor leaves few clues to her approach to interest rates and taming inflation. In a speech in Newcastle last month was arguably her most important to date. Bullock attempted to tackle the mythical economics creature, NAIRU. The “non-accelerating inflation rate of unemployment” is the lowest level of unemployment that can be sustained without causing wage-linked inflation. It’s mythical because while central bankers often speak of it, it can’t be measured. In Australia Bullock said this rate was closer to 4.5% for the economy to be in balance. This is a full percentage point higher than what the RBA was prepared to accept for the jobs trade-off to curb inflation. Some seized on these comments as being hawkish, although others maintained this again was consistent with Lowe’s approach to have Australia hit its inflation target by mid-2025. While this attracted all the attention, it was in other parts of the speech that Bullock came down strongly on the side of employment. Like Lowe had previously said, she indicated the RBA is willing to accept a more gradual approach to getting inflation back to target than in other countries. “A faster return to target would likely mean more job losses in the short term,” Bullock said.
Philip Lowe has used his final foray on the world stage to blast governments and political leaders for their indolence on structural reforms to boost productivity growth, which is imperilling material living standards, worsening income inequality and hollowing out social services. In unscripted remarks at a G20 gathering of finance ministers and central bankers in India on Monday, the outgoing Reserve Bank governor said that while the high inflation plaguing the world was an immediate threat, “the bigger challenge is to lift productivity growth”. “The good news is there are a lot of sensible ideas about how we can do this,” Dr Lowe told the opening session of the meetings in Gandhinagar. “But another reality we face is the challenge here is a political one,” he said. “It’s not about not knowing what to do; it’s a political one. And the political challenge is to get these good ideas that are already out there, through our political systems. If we don’t do that, then we are condemning our citizens to slower growth in real wages, smaller public services and an increased tension on income distribution.” Dr Lowe, whose seven-year term ends in September when he is replaced by his deputy Michele Bullock, has been increasingly vocal about the consequences of Australia’s poor productivity performance, including much higher interest rates to quell inflation and endemic stagnant wages. In a candid post—budget speech in May, Treasury secretary Steven Kennedy said the nation’s abysmal productivity performance would wipe out more than half the expected economic bounty from full employment, record migration and the commodity export boom. Dr Lowe’s valedictory remarks were circulated by Jim Chalmers’ office.
The prudential regulator wants boards to sharpen oversight of accountability for cyber breaches, finalising a new standard on “operational risk management” which seeks to fortify the financial sector from hacks such as the one that devastated Medibank Private. In a new cross-industry policy covering banks, insurers and superannuation trustees, the Australian Prudential Regulation Authority said boards were ultimately accountable for operational risk. It wants companies to get on the front foot to reduce disruption for customers should systems go down. The final standard, known as CPS 230, contains new requirements “to address identified weaknesses in existing controls” and to improve planning to ensure services can still be provided if computer systems are compromised. Companies will have to enhance risk management of third-party IT service providers. The conclusion of the year-long process to settle the revised standard comes after hackers stole almost 10 million customer records from Medibank last year and released some information after demanding a ransom payment, raising concerns about cybersecurity defences in the financial services sector.
The CEO of one of Australia’s major consulting firms has admitted to a Senate committee his position is not worthy of a salary seven times greater than the prime minister’s. Four executives from Deloitte fronted a Monday public hearing into the integrity of consulting firms that provide services to the federal government. The inquiry was launched in response to what has become known as the “PwC tax scandal” which involved senior partners misusing confidential government information to help big multinational companies avoid paying more tax. In Deloitte’s first appearance before the committee, the top brass were slammed by both senators Deborah O’Neill and Barbara Pocock for being opaque about salaries and employee misconduct. The committee asked for an anonymised breakdown of how many Deloitte employees earned more than $1 million and but chairman Tom Imbesi said that could not be provided due to commercial sensitivities. Eventually, CEO Adam Powick told the hearing the average base salary of a partner at Deloitte was between $500,000 and $600,000. It has been publicly reported Mr Powick earns around $3.5 million, which Senator O’Neill went on to grill him about. “Are you really worth seven times the salary of the Australian prime minister?” she asked.
The ACCC has published draft guidance to help improve businesses’ environmental claims and reduce the number of greenwashing instances it has found. ACCC chair Gina Cass-Gottlieb said educating businesses was crucial in light of the body’s recent greenwashing crackdown that found 57% of businesses reviewed had made potentially misleading environmental claims. The ACCC said the draft guidance would help businesses understand what was considered proper practice when making environmental or sustainability claims. The ACCC also listed eight principles that it encouraged businesses to apply when making environmental claims.
- Make accurate and truthful claims
- Have evidence to back up your claims
- Do not hide important information
- Explain any conditions or qualifications on your claims
- Avoid broad and unqualified claims
- Use clear and easy-to-understand language
- Visual elements should not give the wrong impression
- Be direct and open about your sustainability transition.
Ms Cass-Gottlieb also called for feedback from businesses on the draft guidelines and what other information would be useful for organisations to avoid getting caught greenwashing.
Fortescue Metals Group called in investigators to probe an allegation concerning the behaviour of its executive chairman, Andrew Forrest – the latest twist in the billionaire’s business empire just days after separating from his wife after a three-decade long marriage. Law firm Seyfarth Shaw was called in by Fortescue’s board after directors became aware of an anonymous letter concerning the behaviour of Dr Forrest. It concluded none of the matters in the letter were substantiated. However, the revelation of the inquiry tops a turbulent period for one of Australia’s most high profile business figures after the decision last week to split with his wife, Nicola Forrest. “The directors of Fortescue became aware of an anonymous letter concerning the behaviour of the executive chairman,” a Fortescue spokesman said on Sunday night in a statement. “The board immediately met and engaged Seyfarth Shaw LLP, to independently investigate the letter and provide a report. Seyfarth Shaw LLP provided a full report to the board,” the statement added. “The investigation concluded that none of the matters in the letter were substantiated. There were no adverse findings. Dr Forrest was excluded from this entire process because it related to him.” Dr Forrest and Ms Forrest announced late on Wednesday night that they had “made the decision to live apart”. Ms Forrest’s paper fortune is now about $1.1bn more than that of Dr Forrest after it was confirmed the pair were living separate lives in what is the largest split of wealth in Australian history. Ms Forrest has one key asset now solely in her name, putting her estimated fortune at $15.46 billion – which would be enough for seventh position on The List – Australia’s richest 250 if it were recalculated now – and about $1.1bn higher than Dr Forrest’s $14.35bn wealth. The decline in their relationship has been a topic of widespread speculation and gossip throughout Perth’s wealthy western suburbs for a considerable amount of time. Fortescue said it would keep details of the investigation secret noting it has a number of channels for team members to report complaints either anonymously or in person, in keeping with accepted whistleblower protocols. Dr Forrest returned as the company’s executive chairman last year and has been the driving force behind its ambitious and contentious push to become the dominant player in hydrogen energy. Fortescue was under pressure for much of 2022 to give investors some clarity on the cost and timeline for any of the dozens of massive green energy and hydrogen projects it has earmarked.
Super funds are not being properly scrutinised as they build up huge portfolios of illiquid unlisted assets, putting Australians’ retirement savings at risk, the authority that oversees the financial regulators has warned. A review by the Financial Regulator Assessment Authority, run by former Macquarie chief executive Nicholas Moore, declared the prudential regulator had fallen short in its oversight of how funds value assets such as office buildings, infrastructure and private equity funds. The failure could leave super fund members out of pocket thanks to “unfairly reduced or inflated balances”, amid a cooling global economy and increasingly complex investment strategies. The independent review found the Australian Prudential Regulation Authority took an undeveloped view of risks to the $3.5 trillion super system and failed to proactively identify and understand key challenges including the impending retirement of Baby Boomers and severe market downturns. The Financial Regulator Assessment Authority was set up after the banking royal commission to ensure that regulators did not allow a repeat of the misconduct uncovered by the inquiry. This is its first report on APRA after reviewing the corporate watchdog last year. APRA’s regulation of super funds was also less mature and developed than its approach to banks and insurers, the review said, despite its importance to the finances of more than 15.6 million people. Experts have expressed alarm about the large investment by super funds in private assets, which have underwritten their strong returns, raising questions about the accuracy of valuations and the management of diversification and liquidity risks as interest rates rise. Super funds wrote as much as 15% off their extensive unlisted office property investments in their end-of-financial-year valuations, instead relying on booming technology stocks to cushion member returns.
And that’s it for this week. And next week, I’ll be talking to serial entrepreneur and business coach Tom Williams from Innovation Consult. And I’ll be talking to Indeed economist Callam Pickering about the latest jobs figures.
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Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week