There are salutary lessons in the troubles that have befallen Australia Post and the Australian Securities and Investments Commission (ASIC). Their CEO and chair respectively have been made to step aside respectively over watches given to staff as rewards for effort and a claim for expenses that has had to be repaid.
They have a common feature – both involved senior people with successful private sector backgrounds. The lesson that every similar appointee should heed is that the public sector applies very different standards.
Take these two cases. Both would go virtually unnoticed in most private companies.
Sample and save 50% on a yearly subscription.
Offer ends 08/12/2020.
Awarding expensive watches as a bonus is the sort of thing that happens frequently at the high levels of private corporations.
Bonuses can be much more lavish than mere $3000 watches (it turns out they were actually even more expensive, but hey, who’s counting). For instance, Clive Palmer in 2010 gave staff Christmas bonuses including Mercedes Benz cars and expensive overseas holidays.
Executives often give each other expensive presents, typically dressed up as bonuses for financial achievement. They can act as an incentive for future performance, so benefit the company bottom line.
They can also be less justifiable – a round-robin of unmerited rewards, mutual backscratching at shareholders’ expense. This is a manifestation of what is known as the agency problem, where interests of managers are favoured over those of owners.
What is different in the private sector is that eventually such practices work themselves out in terms of the company bottom line and share price. Should managers be awarding unjustified bonuses, this will eventually find expression in poor financial results.
The public sector is different. A publicly owned corporation has an implicit guarantee that it cannot go broke. It would be inconceivable that any government would let Australia Post – which for many Australians provides an essential service – declare bankruptcy.
Managers in a government business therefore have an obligation to be more careful with the funds they have been trusted to manage – they are not earning them solely through their own efforts, but with taxpayers behind them.
That is not to rule out bonus payments – indeed, Australia Post paid close to $100m in incentive payments last year. But they need to be part of an ordered and transparent scheme that will withstand scrutiny, not appear capricious or excessive.
The problem with the watches is that they were obvious. Some HR practitioners would say that makes them a great incentive – they are splashy and extravagant, so send a strong signal. But that is also their defect. It’s the bicycle shed problem that C. Northcote Parkinson wrote about more than 60 years ago. A committee may spend two minutes discussing plans for a nuclear power plant, which they don’t understand, and two hours discussing the bicycle sheds behind it because that’s something they can get their heads around. Mismanagement or poor staffing, although much more costly, is a lot harder for the public to get to grips with than a bonus watch.
Private sector people appointed to government businesses will often struggle with the ambiguity and mixed messages they receive from ministers – on the one hand, to be profitable and behave like a successful private firm, on the other, to observe public sector propriety. But that is part and parcel of being in the public sector: the advantages of public ownership come with the price tag of being held accountable to public expectations.
The case of ASIC chair James Shipton is harder to understand. ASIC is not a government business – it is a regulator, core public service business. Any public servant knows they should not claim more than is allowed – in this case, by the Remuneration Tribunal.
Again, it is different expectations between private and public sectors. In the private sector, if an excessive claim is lodged it is up to the people processing it to find out, they advise the claimant, the excess is paid back, everyone moves on.
But that’s not the public sector way. In a hierarchical organisation it would be a brave processing clerk who questioned a claim from the head of the commission; and indeed, one media outlet claims ASIC used its own in-house lawyers to avoid having to run the claim past the Remuneration Tribunal.
A senior leader in a large private firm will have ‘people’ to sort out this kind of thing. In the public sector, there aren’t that kind of people. A leader sets the example, and is expected to lodge their own claims or supervise someone who does. Experienced public sector leaders know to make them modest, erring on the side of under- rather than over-claiming.
What makes it more embarrassing in the ASIC case is that this is the corporate regulator, looking at company practices. Tax advice in this situation is highly sensitive.
It included advice on “optimisation” of Australian tax on currency in foreign bank accounts – which, while presumably completely above board, is not the sort of thing to which everyday Australians have access. Humble and modest it isn’t.
The Prime Minister declared himself shocked and appalled at the Australia Post matter, although was more circumspect about ASIC. As one would expect, he denied there was a culture problem in the public sector: but he did say he was waiting on the reports of inquiries that had been initiated and that “there wouldn’t be a board member of a government agency or a CEO of a government agency that didn’t get my message”.
Sensible public boards will review their organisation’s practices and eliminate any that won’t stand up to the proverbial pub test – that is, they will be asking whether bonuses, incentives, rewards or any similar payments are clearly defined, transparent, modest and in line with community standards.
It does not help that nobody has actually defined such standards – which means public bodies should err on the side of fewer and smaller bonuses (or none at all), especially during the current economic downturn.
Whatever the outcomes of any inquiries, the government has been in office long enough that it can’t distance itself from either case easily.
It appointed the Australia Post Board, which is ultimately responsible for the conduct of the CEO, Christine Holgate. She also told a Senate estimates hearing that the watches had been awarded to staff “on behalf of the board”.
The government appointed James Shipton to ASIC. He reports to the Treasurer.
It is, therefore, incumbent on the government to implement changes to improve how both organisations are governed and scrutinised.
Subscribe today and save $220 on an annual subscription
Because we are reader funded, we’d love you to join Mandarin Premium. Without your support, we simply can’t do what we do. And we’re looking forward to doing a whole lot more in 2021.
If you subscribe now, you can save 50% ($220) on an annual subscription*. Just enter promo code PREMIUM50 when you subscribe.
*Offer ends 08/12/2020.