1 June 2017
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Group of 100 National Congress: President’s Opening Address
Lessons Learned from ‘The Lucky Country’
Welcome Ladies and Gentlemen to the latest edition of the Group of 100 National Congress. My name is Zlatko Todorcevski and I’m the President of the G100.
We hold this event every two years and, for the 2017 version, we are very fortunate to have some fantastic participants. We’re leading off this morning with Chris Richardson from Deloitte Access Economics who’ll share his thoughts on our economic outlook. Chris will be followed by Shayne Elliott, the CEO of ANZ, who will cover his first hand experience in the transition from CFO to CEO. We then have a very interesting and topical session on Cybersecurity, facilitated by KPMG, to provide an updated view of the risk all businesses face and then a session on Remuneration reporting, which I’ll talk about in more detail shortly.
After lunch we’re very fortunate to have an experienced group of Chairs and Non-executive Directors to talk about what’s on the minds of Boards in Australia today and that panel session will be followed by an address from Alan Joyce, CEO of Qantas, who will talk about ‘Building a sustainable business in a volatile world’.
However, before we dive into the agenda, I’ll take a little time to talk about the Group of 100 and what we’re seeing across Australia and internationally.
The Group of 100 is the only organisation in Australia that is concerned with the full breadth of matters that the CFO has to deal with. In the last two years, we have made a number of changes to how the Group of 100 operates to recognise the evolution in the CFO’s agenda. These changes were necessary to support our purpose, which is…..
“Today’s leading CFO’s creating better businesses for tomorrow”.
Many of you may think of the Group of 100 as the organisation that focuses on Accounting Standards by day and a little tax at night. That’s not who we are today. We recognise that CFO’s play a critical and privileged role in most organisations and, to support current and future CFO’s, our focus has evolved.
We have implemented an Advisory Council, which comprises some of Australia’s most senior CFO’s and is chaired by John Stanhope. The Council was established to help us stay abreast of the range of matters that are on the minds of CFO’s. We have also implemented a number of working groups to undertake the detailed work that was previously done at the National Executive – this change was needed because of the changing and broadening agenda of CFO’s.
These working groups focus on some of our traditional areas of financial reporting and tax, but also cover important topics like leadership development and capital markets. All the groups comprise up-and-coming finance executives who get the opportunity to work with seasoned CFO’s at the G100.
Since our last national Congress, we have also been very busy and vocal on a number of fronts, which I’ll touch on in a moment. In short, what you will see today is a Group of 100 that’s contemporary and focused – but agile and willing to be vocal or contentious where it’s needed.
With that, let me cover what we are seeing in Australia today by reflecting on what we saw 50 years ago.
Almost everyone here today and around Australia will have heard the term ‘The Lucky Country’. The term entered our consciousness when Donald Horne wrote his book of the same title in 1964. And many of us feel it’s a term that fairly and accurately represents Australia and Australians – we’re very fortunate in so many regards. From our climate and spectacular beaches, to numerous natural wonders and a people that are open, adaptable and willing to ‘have a go’. From our abundant natural resources, which build and power the world, through to our location on the map, which can be both a bonus and a curse. The cultural cringe of prior generations is mostly gone and we’re happy and willing to take our position on a global stage. We all feel very proud of the term ‘The Lucky Country’ and feel it sums up who we are succinctly.
However, it’s a misused term taken to be praise rather than a warning. What almost every Australian doesn’t realise is that when Donald Horne coined the term, he was issuing a warning. His book was not only a description of Australia but a call to action – unfortunately, we haven’t heeded his call all that well more recently.
In his conclusion to the book, Horne actually said ‘Australia is a Lucky country that’s run by second-rate people that share it’s luck.’ I like to think he was talking about politicians rather then business leaders when he wrote that.
In the book, Horne described three priorities that are timely to revisit:
- A need to accept the challenges of where Australia is on the map;
- The need for a revolution in economic priorities; and
- A redefinition of what Australia needs to look like.
In that first priority, I’d say we have made tremendous strides. Maybe not through conscious intent but our focus has shifted from looking solely to Britain for guidance and acceptance to where today, there’s a recognition we’re much more impacted by what happens in Asia and our position in the Pacific means we have a much more important role to play locally. Although we probably aren’t as Asian as Horne had wanted us to be in our thinking and our outlook, I’d postulate that our understanding of, and integration within, Asia is more multi-faceted than it has ever been.
The second challenge Horne raised, and the one that we mostly focus on at the G100, is his call for a revolution in economic priorities. My personal view is it’s an area where we saw a lot of progress post 1964 but one where we have been lacking now for some time. Through the reforms of the Hawke-Keating years built on by Howard and Costello, we have enjoyed a long and prosperous period envied by almost every country in the world. However, we have been let down politically now for a long time and have continued to reap the benefits of what was done decades ago……And maybe we deserve that having voted in successive Governments with a slim or no majority and allowed party politics to dictate the agenda.
But it’s this second priority of Horne where we at the Group of 100 are spending most of our time and I’ll share some details…..
- Firstly on the tax front – we do not see as acceptable the dangling of a tax reform carrot almost 2 years ago only to have it yanked last year due to the federal election. We are in a global competition for businesses and kicking the can down the road on a major reform that’s sorely needed is just plain unacceptable. We all recognise the reality of the political environment we are in at present but that’s no excuse – we have to demand better of all our politicians and not just decisions that are politically expedient. Introducing tax cuts for small enterprises is a start but they’re generally not the ones that have the greatest capacity to determine where they locate (or relocate) themselves. At the Group of 100, we also see the Banking tax announced with the recent budget as bad policy introduced with no consultation. This is never a recipe for a good outcome, like the wholly unsuccessful mining tax of prior Governments. Structural and broad tax reform is needed and urgently – I have had too many discussions in Canberra where someone says “but we’ve had 26 years of uninterrupted growth” as an excuse for inertia – its not an excuse, just laziness and a lack of courage. Our tax system does not fit the Australia we live in in 2017 and needs a complete overhaul. I would encourage you all to have a look at the paper we published in 2015 titled “Let’s have a real Tax Debate about Tax Reform” which outlines our proposals on reform.
- Secondly, we support the Government’s innovation drive. However, what most of us in business have learned is that successful innovation doesn’t happen just because the Government wants it to happen. To be successful, innovation requires cooperation between business, educational institutions and providers of risk capital (both financial and human) but within a Governmental context that’s supportive. To date, including in the recent budget, we’ve seen little truly broad based engagement or commitment to build this innovation eco-system.
- Thirdly, we find the reform of our bureaucratic entities positive but slower than we need or should demand. We have barely scratched the surface on reducing red-tape and regulatory burden, which in many cases is stifling business investment. We also see the engagement of private sector expertise, like John Fraser as Secretary of Treasury or Chris Jordan as Commissioner of Tax, as truly a positive step – but more is needed. We only need to see the reforms in the ATO to wonder why this didn’t happen decades ago. It’s also shone the light on massive opportunities as the status-quo has been challenged with a fresh set of eyes. The focus on the Black Economy Task Force is a simple example where the tolerance for mass leakage of value from the formal economy, and the identification and prosecution of abuse, goes a long way to plugging our economic black hole. This is an area the Group of 100 feels very strongly about and we’re fully behind the ATO’s actions in this space.
- The fourth area of focus is on our national deficit and the spiralling level of personal debt – we whole-heartedly support the Government’s drive for fiscal prudence. Some have argued we wasted the dividend from the resources boom but, whatever the cause, action is needed on the deficit. On the massive rise in personal debt in Australia, I have a slightly different view to our Treasurer. I don’t think it’s an area to tread lightly and cautiously. Although increasing housing supply will help the situation, what’s needed is swift and decisive action to curb speculation. Personally, I don’t see advantages in having housing as a speculative asset class to the degree it is today and would support actions to limit that speculation and also the ability of foreign buyers to distort local housing markets.
- We are also encouraged by the recognition of the need for Labour reforms and productivity, which is the 5th area I want to touch on. In this day and age when we’re all connected 24/7 and people are working a multitude of different hours and patterns, the penalty rate system was archaic and limited the ability of many businesses to invest in growth. However, the decision by the Government on the 457 Visa has clearly been poorly planned and, once again, introduced without appropriate consultation. We will continue to encourage open and frank dialogue on matters of such importance to the economy.
- Sixthly, we continue to focus on the efficient operation and transparency of capital markets through our focus on better reporting and the role of proxy advisers. Whether you like or dislike Integrated Reporting, it’s clear there is a growing demand for it from investors, as evidenced in comments made by Larry Fink, the Chairman of Black Rock, and comments made at a recent conference we co-hosted with the Australian Council of Superannuation Investors. It’s up to CFO’s and corporate Australia to get ahead of the curve and meet the growing demand for broader reporting before it’s mandated. Also on the reporting theme, the Group of 100 did a lot of work last year on how we might improve the transparency and usefulness of Remuneration Reports culminating in a joint publication with PWC, which we’ll cover in a separate agenda item later this morning. We are also seeing a lot of frustration within Australian Boardrooms due the growing influence and, some have said, decreasing transparency from Proxy Advisers. Although we support the concept of proxy advisers, what the Group of 100 also wants to see is all Proxy Advisers resourced appropriately, willing to properly engage with Boards, the removal of perceived or actual conflicts of interest and transparent criteria on which their recommendations are made. We don’t believe that’s the case universally today. We have agitated for a review in this space and recently participated in an ASIC Roundtable on Proxy Advisers, which we are hopeful will result in needed change.
- A final area we see as critical to longer term economic reform is the structure of our Government, although we aren’t expecting changes any time soon. The creation of a federation was a necessary tool in 1901 to bring all of the states together. However, in the main, it today seems to be outdated and counter productive. Too many times now we are seeing suboptimal decisions being made at a Federal level because of the view that States won’t accept a particular change, the rate of GST being a prime example. That’s just not acceptable. To be held ransom by one or two states when the future success of our country is at risk makes no sense, particularly when it’s combined with an archaic Senate structure. As I said, we don’t expect any changes soon but we will continue to raise awareness of the waste and inefficiencies it creates.
Moving on from economic reform, the third priority area that Horne raised was the redefinition of who we are in Australia, touching on immigration, the role of women, the relationship with indigenous Australians and he also called for the creation of a republic.
Now, not all of these are relevant to the mandate we have been given at the Group of 100 by our members, but many are. It’s also apt to comment now that some politicians would also have you believe that business leaders shouldn’t voice an opinion on social matters but, I have to say, when the pace and extent of reform is unacceptable, it comes down to business to be vocal leaders on social matters. In terms of Horne’s third priority, we at the Group of 100 are doing a number of things in this space:
- Firstly – we are focused on creating an environment that fosters real diversity in finance organisations across Australia and diversity across multiple facets but especially gender. To that end, last year we conducted a study into gender diversity in finance teams across Australia, in different industries, different geographies and at different career stages. That survey was published last year and is available on our website. We are in the process of analysing that data and will be work-shopping strategies with our member companies to support greater diversity.
- We also continue to focus on developing the next generation of CFO’s. Through our partnership with EY, the ‘First 100 Day CFO Programme’ is focused on delivering real support for the future CFO’s in our member organisations. To date, we have graduated more than 50 people through this programme with the feedback being universally positive and a number of those graduates having moved into CFO roles.
Overall, I feel proud to live in this wonderful country and proud to be raising my children here. I’m also proud of the Group of 100 and my colleagues on the National Executive who continue to invest a lot of time to build a stronger community of CFO’s. Now, more than ever, with the challenges facing our economy and a distracted political leadership, we need to come together to drive sustainable improvements to our economy. Despite the fact we may not feel we always have alignment with the political leaders in Australia, at the Group of 100, we’re committed to maintaining a transparent and vocal dialogue because our future prosperity demands it. This really is a lucky country but we can’t take that for granted.
For those of you who are members, we thank you for your ongoing support. For those organisations who aren’t members, for a very small fee, we would encourage you to participate directly in our agenda and hope you get a sense of how we’re changing the Group of 100 to be more relevant to all CFO’s today.
Thank you very much.