The Morrison government’s talk of getting Australians over “the bridge” from this dark and uncertain side of a global pandemic and economic pandemonium could get a little tiresome — except that it is a damn good reminder of what is needed to rescue Australians from economic ruin.
One pillar is, inevitably, bigger government and a monumental $189bn package to help people affected by the COVID-19 crisis. The other critical footing is corporate Australia, and especially the banks. Many people are about to be torpedoed by the reality that corporate profit is a common good, not a corporate evil.
Finally, it might dawn on those who talk about big greedy banks and corporate fat cats that profitable, well-run banks are critical to rescuing Australian small businesses. After this crisis passes, more people might realise that there is only one thing worse than a profitable bank — and that’s an unprofitable one.
Even with government survival packages — forget talk of “stimulus” — and Reserve Bank interventions, Australian banks will be the saviours of small business. The banks have agreed to defer loan repayments for six months to small businesses struggling under the impact of the pandemic. The assistance package, covering more than $100bn of existing small business loans, started on Monday to ensure customers get help quickly. As Suncorp Bank chief executive Lee Hatton said to small business owners last week: “Don’t be shy. Pick up the phone … we’re here to help.”
A critical part of these loan restructures, increased credit limits and new loans to those brave enough to borrow money is Josh Frydenberg’s undertaking to provide a six-month exemption to lenders from the so-called “responsible lending” obligations.
The Treasurer deserves kudos for acting so swiftly. Responsible lending laws would have stopped banks from lending, and overly tough insolvency laws would have stopped people from borrowing.
Frydenberg has introduced changes on both fronts to help businesses survive this massive economic downturn. Consider the dilemma. No banker in their right mind would lend new money or extend a current facility to a business during these abnormal times. By definition, such loans are high-risk and would breach the misnamed “responsible lending” obligations. So Frydenberg’s exemptions must be iron-clad so that regulators do not come after a loan manager in a few years for a decision made next week.
In any case, these changes should be permanent because sensible laws cater to the full economic cycle, good times and bad.
Anything less than an iron-clad exemption will also be manna from heaven for class-action lawyers. Perching on the sidelines like vultures, these litigators are hoping to go after banks at a later date by claiming that lending decisions made today are to blame when some small businesses inevitably go bust.
We might go back to basics on other fronts, too. We are witnessing banks putting their customers ahead of their shareholders in a moment of crisis because their past profits allow them to do it, and because protecting future profits demands it. That, by the way, is exactly what the present law permits. So forget all the baloney about needing to amend laws to refashion some newfangled purpose for the corporation to operate in a socially responsible way.
This is exactly what the law means by shareholder primacy: when a profitable company looks after its customers for the sake of long-term business relationships, it is acting in the best interests of the company.
What a turnaround. In the decade or so since the global financial crisis, corporate leaders have sported ill-fitting hair shirts to signal their social virtue on all manner of issues — anything but their core business of creating wealth and making profits. Grandstanding CEOs, seeking redemption for the last financial crisis, created a booming industry of corporate social responsibility luvvies who fill rooms at every corporate gabfest.
This CSR spectacle reached wacky levels when even a group of ASX corporate governance gurus drafted a set for rules for companies that failed to mention the word profit once, but waxed lyrical about diversity and gender and a range of other piffle that had nothing to do with what managers and boards are required to do by law — namely, govern the company in the best interests of the company.
The ASX social engineers might have got away with this madness had it not been for a big splash of disinfectant that comes from exposure to sunlight.
Alas, the corporate virtue signallers were not done. Witness the self-indulgent letter last August from a group of high-flying CEOs from the Business Roundtable trying to redefine the purpose of the company away from distasteful talk of profits to other apparently more morally uplifting matters. The letter was written by some of the richest corporate leaders in the world after they had filled their own personal coffers with money earned from corporate profits.
That extravagance has come to an abrupt halt. Talk of redefining the corporation is pure frippery when the economy is under pressure. Who’s talking about putting psychologists into boardrooms today? Who’s talking about second-guessing executives now?
Instead, we are being torpedoed by the reality of the true purpose of corporations. Take Qantas as an example of the social virtue of a profitable company. It is true that the government has agreed to a $715m assistance package to reimburse airlines for various government-imposed fees and charges, but Qantas will survive because it is a well-run, profitable airline, unlike many others that now face failure.
Those critics who hounded the airline and chief executive Alan Joyce over corporate profits and executive salaries should thank their lucky stars that Qantas is in a financial position to weather what Joyce calls “the single biggest shock aviation has ever experienced”. This is a back-to-basics learning for the bleeding hearts.
Until now, never in their wildest dreams did they imagine that the starting point for a company’s “social licence to operate” was building profits during the good times so it could survive the bad times. And while Joyce has been criticised for his foray into corporate virtue-signalling over the issue of same-sex marriage, his critics should remember that he has never let it get in the way of building a uniquely resilient airline.
Great corporate competitor that he is, Joyce is opposed to Virgin getting a government bailout. In normal circumstances, that might fly. But if Virgin fails, it won’t be a case where the forces of competition cause the best to survive and the worst to fail. Creative destruction has its limits. It does not apply to a one-in-100-year pandemic. Qantas is not entitled to emerge as a monopoly at the other end of this financial disaster. Instead, a level playing field means that if Virgin gets a bailout, so should Qantas.
While down the track we will need to grapple with the growth in the size of government arising from this crisis, right now we could do worse than say a few Hail Marys morning and night for the blessed virtue of strong companies building up healthy profits to withstand the bad times.
Work needed on PS productivity
While our political leaders no doubt are focused on the potential for interest rate relief before the federal election, they should instead be preoccupied with how to lift productivity and grow the economy.
Secrecy has been a big part of problem in terror fight
Much of the concern about the rise of anti-Semitic actions is due to too much secrecy and lack of demonstrated concern, for which politicians and police must share responsibility.