Australia’s corporate culture needs a boost

Phil Ruthven AM

7 minute read

Respected strategist and futurist on business, social and economic matters, Phil Ruthven AM shares his insights on Australia’s corporate culture and performance challenges.

In an interview, Phil expresses his views on why boards of directors have become increasingly worried, the low profitability of most Australian companies compared with the US, the deficiencies in Australian entrepreneurship, and the “pyramid of data,” where the top level is critical to shaping strategic evidence-based decisions.

From your experience what are the most significant changes you can identify about Australia’s corporate culture?

Companies in Australia, nowadays, have become more risk averse in part because there appears to be more regulations and regulators. There is a general observation that there is now more red tape in Australia.

There is also a significant loss of corporate memory, including a trend towards diversification into theme conglomerates or, worse, classic conglomerates. They don’t work, or not for long, and haven’t succeeded since the end of the Industrial Age in the mid-1960s. Taking our businesses up to world best practice (WBP), adding uniqueness, and expanding overseas is more of what the nation needs.

Profitability is another worrying issue. In the 1970s, the standard of profitability was at around 11% return after tax. The new WBP standard is double this, and only 1 in 10 of our top 100 corporations achieve this compared with 4 in 10 US companies. Our Top 2000 are still averaging just 8% or less; no change in four decades.   

Some of the reasons, apart from the previously mentioned diversification, include over-weighted hard assets on balance sheets; unsafe market positions; excessive diversification; low appreciation of a firm’s two most valuable “assets” (IP and a unique organisational culture); not knowing where they are on their own industry lifecycle; and planning from the inside-out instead of the outside-in.

Another major challenge is the new Digital Era in IT, often termed “digital disruption.” There are many differences between the old guard’s ways of thinking versus the new generations. These differences are most noticeable when observing recent innovations and the growing attitude of going global. The new generation of entrepreneurs are expanding their markets to the rest of the world – an important change to the country’s corporate culture.

What policies must be updated for Australian companies to become more successful?

Two kinds of policy need to be updated: one, by the company itself; and the other by the Federal Government.

Companies need to work much more on so-called “soft” assets such as Intellectual Property and other intangibles to increase their performance, as opposed to traditional hard assets such as property, equipment and stock ownership. To be more successful, companies need to devise internal policies that reflect this and become a unique corporate within their industry.

Policies designed and executed by the government of the day are becoming increasingly problematic as they keep the boards of directors worried and in a constant fear of retribution. The primary purpose of policies is to keep them fair and honest, not restrict their performances.

Various commissions have rattled the corporate culture in Australia. Directors have become more fearful, obeying the rules of the land, but I do not think they need to be de-facto lawyers to make executive decisions. While there is always a need to abide by the legal conformities there is also an equally important requirement to perform well - strategically and at the bottom line - while maintaining high integrity. 

Directors have become more fearful, obeying the rules of the land, but I do not think they need to be de-facto lawyers to make executive decisions. 

You are the founder of IBISWorld, a premier provider of industry information in the US, Canada, Australia, China, the United Kingdom, Germany and in other countries. In a highly interconnected world, what is the value of information today? 

Information is critical today as various layers of it form the pyramid of data, where data from the base of the pyramid moves up to become information, then knowledge, and eventually wisdom. In an interconnected world, a great challenge we now face is an increasing lack of evidence-based decisions.

This is a serious problem that is mainly caused by the current political arena, including populism, where a seductive style of information, mostly misinformation, is disseminated that challenges the rational thinking in society and businesses.

You are a member of the ANU College of Business and Economics (CBE) External Advisory Board. What are your observations about the College’s growth and vision?

Professor Brian Schmidt AO, Vice-Chancellor of The Australian National University (ANU), is trying to advance the reputation of the University by focusing on quality rather than growth.

CBE mirrors these values, as a lot of its vision is reflective of the high quality research the College generates. In aligning with the ANU vision, I can see that CBE is focusing on quality and depth.

Phil Ruthven AM will be speaking at an event in Melbourne on 11 February 2020. Click here for more details.