Every director and chief executive of large Australian enterprises needs to understand the full implications of the actions of Rio Tinto and Telstra.
Before calendar year 2020 is out any large company that does not pay its debts to small and medium-sized business suppliers 20 days from the date of receiving an invoice may be banned from government contracts.
And following the revelations by Jared Lynch and Nick Evans in The Australian that Telstra is involved in the scandals, unless there is a dramatic change of board strategy Telstra may the first company to be hit.
Suddenly government members in the parliament have discovered what the ALP already knows — that the dramatic description by Prime Minister Scott Morrison, prior to the election, of how slow supplier payments and high costs financing deals is causing long term Australian corporate stagnation is not only correct but is actually getting worse.
I published the Morrison remarks yesterday but for those directors who need reminding I have included them as a footnote to today’s commentary.
It’s now time to set out the government’s three-point plan to tackle what has become the corporate equivalent of the coronavirus.
The plan was in place before the Lynch/ Evans revelations, but those revelations have given a new sense of urgency to the task of ridding the nation of the slow paying /discount financing blows large companies are inflicting on the economy.
The first steps in the plan are well under way — the declaration that government agencies must pay small and medium business in 20 days and even faster with e-payment services. It was a huge task and while I am sure there will gaps, it is largely completed.
The second part of the first stage was to get the small business ombudsman Kate Carnell to investigate the high-cost discount financing rackets that many large company boards have embraced to hit vulnerable suppliers.
I expect that report will deeply shock the nation and make it easier for step two to pass the parliament.
The government believes it needs to have the power to discover what is actually going with supplier payments on a company-by-company basis. The truth can be hard to determine without wide investigatory powers.
We saw with Rio Tinto that the CEO and senior management in its headquarters in London’s St James’s Square claimed that the company was innocent of treating Australian small suppliers badly (no mention of medium-sized suppliers) but 17,000 kilometres away suppliers reported to the small business ombudsman an entirely different experience.
The Business Council attempted to prepare a list of good payers, but it turned out to be useless because there were too many loopholes.
Australian companies will fight this new power and will put great pressure on some very senior members of the cabinet to water down the proposed powers. Fortunately, there are a significant number of cabinet members who understand that speeding up the payment cycle is the biggest single thing the government can do to stimulate the economy outside massive tax cuts which would drive the nation deep into the red.
Lower interest rates no longer work and there is clear evidence they are counter-productive.
Among the cabinet members who understand the urgency of speeding up the payments cycle are finance minister Mathias Cormann and small business and employment minister Michaelia Cash.
In addition, the ALP fully embraces the Morrison description of the economy and in many ways is ahead of the Coalition in realising the electoral impact. Labor believes the large corporations will “white ant” the increased power legislation. Accordingly, the ALP plans to examine the legislation carefully for gaps.
If tough legislation giving the government wide powers to investigate payment times and practices is passed in the next few months, then by the end of the year the first bans on government contracts will be put in place and they will quickly multiply in 2021.
Shareholders in companies like Telstra must demand the board abandon its current practices before it is too late. Telstra may think it is too big to be hit. It should talk with the banks.
On a personal note, giving governments great power to investigate companies goes against all I have previously believed.
But too many in the current generation of directors, starting with the banks, have lost their way. They only respond to the stick. It’s very sad for the nation.
Footnote: I republish our Prime Minister’s description of the ills of the nation in the hope that it is included in the board papers of every large enterprise.
Morrison: “Trade between small and medium and large business totals about $550 billion a year. Healthy cash flow is critical to these businesses. This issue is being consistently raised with us, of course, by small and medium businesses particularly with Michaelia (Cash) as she travels around the country……completed payment terms are being pushed out to 60, 90 and 120 days in some cases. Even loans are being offered to cover extended payment terms.
“So: ‘I’ll loan you some money while I don’t pay you’.”