Think Tank: Where does the business buck stop?

Naomi Hulbert
27 June 2008

Nett’s Think Tank debates the challenges of personal accountability and discusses if, and where, morality and credibility fit in the world of small business.

Our panel

Giles Donovan, Netregistry
David Hutchins, Press Matters
Louise Kelly, Hearts and Minds
Andrew Griffiths, author and small business consultant

Economist Milton Friedman once said, “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible”.

Andrew: I’ve been in big trouble with the ATO in the past. I came up with every excuse under the sun for being late paying my tax: I had a divorce settlement to pay; I had to buy out a dodgy business partner; several big clients went broke, leaving me tens of thousands of dollars in debt; I’d had a death in the family. I remember being at the ATO hearing the bureaucrat in charge telling me that this was all very sad, but meant nothing. I was told to pay up immediately, or my company would be liquidated.

This was the moment I realised that, as the business owner, the buck stopped 100 per cent with me. I think sometimes people fail to realise the ramifications of what they do, or don’t do – especially in business. We need to take far more responsibility for our actions when going into business, and to spend more time making provision for a possible divorce rather than enjoying the honeymoon.

Louise: Why is it that almost every business reinvents the wheel instead of learning from others? Many people follow the same path to disaster. If they networked with others in their industry, they could share experiences and learn from each other’s mistakes.

Giles: There’s a fine balance between the interests of a company, its employees, family, shareholders and everyone else involved. Just because something is legal, doesn’t necessarily make it morally right. I think a wise business owner should always consider the moral implications of a decision as well as the financial.

Andrew: It wasn’t that long ago a company could go broke with little or no consequences for the directors. In the 1980s, there was a proliferation of shoddy, no-responsibility companies. I walked into a bank when I was 18 and came out with a business loan for $30,000: totally unsecured, with no assets and no job. They were different times, and bred a lot of shonky business people who would borrow from either institutions or private investors, blow the money, close the company and then launch a new company the following day.

Giles: The collapse of One.Tel and the HIH scandal showed us that Australians expect a level of ethical or moral behaviour in business. But how much responsibility should we take on a personal level? We seem only to display this level of moral indignation when a company fails, while turning a blind eye when the company turns a profit? Enron, in the US, manipulated the power grid to force up prices and turned a huge profit before the company collapsed and the scam was made public. If Enron had continued to turn a huge profit, would the shareholders have cared how it was achieved? Was Enron’s mistake in being caught? Are shareholders as much to blame as directors by creating this demand for performance? Where does accountability stop?

Louise: Given that many businesses fail, people need to have a stop-loss position in place. When I opened my business, I was offering big agency-style services in a four-person operation. My problem was I didn’t know what I didn’t know. There were some areas of production I wasn’t familiar with and trusted someone else with the task –without double-checking. It transpired the person couldn’t be trusted, and I didn’t follow up fast enough to avoid disaster. I had to fall on my sword. The lesson I learnt was “Don’t assume you’re covered”.

David: We hear all too often about accountability and integrity being given short shift in business. We see corporate leaders getting multi-million dollar packages – even when their organisations don’t perform.

Andrew: The lines between right and wrong – morally, ethically, financially, socially and personally – are not just blurred, they’re often totally erased. A great book on the subject is Winning Credibility by Matthew Michalewicz and Zbigniew Michalewicz.

David: The media rarely reports corporate leaders acting responsibly, so it’s easy to believe personal accountability is a thing of the past. I believe when personal accountability is the foundation stone of a business, the business will have leadership, integrity and commitment.

On the subject of integrity, let’s talk about tax havens. Are they legal, and are they of any use to SMEs?

David: If you’re considering setting up offshore accounts and asking yourself “Is it legal?” you need to pause and take professional advice. It’s a question of motive. Many offshore accounts and investments are worthwhile, legal and within ATO provisions, if declared. If accounts or investments aren’t declared, you’re straying into dangerous territory.

Giles: Many tax schemes are set up to exploit loopholes in Australian tax law, but the ATO works constantly to change or close these loopholes. Make sure you have up-to-date information if you’re considering an offshore scheme.

David: These days the ATO and Australian government are using very sophisticated methods to trace money. So-called tax havens are not invisible, and people who use them shouldn’t be surprised to hear the ATO is targeting them for investigation. Business owners should get their accountant to examine all such opportunities to avoid liabilities.

What do you see as the biggest challenge for SMEs in Australia at present?

Andrew: I have a bee in my bonnet about the poor treatment of small businesses, and although I hate to say it, I think we’ve brought it on ourselves. We aren’t united to lobby government, large corporations, or any other groups impacting on us. There was a time when small business was the backbone of the economy. There are some 1.7 million of us, but we are often treated as second-rate citizens without any political sway.

David: I endorse your clarion call for SMEs to unite and champion our cause, but while the idea is appealing, it’s unlikely to happen in the near future. How many small business people have the time, energy, and passion to venture beyond their business and engage government?

Andrew: I think it’s well and truly time for the small businesses of Australia to stand up and be counted. If we don’t, we have no one but ourselves to blame for issues that have a negative impact on our lives and businesses. We have a big enough voice to change governments, change corporations and certainly influence where this country of ours is heading.

David: Many chambers of commerce, industry organisations and others, such as the Council of Small Business Organisations of Australia external link (COSBOA) have been lobbying government for years. The people driving COSBOA are small business people who, in the main, volunteer their time.

Louise: We need to create a dynamic and innovative small business sector in this country. Fortune 100 companies in this country struggle with innovation and are more likely to acquire an established small business than do it themselves.

David: Julia Gillard, Minister for Employment and Workplace Relations, has worked to include businesses of all levels in both the Business Advisory and Small Business Working Groups. The fact that government is being consultative in redefining industrial relations suggests it acknowledges the electoral power of 1.7 million of us, not to mention the millions we employ. Irish writer and socialist George Bernard Shaw once said that, “Democracy is a device that ensures we shall be governed no better than we deserve”. I agree that all SMEs should be lobbying government on behalf of the sector, but I reckon many of us will find it hard to find the time.

Have your say

If your business is leaking money, who should you go to first? Partners? Banks? Employees? Family? Email questions and feedback to thinktank@nett.com.au.