The following letter was published in the AFR.
We discuss CBA in a legal vacuum. The law says the business of a company is to be managed by or under the direction of its directors. We talk as if the CEO is responsible for managing the business. That’s wrong. The board might delegate some powers – it cannot devolve its responsibility.
If the directors are truly responsible for failures of management of CBA, they should resign. But our business community lost that moral fibre two generations ago. And because our discussion is premised on a legal fallacy, the board is allowed to pass the buck to the CEO. That’s as satisfying morally or intellectually as a footy club firing its coach because of the weakness of the team.
But still, no one goes. Executives lose bonuses – north of a million each. But given executive pay levels, this will hurt executives less than a speeding fine would hurt me. And a fine that is ten times the pay of high school teachers will be defended by those who say there is no problem of inequality of income.
So, we have a shot-duck government that no one believes, and a business community that is spineless at the top, corrupt in the middle, and bitterly deprived and discontented at the bottom. That’s just the cocktail that gave us Farage, Hanson, and Trump.
It also makes the case for a full inquiry into our banks unanswerable – if only to educate company directors.
The following piece was published, with some amendments, in The Guardian.
Koalas at the tills
If I drive above the speed limit, I may be fined. I may lose my licence, and therefore my job. If I kill someone while speeding, I’m liable to go to jail. In weasel terms, I’m ‘accountable’ or ‘responsible’ for my driving. The CBA mess raises this question: are its directors legally responsible for that mess?
We talk in a legal vacuum. The law says that a company’s business is to be managed by or under the direction of its directors – but we talk as if the CEO is responsible instead. That’s wrong. Directors can delegate powers – they cannot devolve responsibility. The CEO is responsible to the board; the board is responsible to shareholders. But armed with a legal fallacy, the directors try to duck for cover.
The banks say their problems are ‘cultural’ and the law can’t fix cultures. What nonsense! What if there is a ‘culture’ of greed driven by remuneration schemes put there by the board? What if a macho culture drives men to intimidate women? Is the law then powerless?
No, the directors of CBA are responsible for all this mess – and here it’s strike three. Two generations ago, directors would have been pushed to resign. But that was when bank managers mowed their nature-strips with Qualcasts on Sunday arvos. Now we do not respect the City, and it’s left to the regulator to tap the directors’ sense of decency. Their licences may not be presently at risk, but might not a court rule on their legal responsibility?
The directors relied on management. In court, they would have to show they made independent assessments of the executives’ advice. This law is hard. How many of the CBA directors knew enough about banking to assess independently what their whizz kids were saying? Did the directors reasonably believe that their powers were always being properly exercised?
Here is the Volkswagen dilemma. Either the directors knew what was going on or they didn’t. The malefactors were either working under the directors’ direction or they weren’t. Which is worse? If the government was telling CBA that something was wrong, can the directors now say that they thought everything was OK? Weren’t they at least put on inquiry? Win, lose, or draw, should we not spend some taxes putting these directors in the witness box so that they can explain to us Australians just what they do for their money? And as for winning – well, it’s curious, but the banks don’t often win in court.
If you watch The Big Short at the cinema, you will hear groans of resignation at the end – nothing happened to the crooks. Big corporates never get to face our criminal justice system. Two teams of ineffably urbane lawyers stitch together an evasive dissemblance of regret – apologies are so demeaning; the corporate pays an agreed sum to government, which would otherwise be called a bribe; the shareholders take the hit; and the executives collect their bonuses and move on to the next fatted calf.
We learned long ago that power corrupts. We are now learning that wealth – itself a form of power – is even more corrupting. Have those at CBA been allowed to get away with all their wrongs because so much money slushes around that no one will mind the odd little leak? Is it possible to imagine a more corrupting sentiment in a bank?
So far as we know, no one has yet gone from CBA. Some executives have lost bonuses north of a million dollars. That’s more than ten times what we pay high school teachers. That will have hurt them less than a speeding fine hurts me – and their ticket hasn’t been at risk.
Very few directors went to jail over the GFC. We protect them like we protect koala bears. Company directors’ status appears to put them outside the law. This apparent privilege deeply upsets the punters. Our criminal justice system really works over those at the bottom – but we don’t lay a finger on those on high. Are these koalas, then, untouchable? More invulnerable even than cardinals?
This class difference is very cancerous. We should all have the same legal rights. But, then, this company pays its CEO more than 100 times what it pays its tellers. Do you see why inequality – in both money and status – is such a loaded word now?
So, we have a PM reduced to a grinning buffoon; a government that gets everything wrong by either instinct or tradition, and that just ignores us; and a business world that is indolent and protected at the top, greedy and corrupted in the middle, and deprived and angry down below. Those are precisely the forces that generate a sense of caste and that gave us Farage, Hanson, and Trump.
They also make the case for a full inquiry into our banks unanswerable.
Warren Buffett manages differently. A scandal at American Express left subsidiaries owing $60 million. Should the parent voluntarily honour those debts? Buffett said their business depended on trust. We hear that truism a lot now, but Buffett paid the debts to set ‘standards of financial integrity and responsibility which are far beyond those of the normal commercial enterprise.’ For Buffett, it was not enough just to comply with the law; the CBA can’t even manage that.
And what happened to the good old bank set up to guard our common wealth?
Poet of the month: Walt Whitman
A Child Said, What Is The Grass?
A child said, What is the grass? fetching it to me with full hands;
How could I answer the child?. . . .I do not know what it is any more than he.
I guess it must be the flag of my disposition, out of hopeful green stuff woven.
Or I guess it is the handkerchief of the Lord,
A scented gift and remembrancer designedly dropped,
Bearing the owner’s name someway in the corners, that we may see and remark, and say Whose?
Or I guess the grass is itself a child. . . .the produced babe of the vegetation.
Or I guess it is a uniform hieroglyphic,
And it means, Sprouting alike in broad zones and narrow zones,
Growing among black folks as among white, Kanuck, Tuckahoe, Congressman, Cuff, I give them the same, I receive them the same.
And now it seems to me the beautiful uncut hair of graves.
Tenderly will I use you curling grass,
It may be you transpire from the breasts of young men, It may be if I had known them I would have loved them;
It may be you are from old people and from women, and from offspring taken soon out of their mother’s laps, And here you are the mother’s laps.
This grass is very dark to be from the white heads of old mothers,
Darker than the colorless beards of old men,
Dark to come from under the faint red roofs of mouths.
O I perceive after all so many uttering tongues!
And I perceive they do not come from the roofs of mouths for nothing.
I wish I could translate the hints about the dead young men and women,
And the hints about old men and mothers, and the offspring taken soon out of their laps.
What do you think has become of the young and old men?
What do you think has become of the women and children?
They are alive and well somewhere;
The smallest sprouts show there is really no death,
And if ever there was it led forward life, and does not wait at the end to arrest it,
And ceased the moment life appeared.
All goes onward and outward. . . .and nothing collapses,
And to die is different from what any one supposed, and luckier.