Professor Peter Swan

The bribery scandal and apparent cover-up revealed in yesterday’s ABC’s 7:30 Report and The Age that is now engulfing the Governor of the Reserve Bank of Australia (RBA), Glenn Stevens, his former deputy, Rick Battellino, now retired, and the RBA Board had its origins in one of Australia’s great technology success stories. This was the invention of plastic (polymer) bank notes in the 1980s. Having successfully protected its property rights despite fears of reverse engineering by overseas note printing interests, the RBA and two offshoots, Note Printing Australia (NPA) and Securency International, involved in polymer note printing and marketing, have been accused of covering up the scandal that involved payment of large bribes (secret commissions) to politicians and officials in a number of Asian countries.

When senior RBA officials were given a detailed memo providing details of the bribery scandal as early as 2007, the matter was not taken to the Australian Federal Police and there seems to have been no public acknowledgement of the problem until press reports raised the issue about two years later.

Although this is the second major bribery scandal involving exports to foreign governments, the kick-backs on the sale of wheat to Saddam Hussein of Iraq by the Australian Wheat Board being the first, this appears to be the first that has sparked a major police investigation and large-scale prosecution of officials involved. Corrupt payment of bribes is illegal in Australia, even to foreign officials and politicians, even though it is an accepted part of doing business in many parts of the world. In fact, many would regard it as a necessary cost of doing business and way to promote Australia’s exports.

As is usually the case, the bribery and corruption pales into insignificance relative to punishment metered out to those who cover-up. Richard Nixon was forced to resign, not for hiring the ‘plumbers’ in the first place but rather for his failed cover-up attempt.

The involvement of the most senior officials of the RBA and possibly the Board in the cover-up, even if they were unaware of large-scale bribery prior to 2007 in the bank-note offshoots, is an exceedingly damaging development for an organisation that until recently has retained a reputation for integrity and exceptionally good monetary policy in recent years.

Join the club!

There is an ongoing investigation into the Bank of England’s oversight of the rigging of the LIBOR interbank rate by Barclays and other British banks at a time when the Bank of England was facing the prospect of further massive public bailouts of the banks. Mr Bob Diamond, Barclay’s CEO who was forced to resign because of the scandal, explained to a senior Bank of England official at the time that “not all banks were providing [LIBOR] quotes at the level that represented real transactions.”

By this he meant that a number of banks including Barclays were deliberately understating their borrowing costs to make it appear they were more solvent than they really were. Lack of response from Bank of England officials, who claim not to have interpreted the conversation in this light, was taken by Barclays as implicit acknowledgement and support by the Bank of England for LIBOR rigging.

In the case of the US Federal Reserve, lax monetary policy and their success in bringing the cash rate down to close to 1% after the bursting of the internet bubble and 9/11 has been blamed for exacerbating the credit crisis that led to the GFC. Certainly, FED oversight over the lead-up to the GFC and the US NINJA loans scandal was weak. It has only recently been revealed that RBA and other Australian regulators were almost equally lax in allowing Australian banks and mortgage providers to push huge numbers of ‘low-doc’ loans on impecunious investors who had little or no prospect of repaying. Banks and mortgage providers seem to have secretly filled out forms to make it appear that borrowers were in a far more financially sound position than they were in reality.

The plastic banknote bribery scandal and cover-up places the largely very distinguished business people making up the RBA Board in an exceedingly difficult position. Did they know of, or should they have known what was going on at the time of the presumably secret 2007 Memo or even earlier?

In the CENTRO case, the court found that non-executive directors cannot uncritically accept advice from either management or auditors. Directors must take ultimate responsibility for company affairs. Of course, unlike CENTRO, the RBA is not a listed company with shareholders. It is the Federal Treasurer and Government that appoints directors to the RBA Board and thus should play an important role in its oversight. The Treasurer also appoints the Governor of the RBA. I should imagine that the Governor is accountable to the Treasurer, the Government, and perhaps ultimately to Parliament.

It is tragic that the scandal and apparent cover-up has damaged the reputation of the Governor, senior officials, board members and the RBA as a whole, despite the high regard for its conduct of monetary policy. The best we can hope for now is a quick end to the cover-up, if there really was one, and a speedy resolution of this very sordid affair. The successful setting of monetary policy is very much dependent on the reputation of the RBA. This needs to be repaired as quickly as possible.

Professor Peter Swan is the Professor of Finance at the Australian School of Business. This article first appeared in the Australian Financial Review.

Professor Chris Styles

Now that the party’s votes are in, Prime Minister Julia Gillard has to make up ground with the voters. The polls are indicating the Labor Government is in deep trouble. Kevin Rudd was nothing if not analytical and blunt about their prospects at the next election. And everyone knows it.

As leader, what does Gillard do now? Perhaps the leadership drama is a gift in disguise. Some leaders would love a crisis to give them an excuse to instigate change and rally the troops around a cause.

In this case, Gillard has been handed a real crisis where there is nothing to lose and everything to gain. It’s clear that business as usual is not an option.

In her speech after winning the leadership battle she said as much. She admitted things have to change otherwise defeat is a sure thing. Perhaps what is needed is a genuine paradigm shift across a number of policy fronts.

The Business Council of Australia (BCA) among others are calling for the government to look away from in-party fighting and focus on the big issues the country faces with renewed vigour.

BCA President, Tony Shepherd, said the leadership ballot should be a catalyst for “more focused government and a renewed commitment to make Australia more competitive and productive”, reiterating its stance on a need for a more competitive tax system, a more flexible, mobile and skilled workforce to improve competitiveness, and a regulatory environment that encouraged business to invest.

The question for Gillard now is how she goes about instigating this change. The government could do worse than start with a clean piece of paper and devising some paradigm shifting approaches. Some would say this is a risky strategy, but perhaps it is not.

The most daring approach for any organisation on the decline – such as this government – is continuing on as they have been. We often see this in business when organisations take a safety first approach and employ what see “sensible” (conventional) strategies to the detriment of innovation. Strategic convergence may feel good at the time but it can’t win in the long run.

Let’s consider the wise words of a great philosopher: “My life is the opposite of everything I want it to be. Every instinct I have, in every part of life, be it something to wear, something to eat … It’s all been wrong.” The great philosopher was George Costanza and advice came from his good friend Jerry Seinfeld. “If every instinct you have is wrong, then the opposite would have to be right.”

The weekend papers highlighted perceived flaws in the instincts of the Prime Minister – such as agreeing to appear on the ABC’s recent Four Corners program, leaving out references to the achievements of Kevin Rudd during last year’s Annual Conference, and so on. It has been suggested that she would be in a better place if she had done the opposite.

This isn’t a bad starting point for any leader facing dire straits. What are the sacred cows? What do we consider conventional wisdom? Is it right? Was it ever? Perhaps it once was but now is no longer?

The role of a leader is to ask the big questions and encourage those working with them to be brutally honest and rigorous in their answers. Being brave enough to suggest “the opposite” is more likely to illicit innovative and creative ideas than the same old, same old. That’s leadership.

One of the criticisms of the Prime Minister’s leadership style is that she is very managerial. This is great for “getting things done”, but perhaps not great for generating “big ideas”.

There is no doubt she has ground to make up with her party and Australian voters; but if she truly wants to win over the business community, then she needs to be open to more radical ideas. Perhaps she should think beyond the “business as usual” approach, particularly given she has nothing to lose by approaching her Prime ministership with an entirely new perspective. Being brave enough to consider the opposite view of everything she’s done before maybe a good start and signal to the electorate.

After all, it worked for George. He ended up getting the girl and job of his dreams with the New York Yankees.

If the Prime Minister adopts this approach perhaps she has some chance of turning a positive into a negative and salvaging something from this crisis.

There is a lot to be said for rigorous thinking and daring to think the unthinkable. It’s what we expect of our leaders.

Professor Chris Styles is Deputy Dean and Director Australian Graduate School of Management (AGSM). This article first appeared in The Conversation, 28th February 2012 http://theconversation.edu.au/how-gillard-should-think-the-unthinkable-and-look-like-a-leader-5600

Gina Anderson | CSI Blog

2012 looks to be a defining year for the not-for-profit, social enterprise and philanthropic sector and Gina Anderson outlines why she is looking forward to the next 12 months.

I think it will be a defining year for the sector. I gave my forecast for the next 12 months some consideration over the break.

First: social policy and regulation reform. Slow, grinding and often – but so critical for systemic change. This has been at the forefront of the agenda for the past year and as a result, three big issues will have significant social impact in 2012:

1.    The introduction of National Disability Insurance Scheme (NDIS)

Most Australians assume that if people are born with a disability or acquire one later in life, that some system, somewhere, will take care of them. Nothing could be further from the truth. And, as the population ages, the number of people with a disability will increase. At the same time, the number of unpaid carers – family members and friends – willing and able to provide support will decrease.

The NDIS represents an urgent and fundamental reform to the way disability services are funded and delivered. It is a social reform on the scale of the introduction of Medicare and compulsory superannuation – two safety nets now taken for granted by every Australian.  Prime Minister Gillard has now identified the NDIS as a key Federal Government reform.  Visit the Every Australian Counts website for more information.

 2.  The establishment of a new independent statutory agency: the Australian Charities and Not-for-Profits Commission

The Australian Charities and Not-for-Profits Commission (ACNC) will commence operations from 1 July 2012 and will initially be responsible for determining the legal status of groups seeking charitable, public benevolent institution, and other NFP benefits on behalf of all Commonwealth agencies.

The ACNC will also implement a ‘report-once use-often’ reporting framework for charities. It will provide education and support to the sector on technical matters, and establish a public information portal by 1 July 2013.

3.    The introduction of the Pokies legislation.

‘The Federal Government has proposed gambling reforms which include “pre-commitment” technology that will require pokies players to have a card registered to their name and pre-programmed to prevent them losing more than a set amount in a 24-hour period.’

Other trends

Coupled with policy reform, the rise of engaged philanthropists such as Gates and Buffet and their interest in social investment are changing way we all think about social sector.  Established trends such as the move in expectation and measurement of not-for-profit practice from outputs to outcomes, and the realisation that we need multiple sector partnerships to solve our intractable issues, are being accompanied and supported by other trends. These are:

1.    Crowd funding or Micro-Philanthropy

As conventional fundraising struggles, increasingly charities and social enterprises will look to crowd-funding or micro-philanthropy (using the internet to solicit pledges of small amounts of money from individuals) to source money. This is often referred to as the “Obama effect” referring to the US President Barak Obama’s use of the internet to source small donations to fund his electoral campaign.

Importantly donors see their contribution as a ‘social investment’ rather than a donation and as most of these donations are small, the donors do not seek a tax deduction.  In this way donors at all levels are able to invest in social innovation – funding new ideas and processes that move or cause or organisation to greater sustainability, durability, impact, and scale.

2.    Blended capital

The use of blended capital will grow as social enterprises and charities seek finance and capital from outside the not-for-profit sector.  While many will continue to make grants or donations, others will use their capital for impact investing rather than giving a grant.

There will be loans and guarantees to non-profits and gradually, we will see the use of debt and equity instruments.  While others will directly invest in social enterprises seeking a ‘blended return’ on their investments – a financial return on their investments that may not be as high as other possible returns but will better align their investments and their social aims.

3.    Intermediaries

To support this new world of social investment we will see the growth of intermediary organisations and products for different ‘social investors’.

Social finance intermediaries play a crucial role in bringing together the key sources of capital with social businesses and there is a crying need to develop such intermediaries in Australia.

It is exciting time to be working in the not-for-profit sector and I look forward to 2012 with great enthusiasm.

Gina Anderson is the Philanthropy Fellow at the Centre for Social Impact (CSI) at UNSW. This blog first appeared on the CSI blog.

Peter Shergold | CSI blog

It was in May 1968 that Robert Kennedy, with characteristically brilliant oratory, identified the abject failure of governments to measure the quality of life afforded their people.  The traditional statistic – per capita Gross Domestic Product (GDP) – “does not allow for the health of our children, the quality of their education, or the joy of their play;  it does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials …  It measures everything, in short, except that which makes life worthwhile.”  Listen to the speech on YouTube:  it will raise the hairs on the back of your neck.

Two generations on, governments are struggling to address Kennedy’s challenge.  As not-for-profits increasingly seek to measure social returns on investment, and companies to give quantitative dimension to societal as well as financial value, give a thought to the world’s statisticians.  Frustrated with the shortfalls of GDP as an indicator of wellbeing, they are struggling to find alternative means to measure progress in the quality of people’s lives.

It’s not a moment too soon.  Democracy is under challenge.  Levels of trust in politicians are worryingly low.  Less remarked upon is the lack of public confidence in official statistics.  In France and the UK, for instance, only one-third of citizens believe official figures.

Not surprisingly there is a renewed sense of urgency amongst government statisticians.  In May this year the OECD, as part of its 50^th anniversary celebrations, launched the Better Life Index.  It builds on a French initiative, the Commission on the Measurement of Economic Performance and Social Progress, led by renowned American economist Joseph Stiglitz, which reported in 2010.    The Commission concluded that for many purposes there were better economic statistics than a measure of production, GDP:  levels of real household income, for example, or the extent of income inequality.  It is not that GDP is a wrong measure but that it is often inappropriate as a measure what people care about.  In many instances data on social or environmental wellbeing is more relevant.

The Better Life Index seeks to respond to the Commission’s challenge.  It measures 11 dimensions, with 1-3 indicators in each:  housing, income, jobs, education, the environment, governance, health, life satisfaction, safety and work-life balance.  It’s proposed to add more criteria in the future.

The challenge, of course, is how to address the relative importance of such indices of well-being.  The OECD deftly sidesteps the problem by making the index interactive.  Each visitor can weight the variables on-line as they want and share their views with others via Twitter or Facebook.  This is statistics in the age of social media.

It’s made difficult to work out which of the OECD’s 34 member states scores best.  You have to measure the height of flowers and the size of their petals!  I know you don’t believe me but take a look.  Weighing all variables equally on the horticultural scale Australia, I think, is placed second, just behind Canada and just ahead of Sweden in the Better Life garden fertility stakes!  Some 75% of Australians are satisfied with their lives compared to just 59% for the OECD as a whole.

As a nation we rate particularly well on the Community dimension.  Around 95% of Australian respondents believe that they know someone they could rely on in a time of need.  Interestingly 65% report that they have helped a stranger in the last month, compared to an OECD average of only 47%.

The United Nations is also actively seeking to move beyond traditional measures of national wealth. The UN Development Program argues that “an excessive obsession with the creation of material wealth can obscure the ultimate objective of enriching human lives”.  Seeking to redress that defect it has recently issued its 2011 Human Development Report.

Frankly it doesn’t pack the enjoyment of the Better Life Index, requiring its users to possess some understanding of income logarithms and geometric means.  The data, which graph trends back to 1980, is probably more compelling.  It creates a composite index of human development by measuring 3 dimensions (health, education and living standards) against 4 indicators (life expectancy at birth, years of schooling, expected years of schooling and gross national income per capita).

Now I know that your ethical self will recognise the dangers of putting such data into league tables.  But I also know that your inquisitive self wants to know how Australia performs.  The answer is that of 269 countries (47 developed nations) we rank 2^nd after Norway, performing slightly better than the Netherlands, the US, New Zealand and Canada.  In short, the more comprehensive statistical metrics suggest that Australia provides a better quality of life than measures of GDP indicate.

Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact (CSI) at UNSW. This blog post first appeared on the CSI blog.