Whispers Outside The Boardroom Door: Making Working Australia's Money Talk

Whispers Outside The Boardroom Door: Making Working Australia's Money Talk

The ACTU aims to play a role in promoting a reformed corporate culture for the 21st century says Sharan Burrow, in this address to Sydney Institute.

A new century, a rapidly changing economy and a new leadership team at the ACTU. This is the right sort of time and context for unions and the ACTU to critically examine some of our traditional views and practices. Not because our goals have changed, but because the world in which we are operating is different.

 

As it has always been, the ACTU is primarily committed to a fairer distribution of the nation's wealth so that working people and their families can achieve a secure income, access to fundamental services like health and education and improve their living standards in line with growing prosperity.

 

As a preface to this speech we should all remind ourselves that there is much work that needs to be done to achieve this ambition.

 

Despite one of the longest periods of sustained economic growth in this country's history there are an increasing number of people in our community who are simply not getting a fair share. Large sections of the community are being left behind.

 

A 1999 National Institute of Economic and Industry Research report - “State of the Regions,” found that only half the Australian population, located in just 15 out of 57 regions, live in communities that are equipped to handle the economic pressures of the next century.

 

Eight years of economic growth may have seen executive salaries increase by 30% but for many working families the benefits of a strong economy are hard to see. They are obscured by a fog of job insecurity, longer, unpredictable and often unpaid working hours, increasing costs of essential services and the inequitable distribution of the nations wealth that sees the top 20% of income earners get 48% of weekly income while the bottom 20% take just 3.8% home to their families.

 

These issues must be addressed. Our social cohesion as a community depends on it.

 

But today, more than ever, improving the living standards and quality of life for working people requires much more than just a concentration on the profit share versus the wages share.

 

We are and will remain primarily concerned to ensure that workers receive a fair wage that properly rewards their efforts and reflects an equitable share of the productivity and general economic growth to which they have contributed.

 

However since their establishment in this country, unions have recognised that workers' living standards are not dependent on wages alone. For this reason, unions have campaigned to ensure that improvements in standards of health, education, childcare, aged care, housing, transport and social security are at the centre of government policy.

 

Over the last 20 years, particularly during the period of the last Federal Labor Government, the ACTU has also been engaged at the macro economic level with the objective of ensuring that inflation, high interest rates and taxation arrangements do not negate gains made in wages and working conditions.

 

The issue I want to talk about tonight is an emerging strategy around issues of corporate governance and socially responsible investment. This results from a series of social and economic developments that now have the potential to drive a process of significant corporate reform.

 

First, our population is retiring earlier and living longer. For example, in 1966 life expectancy for men was 68 and 80% of males worked until around 65. In 2000, life expectancy for men is 76 and only 41% of men aged between 60 and 65 are in the workforce.

 

Second, financial support for these workers in their retirement years will come increasingly from superannuation funds and less from the social security system.

 

Third, an unprecedented 53% of Australians now own shares. Given that 10% of the wealthiest Australians own 90% of the shares for most working people this is currently indirect ownership through their superannuation funds. While superannuation shares are increasingly significant we also acknowledge that a shareholder culture is extending beyond wealthy Australia as evidenced by the float of major companies such as the Commonwealth Bank, Telstra and the NRMA.

 

Institutional investors control most public companies' share registers and superannuation funds are very significant institutional investors. Superannuation funds are predicted to make up more than 30% of the capitalisation of the Australian share-market within two years. Total superannuation fund assets (listed and non-listed investments) already stand at $416 billion compared to the $867 billion deployed on the Australian Stock Exchange. This is hardly surprising when in the US pension funds already make up more than a third of the capitalisation of the New York Stock Exchange and the picture is similar in the United Kingdom. Once unions might have seen shareholders' interests as opposed to those of workers, but this can no longer be the case. The fact is that shareholders are all of us.

 

Employee representatives, whether elected or appointed by unions, make up half the boards of funds with almost half of total superannuation assets - around $200 billion.

 

Employer and employee representatives, along with the entire investment community, will increasingly come under pressure not just to ensure sound returns but to ensure that funds align their investment policies with the interests and values of fund members.

 

Internet transactions are set to rise. Ernest and Young predict that 50% of financial transactions will be on-line within the decade. Internet-enabled scrutiny of product will complement increasing interest in investment generally and facilitate rapid and major shifts in consumer choice.

 

What all this adds up to is that unions, along with everyone else involved in the superannuation industry, have a responsibility toward ensuring that workers' retirement savings are managed in their long-term economic and social interests.

 

There is no doubt that this has been done pretty well over the last 15 years or so; that is, since we had significant union involvement in superannuation.

 

However, along with many others in the community, we believe that not enough has been done by the investment community to influence the way that the companies in which they invest behave.

 

We need to look at two aspects of corporate behaviour:

 

First, corporate governance - how corporations govern themselves in relation to issues like the independence of Boards, transparency of decision-making and executive remuneration

 

Second, corporate citizenship - how companies treat their customers, suppliers, employees and the community - are they good corporate citizens?

 

According to KPMG, 80% of working people aged between 25 and 39 would consider investing their superannuation in socially responsible investments. There is growing evidence to show that socially responsible investment, such as those based on the Dow Jones Sustainability Index do not sacrifice good returns.

Of considerable interest to our members is the example relayed by Richard Trumka, the Secretary of the AFL-CIO, during his recent visit to the ACTU Congress in Wollongong. American Airlines has instituted an employee satisfaction survey as one of the indicators that influence its CEO’s performance related remuneration.

If the workers in the Commonwealth Bank branch I visited today had a say about their work satisfaction, they would tell you a story of chronic understaffing and the slashing of 600 branches and 8,000 jobs in the past decade despite the Bank continuing to return record profits. They would tell you that their CEO earns more than $30,000 a week while a teller earns less than $30,000 a year. They would tell you that the unpaid overtime that increasingly keeps them from their families too many nights of the week has been rewarded by an offer of a take-it-or-get-nothing individual contract in the face of the Bank’s refusal to negotiate a fair and reasonable collective agreement with their union. If employee satisfaction was a measure directly affecting Commonwealth Bank CEO David Murray’s remuneration I'm not sure the $1.9 million he received last year would be endorsed by those he relies to make it possible.

 

Profits are an essential base of good business but excessive profits at the expense of community services and dignified salaries and conditions for staff must be judged through the lens of a fair share for all involved, employees, communities and shareholders.

These issues are important, first, because they are about ethics - what is right, and second, because there is a correlation between good corporate behaviour and long-term profit and shareholder value.

 

In Australia industry super funds like HESTA are leading the way with its environmentally responsible Eco Pool investment option. Make no mistake this trend will continue if experience overseas is any guide. In the US investment in socially responsible funds now exceeds US $2 trillion. One in every 8 US dollars is now invested giving consideration to corporate governance and social responsibility criteria.

 

Support for greater shareholder activism cannot be dismissed as a radical frolic. The Federal Government's Financial Services Minister, Joe Hockey has called on fund managers and trustees to take a greater responsibility for making company boards accountable for the decisions they make on behalf of shareholders.

 

Similarly, Mr Hockey's shadow equivalent, Senator Stephen Conroy, has called for greater obligations on institutional investors to exercise the voting rights attached to shares.

 

In the United States, these voting rights are legally treated as assets of the fund, and must be dealt with by trustees in the interests of the beneficiaries. This means that trustees must adopt principles on voting proxies and monitor fund managers if voting rights are delegated to them.

 

A recent report on proxy voting in Australia's largest companies by the Centre for Corporate Law and Securities Regulation at the University of Melbourne concluded that the legal position under Australian law is similar to that in the US, even though the general practice of funds managers and institutional investors here is not to vote shares.

 

Assuming this is correct, many trustees may not be aware of their legal responsibilities in that they have no policy for dealing with voting rights and do not monitor the exercise of these rights by fund managers.

 

In Australian public companies that do not have a major non-institutional shareholder, proxies are received for only around one third of voting capital, compared to 50 per cent in the United Kingdom and 80 per cent in the United States.

 

The ACTU unashamedly stands for democratic practices and transparency - in our political system, in our workplaces, in communities - and in the boardroom. We believe that the workers who are the beneficial owners of billions of dollars worth of shares should have those shares voted in ways which will maximise their long-term earning potential and their broader interests as members of the community.

 

Some of you may be aware of the recent campaign around two resolutions presented to the Rio Tinto Annual General Meetings in London and Brisbane.

 

The resolutions were sponsored by the ACTU and the trade union centres of the United Kingdom and the United States (the TUC and the AFL-CIO) together with the CFMEU and its international trade secretariat the ICEM.

 

The first resolution was directed at achieving a majority of independent directors on Rio Tinto's board. The second at committing the company to abiding by International Labor Organisation core labour standards.

 

Although Rio Tinto's board strenuously opposed both resolutions, and attempted to paint the exercise as no more than an industrial tactic by a disaffected Australian union, more than one in five shares were voted in favour of the corporate governance resolution, and 17% of shares supported the proposal that the company should commit to abide by ILO core labour standards.

 

Interestingly, although separate figures are not available for the UK and Australian shares of the dual listed company, it would appear that the vote for the corporate governance resolution was higher in Australia, with more support for the labour standards proposal in the UK.

 

Where the issue was raised on superannuation boards, the general outcome (with a couple of exceptions) was an inability to agree on taking a position on the resolutions. Overwhelmingly, the Australian votes in favour of the resolutions came from funds managers and non-superannuation investors. Unions might have initiated the campaign, but ultimately some of its strongest support came from the general investment community.

 

In the face of this kind of growing support for better corporate governance in Australia we have seen something of a backlash.

 

First, there were the comments of Stan Wallis questioning the value of governance principles such as independent directors. Second, there have been the recommendations of the Corporations and Security Advisory Committee to the Government proposing to make it more difficult for shareholders to call special meetings or to put resolutions.

 

I support greater, not diminished shareholder democracy. If Australia is to be a "shareholding democracy" then we must have rights for shareholders. It is time that the real owners of companies, including working women and men, had a greater say in ensuring that companies are run in their long-term interests.

 

Why should workers' money be used to fund share option plans for executives whose short-term incentive is to maximise the share price through short-sighted cost cutting and asset stripping? The executives can take the money and run, leaving the company shorn of its physical and intellectual assets.

 

Unions work to improve the wages and conditions of their members. Why should we accept workers' money being passively invested in companies that employ children or forced labour, or which poison the environment, force subsistence farmers off their land or kill communities by taking away their jobs and their hope?

 

No doubt everyone here would agree that these are issues which should concern us all. Some of you might argue that these are government responsibilities to address and deal with, and that the sole concern of companies and those who invest in them should be to remain within the law.

 

That is not my view. I don't need to remind you of the tragic results of such policies throughout the twentieth century where capital ignored its social responsibilities, justifying itself behind the thin veneer of legality for the war-making, the labour camps and the torture in which it has at times participated.

 

There is a ground swell of opinion that is beginning to argue for corporate reform that recognises and responds to shareholder and community values. Sean Kidney in last Friday's AFR makes a solid case:

 

We are moving into a new economy that relies on, and has a huge thirst for, smart educated workers, and where lifelong education/continuing education becomes paramount to success. The economy needs thinking workers and this will apply as much to agriculture and mining as to IT and hospitality. A logical, if unforeseen spin-off is that a lot more people will be thinking about the social role of their investments.

 

By carving out a position that has economic and social returns, the more competitive funds will also create a significant differentiation that will stand them in good stead to win new members in an environment of super choice.

 

This is moving closer to worker direction of the economy and not the more limited shareholder control envisage by John Howard and Co. ...... The outcomes will see super funds:- co-ordinate investment in social as well as physical infrastructure, pursue a range of investment measures for addressing environmental issues and act to maintain a vibrant economy. (Sean Kidney - AFR 25/8/00)

 

In my view, this more principled corporate culture will extend beyond superannuation funds. For example, serious questions are being raised about the social responsibilities and performance of Australia’s banks. Over 20,000 Australian’s have signed a petition circulated by the Finance Sector Union calling on the Federal Government to institute a charter of social responsibility for Australia’s banks. When the Commonwealth Bank hands down its projected record profit tomorrow of around $1.7 billion, it should keep in mind that many of its share-holders are also members of the community; a community that has become increasingly frustrated with the way it is treating its customers and its staff.

 

In Australia we are behind much of the rest of world in addressing these issues. In the UK, recent legislation requires pension funds to disclose whether they take account of the environmental, social and ethical impact of investments, including their policy, if any, on exercising the voting rights attached to shares.

 

The ACTU has supported the Australian Conservation Foundation’s call for similar legislation to be introduced in Australia, and we will campaign for other legislative changes to ensure proper accountability by companies and funds managers to their owners.

 

Quite simply, we believe that all investors, including working women and men, have a right to proper information about how their assets are being managed. Proper information includes not just details about returns but also the environmental and social policies and performances of the companies in which they invest.

 

Australian companies are currently required to report on their environmental performance. This should be extended to social issues, to complete the "triple bottom line" - economic, environmental and social performance.

 

There should be statutory support for initiatives such as Amnesty International's human rights framework for Australian companies. The framework seeks to encourage and assist companies to adhere to key international human rights documents covering their employees and the community.

 

The ACTU wants to play an active part in promoting these ideas.

Unions do have an agenda - it is about fairness, about sharing the benefits of growing prosperity, and achieving a high level of security for all at work and in retirement. These are, of course, the values that underpinned the establishment of universal superannuation. Likewise they are the values that no doubt motivate the trustees of superannuation funds, whether representative of employers or employees, who volunteer to manage the funds on which workers will depend in the later parts of their lives. However, beyond this, these values must also become the values that underpin a successful and inclusive global corporate culture. A culture based not on the principles of secrecy and isolation but on what my colleague, John Sweeney of the AFL-CIO, calls economic democracy.

Corporate governance and strategic campaigning, in the interests of working Australians, their families and their communities, is now very much union business.

 

Sharan Burrow, ACTU President, Address to Sydney Institute Tuesday August 29, 2000.