Corporate behaviour
Who makes our clothes? A look along the supply chain
In last week’s roundup there was a link to reports on modern slavery. This week Oxfam has produced a report specifically on sweatshop clothing, summarized in The Conversation by Gary Mortimer of the Queensland University of Technology and Louise Grimmer of the University of Tasmania – We know sweatshop clothing is bad – and buy it anyway. Here’s how your brain makes excuses.
They reproduce Oxfam’s ranking of retail brands from “nicest” to “nastiest”: there’s a huge range. And they describe the mental processes – “motivated reasoning” – that we employ to rationalize the way we avoid looking too hard into the way our clothes are made. In particular they dismiss the rationalization that “any job is better than no job”.
When people are well-informed they allow moral considerations to override their desire for a bargain. The problem lies in providing the information, and encouraging people to incorporate it into their decision-making.
(For those who are disturbed by the conditions in which swimsuits are made, Lonely Planet has a guide to nudist beaches in all mainland states.)
AGL back on track towards responsible corporate behaviour
Imagine how businesses operate in a banana republic, where there is a cosy relationship between corporations and a long-established government. The board of one of the country’s oldest corporations appoints a new CEO, who is going to reduce the corporation’s dependence on coal. This displeases the government, which has a strong relationship with its cronies in the coal industry. A senior minister heavies the board to sack the CEO, and to refrain from such reckless adventurism again. The company’s shares tumble in price, but that doesn’t matter. The board goes on enjoying high fees, the government, with a little help from the coal industry, is re-elected, and the board learns that it was stupid ever to have put the interests of their shareholders or the planet ahead of their interest in sustaining a close relationship with the government.
The country is Australia and the company is AGL. You can read about the political interference in 2018 when the Coalition pressured AGL to sack Andrew Vesey, the recently-appointed CEO who had a plan to hasten the closure of Liddell power station and to take the corporation through a conversion to renewable energy. It has subsequently been revealed by Mike Seccombe that it was Treasurer Frydenberg who conveyed the government’s displeasure. The shareholders knew nothing about this, but they did see the value of AGL shares tumble from $27, just before Vesey was sacked, to $6 late last year.[1]
in the Saturday Paper Seccombe takes up the subsequent story, including Mike Cannon-Brookes’s attempt to take over the firm in March this year, the resignation of the chair and the CEO in May, and earlier this month the appointment of four directors put up by Cannon-Brookes: Inside Cannon-Brookes’s AGL coup. Writing in Renew Economy Giles Parkinson quotes Cannon-Brookes calling it a great day for Australia’s decarbonisation. Parkinson puts the AGL events in the context of general shareholder activism pressing for faster action on renewable energy.
AGL is back on track, not just to accelerate the closure of gas and coal-fired stations (it has already pulled forward the closure of South Australia’s Torrens B), but also to become involved in what are known as “behind the meter” activities. That is about a combination of hardware (electric cars, batteries, panels), smart appliances, and appropriate price signals, to reduce demand from centralized power stations and to maximize local production from distributed renewable sources, including rooftop solar.
This path should take AGL from a product-based firm, pushing electricity down the line, to a service-based firm helping people manage their energy needs. It will still be a big player in electricity generation, but it will be even bigger in changing the way we use electricity. It’s a radical departure from the traditional emphasis on “base load” power, which is still the way the Coalition thinks about electricity.
Commercially there has been a sensible outcome: in the short term AGL will probably be paying little in dividends as it commits cash to new investments, but that should serve the interests of long-term investors, including superannuation funds.
The political interference in 2018 should not be seen simply as some past event: crony capitalism is corruption and such behaviour should be covered by our to-be-established anti-corruption commission.
1. Disclosure. I was one of many shareholders who trusted the board to back Vesey’s management, having bought AGL shares in 2017, in the naïve belief that Australia has a well-regulated capitalist economy where corporate boards attend to the interests of their shareholders rather than the interests of their political mates. ↩