Passing Bull 215 –Business and politics

 

If you have lived in a small country town, you know how important it is for people who run a business in that town – such as a pub or general store – to get on with and relate to the other people in the town.  They need to be seen actively to support the town.  People in bigger companies – such as BHP, ANZ, CSL or Westfarmers – have come to the view that the same goes for them and the people of Australia.  These companies – and their employees – want to get on with and relate to other Australians.  The Round Table Conference in the U S and the Financial Times in the U K have both confirmed a shift in big business away from confining itself to the bottom line.  So do those who run MBAs. 

The FT had a note about BHP and its legal counsel.

BHP was among the companies named in an investigation begun by the Commission on Human Rights of the Philippines in 2015, into whether fossil fuel groups have violated human rights by causing climate change. The company formally severed ties with the World Coal Association last year, after Australian green groups urged it to quit industry lobby groups whose policies did not match the miner’s support for the Paris climate agreement. Ms Cox says climate change is high on her team’s agenda because the company knows its long-term sustainability depends on support from investors, regulators and the broader society. ‘We need the support of our communities in order to be successful’, she says.

The operative phrase there is that ‘the company knows its long-term sustainability depends on support from investors, regulators and the broader society.’ Shareholders allow a lot of money to go to directors and management to secure the long-term sustainability of the company  – they are put there to do just that, and not just try to get a good next half-year profit statement and dividend.

It is surprising, then, to find people saying that companies like BHP have gone too far in their social outreach.  It is doubly surprising for at least three reasons.  Most of the people making these claims come from politics, the press or think tanks and they have no idea on how to run a business – because they never have.  But they are usually those who shout most loudly about freedom of speech and religion – but not freedom of companies to run their business as they and their shareholders see fit.  And these critics are looking for the short-term view and narrow focus that so disfigures our public life.

In How Markets Fail, John Cassidy said that ‘Economics, when you strip away the guff and mathematical sophistry, is largely about incentives.’  He then discussed the venom injected into our commercial life by executives being paid, say, 100 times the pay of their employees.  He said: ‘In banking, the CEO incentive problem is even more severe than in other industries.’  That was nearly ten years before our royal commission into that industry painfully showed how fine is the distinction between ‘incentive’ and ‘bribe’.

I only invest in companies whose management I trust to maintain their long term sustainability.   For me, BHP is the exemplar – in large part because of the conduct that attracts adverse comment of the kind I have referred to.  I have no interest in investing in a company that is only interested in financial returns to shareholders and that takes no interest in the public costs of its business. 

It is downright silly for people who have never run a business to be offering advice on that subject to people who do.  But, then, we have a government that occasionally calls itself conservative that makes laws that will enable it to dismantle businesses it does not like.  And a government that will empower its agent, the tax man, to snitch on those citizens who are managing their super fund in a way that the government does not like.  The want of reason is at least consistent.

Bloopers

No other US president has faced the prospect of being re-elected or going to jail. Whether a defeated Mr Trump would actually be prosecuted — by the Southern District of New York, for example, and for any number of alleged crimes — is immaterial. All that matters is whether Mr Trump believes he could face jail. To judge by Mr Trump’s words and actions, he considers victory in next year’s election to be an existential necessity.

Financial Times, 13 September, 2019

We may have hoped that the FT was above transcendental bullshit like ‘existential’ – either with ‘necessity,’ or at all.

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