To the editor: Editorial

Tuesday, 01 May 2001


    Limits on disclosure; Managed innovation - the key to business success; Are Ramp;D incentives on the wrong track?; Telstra called to accounts; Banks are essential services.

    Limits on disclosure

    I read with interest the article by Tom Ravlic "CALDB could use some transparency"(CD, March). The thrust of the article was that CALDB should publicise its decisions when made rather than leaving it to the parties, namely ASIC, the applicant and the respondent auditor or liquidator, to do so. The board is created by statue and its powers (ASIC Act) and operations are also governed by the Corporations Law. The ASIC Act contains, in Section 213, strict obligations of confidentiality on the board. No doubt the Parliament's reason for requiring the board to maintain that confidentiality is that until a matter has been finally decided by the board or by any appeal tribunal, the innocence or otherwise of the respondent is not determined. As an adverse finding can affect the livelihood of an auditor or a liquidator a determination should not be published until it is final. It should be noted that most disciplinary hearings in respect of professionals are treated the same way. But in any case the statues put the matter beyond question.

    When the board makes a decision it is bound by the Corporations Law to publish its decision only in the Commonwealth Gazette, unless it is ordered otherwise by an appeal tribunal. The CALDB give copies of the decision and the reasons to both parties as required by the Corporations Law. Each is free to make them public if they wish. While ASIC normally does so, the respondents can do so and Mr Ravlic has noted a recent example of that in his article. Apart from the required Gazette notice and the provision of decisions and reason to the parties, the board has no right to announce the decision nor even to give copies of the reasons to third parties such as professional associations.

    PJL King

    Chairman, Companies Auditors and Liquidators Disciplinary Board

    Managed innovation - the key to business success

    Paul McMullan's critique of the Federal Government's Backing Australia's Ability (Company Director, March) is pertinent in the light of the thought-provoking article in the same issue by Alistair Ping "Is capitalism dead – or just evolving?" Ping highlights the importance of innovation (read research and development) to the success of a company today. I draw your attention to his questions – Does your organisation have an innovation unit? How many ideas come from the people at the coalface of the business? What percentage of revenue does your company generate from new products? These questions are the core to company success in the future. In the Chief Scientist, Dr Robin Batterham's discussion paper on innovation "The chance to change" a direct correlation between the percentage of new products and revenues less than five years old and the revenue growth of a company is shown for a wide range of Australian companies.

    I would like to shout from the rooftops that the road to success is innovation – and innovation is driven by the ideas generated by the organisation. Currently at the Australian Technology Park we are developing innovation tools that can assist any company generate growth through innovation. The combination of the La Salle Innovation Matrixr, Zing Meeting Technology and innovation audits are bringing real and large benefits for all types of companies. There are Australian tools that meet Australian conditions. Success has been generated at real bottom line results. The definition of innovation and R&D in the R&D Tax concession is confusing and takes the focus off getting results. To get a definition of innovation look to the dictionary – innovate means change, innovation means the process of change. My definition is "innovation is the process of change that adds value". Simple, strong and a call to action. Innovation is everyday, everyone, everywhere generating ideas, capturing those ideas and putting the best idea into practice.

    The Textiles, Clothing, Footwear, Leather Centre provides a managed innovation program that has proven to be critical to company success. The program consists of an innovation audit and alignment with company strategy, idea generation and concept development and finally risk management techniques that ensure the right project is done right. It encourages input from everyone in the company to ensure maximum results.

    Allan Ryan, MAICD Managing Director TCFL Centre

    Are R&D incentives on the wrong track?

    Paul McMullan of PricewaterhouseCoopers (Company Director, March) says the government's recently released R&D policy "Backing Australia's Ability" won't work because:

    1) the restrictions apply from January 30 but the premium subsidy doesn't kick in until July 1;

    2) the subsidy applies only to strategic expenditures which involve innovation and high levels of technical risk;

    3) tightening eligibility criteria will be revenue saving, not revenue-neutral as the government asserts;

    4) a small business spending $1million would get $375,000 back whereas it would get nothing if it spent more;

    5) market research is excluded;

    6) the premium subsidy rate, 175 percent, applies only to the incremental expenditure over and above a three year moving average, otherwise the rate remains 125 percent;

    7) access to the premium subsidy requires a three year registration history;

    8) the tax life of dedicated plant and equipment has lengthened.

    Some of these points strike me as being more material than others.

    A once-off application of the restrictions five months ahead of the subsidy seems unlikely to influence boards' ongoing attitudes to R&D. If the existing system is being rorted (which subsidy isn't?) applying the restrictions soonest is hardly a deterrent to the country's R&D performance. As to the second point, who would argue against it? Who would want to subsidise anything less worthy? Taxpayers generally, I can say authoritatively, would not (but I can't speak for very large professional accounting firms!). By tightening eligibility criteria government can use the savings made to finance the extra cost of the accompanying premium concession. On this reading, the government's assertion of revenue-neutrality seems unremarkable. The technocrats might prove me wrong but I simply do not believe point three. I could believe that the subsidy cuts out at $1 million spend, anything extra gets nothing. Mind you, small businesses, defined as having turnover less than $5 million, spending more than 20 percent of turnover on risky R&D would do nothing to reduce their well known high failure rate.

    Perhaps, to dissuade small business from such recklessness, government has decided on withdrawal of the subsidy in its entirety as a penalty for overspending? Mr McMullan's other concerns relate to more substantive issues, to which, as always, there are other sides. Market research is essential in commercialising R&D but, subsidised, it can easily become a black hole into which many a dubious junket or consultancy can be accommodated. Where demarcation of the good from the bad is difficult, exclusion is surely not unreasonable otherwise those who play fair are put upon by those who don't. The three year registration history is similarly necessary to protect the genuine investor from the opportunist. Removing it would create an incentive, not to raise R&D but to form a new R&D entity for whom the new premium rate would apply to the existing expenditure level. Making the tax life of depreciable plant and equipment equal to its effective life is eminently logical. Moreover, the company that previously enjoyed a faster write-off for dedicated R&D plant won't necessarily lose out as Mr McMullan fears. Its use of other, non-dedicated plant for R&D, previously unrecognised, will now attract the concession.

    Finally, how serious is the article's central point that government's R&D plan is perverse, that it will reward failure to innovate rather than its success? The argument is that unsuccessful R&D, by reducing turnover, will raise R&D relatively thereby expanding access to the premium rate of subsidy without an absolute spending increase. Success, on the other hand, which increases turnover, requires spending growth in excess of turnover growth to maintain access to the premium. The argument is based on a false symmetry: R&D success will increase turnover; but lack thereof won't necessarily reduce it. Moreover, spending growth must exceed turnover growth in order to raise the proportion of turnover spent on R&D to an effective level, the object of the policy. In the process all incremental spending will attract the premium subsidy rate. Of course, whether the subsidy rates elicit a supply response remains to be seen. It is by no means clear what and how much technology and innovation Australia, a small economy, should make or buy.

    John Millett Neutral Bay NSW

    Telstra called to accounts

    I congratulate you for your comments on Telstra in Personal View (Company Director, March). I support your views entirely, having today AGAIN attempted to resolve an account which we have paid but which Telstra claim that we have not, despite having been sent a copy of their previous invoice together with a copy of our cheque. My personal intervention followed attempts by my finance manager, who spent over two hours talking to so called client service officers in Telstra's accounts office somewhere in Australia. With the advent of call centres one never knows who the "people" are or where they are. Having decided to personally intervene in an attempt to stop my finance officer from shouting down the phone – yes, at least our phones work for now, but you never know. they may be disconnected because Telstra claims that we have not paid our account – I tried to convey to the voice on the other end of the phone that we had indeed paid the accounts in question some months ago. After speaking to four different "client service officers" about the matter I have given up and sent the accounts plus photocopies of our payments to Ziggy [Switkowski]. Perhaps he might more profitably spend his time sorting out our accounts than seeking to purchase yet another "bargain" partner in Hong Kong.

    As a shareholder I can only hope.

    Rick Elliot FAICD

    Banks are essential services

    Reference is made to Law Reporter (Company Director, January) and Tim Potter's letter (March). While I generally agree with Law Reporter and Mr Potter's letter, one industry is mentioned where the rules are different. That industry is banking. You see banking is an essential service, the total lifeblood of any community, especially in rural and regional Australia. Politicians and community leaders have espoused much about the closure of bank branches in both the cities and the bush, yet still the "rationalisation" continues. This rationalisation has seen some 2100-bank branches close in the past seven years, which, put into perspective equates to six branches every week of every one of t Banks maintain that branches earmarked for closure are "unprofitable". I suspect they mean to say it is "more profitable" (subtle difference) to close them and force a community into low-cost delivery streams, such as internet banking, than to maintain a service in a region that has supported them for many, many years.

    Even crueler, is the scenario where a bank maintains a token transactional presence in an area, but withdraws its lending support, reducing the facility to some form of in-store agency. Banks have a privileged position in our society. The government grants them a licence (some would say to print money), which is not freely available to any one else in Australia. With this licence comes social responsibility, not dissimilar to that of Telstra whose social charter (before and after full privatisation) is to continue to provide, and actually enhance, the provision of services to rural and regional Australia. Think back to all those bad Clint Eastwood spaghetti westerns or John Wayne's appearances as the good sheriff in the plethora of westerns so popular in the 50s and 60s.Two buildings were always present, the pub and the bank. Funny thing that.

    Dennis A Crossley FAICD Cairns


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