THE CHIEF EXECUTIVE of Macquarie Bank, Allan Moss, recently announced record profits for the bank, and his own annual salary as in excess of $30 million. Nice work if you can get it, and some 600 times the average Australian wage of $50,000. Is this a unique Australian story?
Moss may be one of the very best paid Australian executives, but at a multiple of 600 times average worker wages, this is, by world standards unremarkable.
The US leads the way with large pay packets for corporate heads. The argument is that the search for talent is a global one; hence pay has to be globally competitive.
The US is such a large market in its own right that it can command and sustain such arguments far more robustly than the relatively small Australian market.
Australia and the US do share a corporate governance model that makes it quite understandable that they both favour high director compensation. This is a model of the firm based on shareholder supremacy, rather than stakeholder supremacy. This is of vital interest for Australia because one of our key regional trading partners, Japan, demonstrates a radically different model of the firm.
In Japan, by contrast, employees, customers and the broad notion of "the future" all rank ahead of shareholders.
This has repercussions though key features of the market. For example, Japan has a far less developed takeover market and far less fluid set of shareholdings and trading in equities.
It favours "blockholders" large institutional shareholders such as banks, which typically take large, long-term, stable holding positions in firms. Japan, as a stakeholder model, also does not typically favour such large remuneration packages for its executives.
It also features "keiretsus" large, complex and interlocking corporate groups that in post-war Japan have dominated the economy and delivered remarkable wealth.
This narrative of stability has been slowed by the prolonged recession that commenced in the early 1990s and on several measures, continues to this day.
However, there is much evidence to show that keiretsus and the features of Japanese governance, have proven remarkably resilient despite the long economic downturn.
Firm cultures can change, but Japan's has arguably changed less than Australia's in this same period.
The Japanese example demonstrates that the way nations view firms and let them operate is as culturally located as it is legally promulgated. A great deal has been written about Asian values of harmony, the group and the collective, as opposed to Anglo- Western values centred on the individual, and the individual's orbit through life.
This complex interplay of cultural values is as relevant to the role and architecture of firms, as it is to so many aspects of our life.
In contemporary Australia we now have twice as many shareholders as union members. Our national firm culture has shifted in the last 15 years, despite the fact we have enjoyed the "longest decade" (about 15 years) of prosperity, as author and journalist George Megalogenis has called it. We are, as a result, more comfortable as a nation of risk-takers, not guild workers. We like to take a punt, we enjoy a flutter on the horses, a toss of coins with two up even on Anzac day. By seamless transition, we are also a nation at ease with massive executive salaries.
Big risk and big investments can return exponential returns. Very rapid upward mobility is a particularly US-Australian paradigm and we seem to enjoy hearing of such stories.
Two recent examples leave even Allan Moss in the monetary shade. These are the case of Fortescue Metals and the firm's mercurial chief executive and director, Andrew Forrest. His $8million worth of shares purchased in the mid 1990s for 8c per share are now sitting at market value of more than $30 each, and Mr Forrest is suddenly among the richest Australians with a worth on paper of more than $3billion.
Another overnight billionaire is the founder of an asset management firm, Kerr Nielsen. His firm, Platinum Asset Management, went rapidly into the stratosphere on listing. By day's end, the shares were trading at multiples close to 10 of the list price.
These episodes are reminiscent of the 1980s, except these days there are not the allegations of malpractice or opaque entrepreneurialism.
This is Wall Street II underpinned by solid companies and sound business cases. Pay packets enriched by shares and share options align us as one with the Anglo-US model, which includes Britain. All three nations share the same firm architecture: businesses are shareholder-driven. Whether we agree with Naom Chomsky's view that we are, and remain, a loyal satellite of the US, or whether it is unique Australian corporate culture at play, we are a nation seemingly at ease with huge monetary rewards for astutely played risk.
As the recent plays by private equity demonstrate, capital always finds a way to market. In a shareholder-beholden culture, Australian firms now happily pay globally competitive prices to the leadership, and the nation of shareholders, applaud as one in this vicarious bounty. Shareholders do, however, take issue with large board pay packets which are out of alignment with firm performance. If the package is huge, but the share price has drifted south, and the firm is perceived to be meandering without a clear strategic direction, the shareholders will agitate and grumble, and depending on how bad things get, campaign for change at the top.
This is because in a shareholder-driven market, shareholders are affected in a direct way; their poorly performing shares become less sellable, and the receipt of steady dividends (or dividends at all) more problematic.
The public market creates a transparency and accountability missing in private equity.
For those firms with good stories to sell, and with the chief executive officer as the storyteller in chief, the vast market of shareholders in this country is apparently comfortable enough to sit back and enjoy the mutually reinforcing ride. Chief executive officer packages in the multiples of hundreds of times average wages look set to stay and, in fact, solidify as part of the corporate story in the widely spread risk society. Chief executive remuneration is a key plank of shareholder democracy, which is, in turn, an evolving and often complex form of accountability in a country of mass share ownership. In the Australia of 2007, our notion of corporate citizenship is developing rapidly alongside longer standing conceptions of political citizenship. Dr Andrew Clarke teaches law at the University of Canberra. |
