Australian share prices have risen on the back of yield not management performance. The looming interim report season will reveal that many highly paid chief executives have not delivered in tough times.
But there is a change coming and that was highlighted by the remarks of the new Rio Tinto boss, Sam Walsh, who has told his staff to "treat the company’s money like it is our own and act like owners of our businesses not managers" (Walsh calls for greater accountability from Rio staff, January 23).
But Sam Walsh is in for a shock.
I am afraid that is not how the staff of most large companies think – and I am talking about the chief executive down. As Sam Walsh knows, Rio Tinto plays those same management games. He should go to Bell Bay where managers, to keep their jobs, declared they wanted the uneconomic aluminium plant to stay open and workers responded by bringing in the union to go for higher pay. Everyone is playing games. If the managers "owned” the business they would shut it down or sell it if they could not work with their co-workers.
If smaller enterprises play big company management games they will go out of business.
In large companies management games that are not really aimed at gaining better returns for shareholders have become too widely accepted as the norm. In the mining area huge investments have been made by groups like BHP, Rio and Anglo that now must be written off (BHP to write down nickel, aluminium units: analysts, January 24).
We saw successful companies like Billabong suddenly go into retail and brewers go into wine. I would put Woolworths excursion into hardware in the same bracket.
But the signs of change are there if you look hard.
In the building sector, state governments are actually intervening to make the chief executives of large construction companies manage their companies properly because bad management (and in particular appalling human resources departments) is adding about 25 per cent to the cost of building infrastructure.
New South Wales and Victoria have effectively declared they will not have tax payers pay for bad building company management and are installing guidelines to require building companies to manage government contracts properly (Lend Lease strikes out an unholy union, December 18).
The high chief executive salaries and management rewards, which are not linked to productivity, have actually lowered shareholder returns in Australia and to some extent in Europe. But it has not happened in the US where there have been big changes in management, which are showing up in better returns despite the sluggish economy.
But the actions of the Victorian and New South Wales governments are only part of that significant change taking place in Australia. In many instances the high dollar is the motivator. Shareholders are now looking for returns and see high chief executive salaries and the management games that go with them as hindering those returns. We are going to see leaner companies where the chief executive and his immediate reports are the people dealing with the work force and marketing (A BHP pointer to meaner mining, January 23).
But its not going to be an easy ride. Rio Tinto has lead Australian management in the past. Perhaps Sam can do it again. Start at Bell Bay.