ACCC chief Rod Sims has a simple theory of what drives the competition debate in Australia and elsewhere — self-interest, which was magnificently on display this week.
Two weeks ago Google Australia chief Mel Silva put in a command performance in parliamentary hearings over the proposed media bargaining code, threatening to shut down search if the rules went ahead.
The next day she delivered her third child, Freddy.
Google desperately wants to avoid its search functions being regulated because in doing so it threatens to unravel its stranglehold on digital advertising, which is based on multiple sources of data providing apparently unrivalled benefits for advertisers.
If it pulled its search function from this market and/or banned news from the service, how could it charge premium prices to companies to advertise and how would advertisers react? That is a question it wants to avoid.
Google is an advertising company that last quarter reported a profit of $US15.2bn ($20bn) on revenues of $US46.4bn, from which search made $US31.9bn.
That shows you why it doesn’t want search regulated.
Twenty years ago, Microsoft was in the middle of what then was the world’s biggest antitrust battle as it fought to retain the right to bundle its operating system with hardware sales.
This week its eloquent spokesperson Brad Smith was welcoming the concept of a bargaining code and stressed the company would be happy to pay for media content in Australia. His company’s Bing owns 3.6 per cent of the market and would like more.
One day later Google chief Sundar Pichai was on the phone to Scott Morrison professing to be more flexible than indicated by Silva and, hey presto, on Friday it launched its vaunted News Showcase. This is a vehicle to pay media companies for their content, importantly separate from its search functions and puts Google in control, which is where it likes to be.
Sims has no problems with Google paying publishers for their content outside the bargaining code, which after all was designed to even the bargaining power between Google and the media companies.
That explains why it is important for the Prime Minister to hold the line and pass the code through parliament to give media companies the choice. The existence of the code gives the media some leverage even if some argue signing onto Google Showcase is akin to turkeys voting for Christmas.
According to a Texas case against Google accusing the company of anti-competitive conduct in advertising, its aim is to “create a walled garden around the internet in which it controls websites and mobile applications … a world in which publisher content is operated by Google”. That sets the boundaries of the debate.
Morrison has successfully navigated a scenario in which global behemoths are competing for access in the Australian market and now needs to hold the line to ensure consumers and the media make the most of it.
Dalla Valle signing off
One of the legends of Australian industry, Dean Dalla Valle, will finish his 50-year career in July after 40 years with BHP and most recently four years as boss of rail company Pacific National.
The former chief operating officer at BHP has presided over the expansion of the network including the controversial $205m acquisition of Aurizon’s Acacia Ridge terminal, which controls rail access between NSW and Queensland.
COVID-19 has been good for PN because containers can cross borders with minimum human involvement and the boom in internet shopping has increased the freight load. Rail has about 50 per cent of the east-west corridor, 10-15 per cent of the Brisbane to Melbourne route and 1 per cent of Sydney to Melbourne.
That’s the unfinished bit of the journey and Dalla Valle is hoping his investment in the St Mary’s terminal in Sydney’s west in the middle of the state’s distribution centre hub will help the process, along with the inland rail link.
The St Mary’s terminal is facing competition from Qube, which is trying to attract more custom for its Moorebank facility, with both collecting traffic from the Port of Botany.
He is also rolling out the ARTC technology, known as the advanced train management system, built with Lockheed Martin, which tracks trains across the network looking at speed and other issues and enabling the control tower to take control if the metrics are broken.
Dalla Valle, an avid amateur cyclist, is helping run the UCI world road cycling championship to be held in Wollongong next year, but says after working for 50 years he has no other plans.
‘Two strikes’ support
UniSuper’s John Pearce credits the “two strikes” rule on remuneration as the pivotal point in terms of shareholder engagement with companies.
As a line in the sand it is a useful starting point, with the rule coming into effect in June 2011.
Others say there was a confluence of factors, including the launch of the UN-backed principles of responsible lending some five years earlier and the increasing voice of the industry funds.
In days past, fund managers spoke for their investment decisions but increasingly the underlying shareholders became the spokespeople and over time industry funds are also managing more money in house.
The $205bn AustralianSuper fund invests about $35bn in Australian equities, all of which is managed internally. It’s ESG boffin, Andrew Gray, says a range of factors increased the engagement with companies, led by the establishment of the PRI in 2006.
At this time Gray was a research analyst at Goldman Sachs and, together with Citi’s Elaine Prior, led the way in reporting so-called ESG metrics in their strategy papers for clients. The aim was to boost performance through better adoption of ESG principles, which revolved around increased engagement with shareholders.
The ESG movement was seen as a way of getting better performance for shareholder investments.
Ownership Matters founder Dean Paatsch notes in the year before “two strikes” came in there were 13 companies copping big protest votes against pay policies, including Telstra, Wesfarmers, AGL and Babcock & Brown.
It was then treasurer Peter Costello who started mandating public disclosure of executive pay in 2005, and then assistant treasurer Chris Bowen who referred the issue to the Productivity Commission in 2009.
It recommended adoption of the “two strikes” rule: if more than 25 per cent of shareholders voted down a remuneration report two years in a row it would trigger a vote on a board spill.
The report noted from 1993 to 2007 CEO pay at big companies increased by 300 per cent but shareholder value also increased massively, with Wesfarmers increasing in value from $800m in 1989 to $26bn in 2009.
The GFC in 2008 also had a part to play, but the bottom line was directors were now in the firing line and they were being held responsible for their pay decisions.
Self-interest again rules and with their jobs on the line the merit of talking with the people who will decide the issue was readily apparent. Pay was the drawcard but the environment is increasingly a point of discussion.
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