Category Archives: Investing

12.19.18
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The finance sector, like all addicts, must want to change

Getting rich, having access to powerful people, controlling people’s financial destiny and having tangible expensive signs of status easily available to you is intoxicating. It can, like any drug, become hard to live without and encourages a muddle-headed notion that you are entitled to it, you deserve it.

The trail of destruction of this type of myopically selfish behaviour of the many in the Australian financial sector was revealed over the year-long  Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Ken Henry, Chair of the National Australia Bank, spelled it out in his testimony to the Royal Commission, that somewhere in the neoliberal takeover of the world’s markets of the last 40 years, the PURPOSE, or ends, for a business to exist was to make as much money as possible for those with access to other peoples’ capital. This became more important than providing a suitable, useful or valuable good or service that people wanted to buy.

And unsurprisingly, the Australian financial sector lost its way as it prioritised getting another hit of ‘more’. More money for themselves. More power. More privilege. More stuff.

When a business’s primary purpose or ‘end’ is to provide a good or service that is valuable to and valued by its customer, there is a clear destination. A business can measure how many times it achieves it, how it can improve on it or adapt itself to meet customer requirements. There is a clear compass.

When a business’s ‘end’ turns inward exclusively prioritise its own enrichment, then it has no external reference point, no definitive destination to be reached. More and more is better, greed is good. The end justifies any means to get there, because there is no such thing as enough.

The financial institutions preyed on people’s lack of understanding of their essentially intangible product and, in a display of breathtaking hubris and arrogance, converted the concept of caveat emptor (buyer beware) into ‘we are going to fleece the dumb suckers’ because they felt entitled to do it and it gave them another hit.

The financial institutions also gave a privileged seat to the professional investment teams that provide them the capital they need to exist. These investors, at an arm’s length away from the customers and the employees, focused solely on their investment returns, driving short-term profits to meet their own targets for personal enrichment.

In order to avoid repeating this process over and over, the people with the power to change the destination must want it to change. They must accept that their short-term binge for self-enrichment will ultimately weaken the financial system. They need to accept that they are not inherently entitled to create wealth for themselves at the expense of customers and employees.

A sustained shift to a customer-focused, ethical approach to providing access to capital for businesses and people to thrive is required. Banks and other service providers must understand that there are limits on what they deserve in payment for providing that service.

And we all must accept that the drug of ‘more and more’ is not good for any of us.

01.14.18
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ESG issues are a sleeper risk that remain on investors’ blind side, despite what history teaches us

Casting my eye at the scattering wrecks of companies brought low by poor decision-making in the last 20 years, it can be said that there was a common theme is the prioritisation of profit-making and personal enrichment that fuelled the road to hell. Little thought was given to values that would contribute to the long-term sustainability of the company and benefit the broader community group.

BP’s Gulf disaster revealed a history of shaving the safety margins to maximise profit, a multitude of banks with their trading scandals which revealed a blatant disregard for the law and belief that self-enrichment trumped all things, the many multi-national companies that shuffle money to avoid paying a reasonable tax in countries where they enjoy the benefits of stability and certainty that a decent tax base funding infrastructure, education and health provides.

It is heartening to see that a recent survey by the CFA Institute of more than 1,500 investment portfolio managers around the world are taking more interest in environment, social and governance (ESG) issues but the underlying value set remains the same. It is telling that 61% of respondents would only be willing to pay 50% or less of what they spend in independent verification of financial statements on independent verification of ESG reporting by companies. Just 11% would spend as much in ESG verification as they would on financial verification.

It is also heartening that, according to Management Today, Mark Hafaele, the Chief Investment Officer at UBS has had a change of heart and recognises that companies that take ESG seriously can deliver share price growth and profitability. According to an interview in Management Today, Mr Hafaele noted that the consideration of ESG issues can de-risk investment returns.

It is fascinating, however, despite the rich lessons history has to offer, the professional investment industry still places far more value in reviewing the financials of a company – which can be a very creative story, rather than the reporting on environment, social and governance matters which can reveal much better a company’s approach to a broader stakeholder group and genuine understanding of a risk wider than ‘will this affect my share price this quarter’.

It is myopic also that most conversations about risk are associated with some sort of mathematical modelling and an analysis of numbers. Unfortunately, the impact of human decision making, driven by their underlying values is very difficult to create a data set around, except if you learn from history and consider philosophy. Ignoring what cannot be inputted into a mathematical model and measured means you increase your risk of being blind-sided by the inevitability of human fallibility driven by a set of values that promote fear and greed.

05.22.16
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Milking the dairy industry dry leaves us all poorer

Once upon a time, two large milk wholesaling companies faced public backlash about their decision to unexpectedly pay dairy farmers less for milk than it cost to produce and apply it retrospectively.

The good consumers of Australia, frothing with outrage, supported the local farmers by buying the named brands milks at the local supermarkets and took photos of the sold out sections of milk fridges and plastered them all over social media. The supermarket brand milk remained on the shelves and the consumers conveniently ignored the fact they had propped up this unsustainable system by buying $1 a litre milk for the preceding two years.

Meanwhile, in a spectacular display of cynical cause-related marketing, Coles, one of the originators of the $1 a litre milk in 2011, launched a special brand of milk that was more expensive with 20c from every sale going to a fund for the farmers.

This is the same supermarket chain that signed a 10-year milk supply deal with Murray Goulbourn, that according to their public statements at the time it would be ‘a major win for farmers because we cut out the middle man and farmers get a bigger share of the retail price’. Three years in, that doesn’t appear to be working.

The real bottom line in this ethical conundrum that we all need to consider, how much do we value our dairy industry? How important is it for Australian to be able to produce its own milk and dairy products and, if that is important, what is a viable price to pay the farmers who make it?

For the investment managers investing in Woolworths and Wesfarmers (the owner of Coles), an important question is when the stand over tactics of the supermarkets’ on their suppliers actually starts destroying the economic value of an entire industry, is it time to look more broadly than just what creates profit margin for the two powerful distributors?

Beyond the marketing, the real story is, in 2011 the supermarkets, started offering $1 a litre milk, purportedly to make milk ‘affordable’ for more people, even though it has been bought by the majority as a valued staple food for decades. Cheap milk was the enticement to get customers in the door and then get them spend up on other higher margin products. It was part of a vicious price war between the two major supermarket chains in an attempt to defend and grow their market share.

It was never going to be the supermarkets that bore the brunt of the price cut, they can choke the distribution channels, so held the power to pass financial pain onto their suppliers. And the institutional investors who bought shares in Woolworths and Wesfarmers (the owners of Coles) approved of this margin clawback because it delivered on the profit line.

And the customers bought the $1 milk, telling themselves that is what they could afford. Until now.

This week’s debate about the value of the Australian dairy industry, what is reasonable for the farmers to earn and what we are prepared to pay for milk the perfect parable to demonstrate the cause and effect of valuing the profitability of the dominant and powerful groups in a production chain, over the value of the product and industry itself to a society.

Murray Goulbourn and Fonterra are not blameless either. MG were briefing shareholders this month that there was no concern with their financial stability, with a strong balance sheet and a growing business, but in the same breath talking about a Support Package for farmers to spread the impact of the cost cuts over the next three years. So, they won’t absorb any of the price pain, but are happy to pummel the farmers, without whom, they wouldn’t have a product to sell.

We, as members of superannuation funds and other investment vehicles, provide the capital to the likes of Woolworths, Coles and Murray Goulbourn and we can use our collective power to be more thoughtful about the impact of their profit seeking on entire industries. Pushing the pain down to the most powerless group in a supply chain makes us all poorer.

11.19.14
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Tax avoidance is rewarded by the financial markets

This weekend the leaders of the G20 nations met in Brisbane and corporate tax avoidance, or ‘minimisation’ was on the agenda. There has been outrage in recent months as it was revealed that large companies have routed money through complex structures in countries such as Luxembourg in order to minimise the tax. The objective is to maximise profits for shareholders and minimise a company’s contribution to the community benefits derived from tax payments.

Some of the companies are global household names such as Ikea, Pepsi, Deutsche Bank and use these methods. Apple and Amazon have been at centre of similar controversies in the recent past. While many commentators are focused on the impact on the public purse of those countries where revenue is generated, very few are asking why the dominant value of profit maximisation is allowed to continue to reign. It is just assumed that is what companies will do and markets will accept it.

Why is profit maximisation more important than paying reasonable tax to help develop the countries from which corporations derive their revenue? Why does short-term earnings results designed for the investment markets get more senior management attention than long-term investment in the future of societies for hospitals and health care, schools, roads, public transport and the like? This community investment through tax payments also benefits the very same companies which use the infrastructure networks such as roads, rail, airlines and ports, and whose employees and their families go to the schools and use the hospitals.

It is because those in senior management at these companies and those that control the investment decisions at large institutional investment groups, prioritise a very narrow set of short-term profit-driven values over the longer term goals of a rise in living standards for all. We know that they share the same values because investment funds participate in the same tax minimisation schemes. Public investment funds from Canada, Australia, as well as investment giants like Citigroup, Credit Suisse, ABN Amro, AIG, Dexia, Fidelity, Schroders, State Street and UBS were also on the list of tax offenders released by the International Consortium of Investigative Journalists.

These investment houses manage billions of dollars of citizen’s retirement and other savings through a variety of mutual funds. And because they have the power to make the investment decision, they impose a narrow set of profit-driven values on their decision. They do very little to gather the views of the citizen investors or reflect them in the investment decisions.

As those who provide the money for these funds to invest, we have a responsibility to make it clear that we are not only the ultimate shareholders of these funds who want a long-term return from our savings but we are also the people who use the infrastructure, the schools and the hospitals that improve our societies’ standards of living, as opposed to wanting our investments to produce a short-term return to boost the bonus payments of our professional money managers.

10.19.14
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A virtuous approach to investing could benefit us all

Laura D’Olimpio argued in her recent article on The Conversation, that the ancient Greek philosopher Aristotle claimed that being virtuous was rational and good for everyone. Humans, he wrote, are political and moral creatures because we live in a society and our behaviour affects one another. Virtue is the mid-point between excessive or deficient behaviours and finding the mid-point was crucial for everyone to flourish. For instance, we may have to pay $5 more for a T-shirt, and a large Western organisation may need to take a small cut to its profit margin in order for garment workers in Bangladesh to have a safe working environment and enough money to support the family. But everyone still wins because we still get cheap t-shirts, the business still makes money and people in Bangladesh improve their quality of life through economic growth.

But the spectre of renowned free marketeer economist Milton Friedman still looms over the financial markets and listed companies. Friedman believed in the view that the only social responsibility of business was to make profits’ is still a dominant belief among large investment houses and the companies they invest in. Therefore, maximising profits is a seen as a virtue in this world.

Indeed, Max Weber, as cited in Dyck and Schroeder’s 2005* article, wrote that materialism and individualism are the twin hallmarks of the moral point of view that underpins management thought. A focus on work and emphasis on material success has become normalised in western management and is the ‘uncontestable, objective, morally neutral ‘reality’’ adopted as the natural facts of life, rather than a particular version of the ‘moral’ facts of life. This translates into modern management’s focus on efficiency, productivity, profitability, measured by performance relative to other comparable companies and the expectations of the market.

Materialism is used as a tool to measure human progress, a method of attaining ‘success’ and social acceptance. In 2010, Decktop, Jurkiewicz and Giacalone** argued that financial success and material possessions are the core elements of western corporate cultures and financial rewards at work are used as a form of motivation and control. Materialistic values are rewarded in employees because they are aligned to those in senior management. In this view, money and the desire for money equal competence and the acquisition of more of it (particularly more than someone else) equals greater competence. People with these values gravitate to jobs that can be measured by material accumulation. In corporate finance books this belief is reinforced. According to the Principles of Corporate Finance, ‘the goal of maximising shareholder value is widely accepted in both theory and practice’ because, the authors argued that shareholders’ priority is ‘to be as rich as possible’ (Brealey, Myers and Allen 2011). The question of ‘why is this important?’ is not considered.

Companies are held captive by the tyranny of a quarterly earnings reporting cycle that focuses on short-term profit making rather than long-term sustainable business development. This benefits the privileged class of institutional investors who make their money by managing trillions of dollars of other citizens’ money. They market their competence as investors to attract more money, based on these short-term returns. When the reality is most of their investors have a very long-term investment timeframe and quarterly results are not particularly relevant.

This mismatch in expectations between the average citizen whose retirement funds are managed by institutional investors, and the investors and senior managements of companies themselves is demonstrated in the recent research by Harvard Business School and Chulalongkorn University. The research showed that the average citizen around the world believes that CEOs earn far more than what is a fair amount, when compared to an unskilled workers. What was worse is that the estimate was completely out of kilter with the astronomical pay packets that actually get paid, which is supported by most fund managers.

Surely this is an example of one group, the powerful elite who manage and influence the management of large listed companies, who’s values are at the extreme end of a spectrum, and the virtuous mid-point which allows everyone to flourish is a long way, away.

*Dyck, B. and D. Schroeder. 2005. “Management, theology and moral points of view: Towards an alternative to the conventional materialist-individualist ideal type management.” Journal of Management Studies 42(4): 705-735.

** Decktop, J., C. Jurkiewicz, and R Giacalone. 2010. “Effects of materialism on work-related personal wellbeing.” Human Relations 63(7): 1007-1030.

05.14.14
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Expanding how we ‘profit’ from oil and gas extraction

Western Australian Premier Colin Barnett sent a shot across the bow of the oil and gas companies that operate off the Western Australian coast at a recent industry conference in Perth by challenging their notion of social licence.

Financial journalists and politicians looking for a hook to hang him on immediately started to quibble about some of the factual detail around ownership of leases and completely missed the opportunity to debate the broader point, on which Mr Barnett was right. That is, companies do need to seriously look beyond their own bottom line at how they treat the Governments and communities in which they operate and provide more of a legacy than local libraries and playgrounds.

The fraught issue of who profits from oil and gas extraction and how they profit must be seen from a multilayered perspective and how we see it is clouded by an increasingly outdated notion of stakeholder theory.

Stakeholder theory is the basis of how many businesses engage with various ‘stakeholders’ and their interests. For example, groups get divided into ‘shareholders’, ‘customers’, ‘government’, ‘activist groups’ and ‘local community’. Then they are usually separated and ranked according the importance to the senior management. For large listed entities, the very top of the tree is usually shareholders (to which I mean large institutional investment groups who manage money on behalf of others), and meeting the demands of this prioritized group(s) can be the greatest influence on decision-making.

What stakeholder theory overlooks is that most stakeholders belong to more than one group, who may ‘profit’ or lose in more than one way, and who the stakeholder really is may be obscured at first glance. For example, oil and gas resources in Australia, including coal seam gas, are owned by the relevant State or Territory government or Federal Government (depending on whether it is onshore or offshore) on behalf of their citizens. The relevant government then grants licences to companies to explore and extract these resources and ‘profit’ on behalf of their citizens through the collection of royalties.

So the owners of the assets are the citizens of the relevant State, Territory of Australia or Australia itself and they profit through: the collection of royalties; the access to the resource they own (domestic gas supply); and community economic development through job creation. This same group may also ‘lose’ if the extraction of resources unnecessarily damages their environment or the opportunity cost of losing other industries, such as agriculture, fishing or tourism is seen as too great.

While the oil and gas extraction companies will say their fiduciary duty to place shareholders first, they may not recognise that the capital provided to institutional shareholders to whom the oil and gas companies are trying to deliver a profit are some of the very same citizens who own the resources they extract. The capital flow comes through savings such as superannuation funds and other retirement savings.

For example, the coal seam gas enterprise Arrow Energy is a joint venture owned by Royal Dutch Shell plc and PetroChina Company Ltd. As a 14 February this year, Shell stated in its 2013 Annual Report that major investment houses such as Blackrock and The Capital Group owned more than 6% and 3% respectively. In turn, Blackrock on its website states in runs $US4.3 trillion in investments around the globe on behalf of ‘governments, companies, foundations, and millions of individuals saving for retirement, their children’s’ educations and a better life’, including Australian citizens. In this scenario the citizens ‘profit’ through the increase in share price and payment of dividends.

The offshore oil and gas activities in the north west of Western Australia are dominated by majors such as Shell, Chevron and Woodside all of whom are large listed companies with institutional shareholders, who would manage the millions of dollars of individual savers. These are the companies at which Mr Barnett was taking aim, particularly after the decision to develop an offshore floating processing plant, rather than base it onshore in Western Australia and create opportunity for the local communities.

Oil and gas companies need to consider how to balance all of these streams of ‘profit’ more evenly and consider opinions beyond the institutional shareholders who manage citizens’ money, often without reference to their views. They may also need to learn to find value in the competing view that their citizen stakeholders’ don’t necessarily wish to ‘profit’ from the extraction of resources but would rather use the land and sea for other means, such as agriculture, or even to leave the environment untouched.

02.11.14
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The fruit of SPC Ardmona’s labour should not be closure

And so it has come to this. The Liberal government has washed its hands of supporting the last fruit and vegetable processor in Australia as part of its ‘age of responsibility’. But let’s be honest, this is more about their ideological stance about unions and a chance to make their point while attacking some of the lowest earners in Australia for having generous working conditions. I look forward to their attack on investment bankers…

Coca-Cola Amatil now has a decision to make about the future of SPC Ardmona, and the final decision will need to be seen as ‘investor friendly’. To its credit, unlike the car manufacturers, the company’s plan was to completely re-tool the plant to make it profitable into the future, with some federal government support. The question now is can they gain the support of institutional investors to make the entire investment themselves?

SPC Ardmona is a major employer in a region that has an unemployment rate that has been at least two per cent higher than the Australian average for at least four years.

The preservation of local food production is a personal passion of mine, not just in Australia but around the world. We have to eat every day and how we eat and what we eat really matters. Beyond that, the case of SPC Ardmona is a litmus test of the dominant values in our society. Is finding a way to preserve the Shepparton community and make money from our fabulous fruit and vegetables in the long term, more important than propping up the short-term market returns of a listed entity?

It is evident that the processor needs support to weather the perfect storm of circumstances in which it has found itself during the past few years, but it also needs a long-term sustainable business plan. Much time and energy is spent on the CC Amatil Sustainability Report, which also includes a section on workplace commitment. Perhaps the company could consider that making this investment would fit into that workplace commitment and create a real legacy which would have positive repercussions for generations.

According to its 2012 annual report, the Coca-Cola Company owned 29% of CC Amatil as at 31 December 2012, followed by a range of institutional investors.  All of these groups need to consider their role in this situation. Of course, it is hard to know who these institutional investors are because most of them use nominee companies, thus obscuring their investment from public view. But at 31 December 2012 the investors in HSBC Custody Nominees (17.65%), JP Morgan Nominees (13.32%) and National Nominees (9.69%), would all have significant influence over the board. The board and the investors need to understand that corporate social responsibility is more than ‘nice-to-have’ reputational insurance. Taking a financial hit now to save SPC Ardmona, and the community it supports, will make CC Amatil a leader of business reinvigoration and a true corporate citizen. It may even make it some money.

Well done Aldi for committing to use only SPC Ardmona for its 825g fruit product in Australia.

11.27.13
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Only a reassessment of our values will avert another crisis

Most financial service professionals believe tighter regulation of financial markets will not stop another financial crisis, according to a recent survey.

Perhaps a reminder of what happens when greed overtakes reason might help. Today the ratings agency Standard and Poor’s said it estimates that the biggest US banks may still have to pay out more than $US100 billion to settle legal issues surrounding the rush for sub-prime mortgage products that started the global financial crisis in the first place. Not a great long-term return for the banks’ investors.

Or maybe a reality check about what their rampaging greed has meant for the rest of the citizens of the world. The Organisation for Economic Co-operation and Development (OECD) is warning that the fallout of the financial crisis, is starting to affect the elderly with lower and delayed pension payments and the gap between the highest and lowest income households in developed countries widened in the three years since the crisis.

Sadly, the only way to affect real change in behaviour is to change the values of those in power, because it is those in power that set the agenda. Kinetic Partners, the same group that conducted the survey mentioned above also did research that found that most believed it was the culture set by the CEO that influenced whether good decisions were made and another financial crisis could be averted. This is backed by a whole swathe of academic research pointing to the powerful elite prioritising the values of our society.

So what are the most prominent values? Academics Bruno Dyck and David Schroeder suggest materialism and individualism are the twin hallmarks of the moral point of view that underpins management thought. The Protestant focus on work and individual struggle for salvation and emphasis on material success has become normalised in western management and is the ‘incontestable, objective, morally neutral reality’ adopted as the natural facts of life, rather than the moral facts of life. This translates into modern management’s focus on efficiency, productivity, profitability relative to other comparable companies and the expectations of the market.

The central criterion for managerial rhetoric is concerned with economic growth, organisational survival, profit and productivity. In academic texts on corporate finance this belief is reinforced.  According to the Principles of Corporate Finance, ‘the goal of maximising shareholder value is widely accepted in both theory and practice’ because, the authors argue that shareholders want three things, the first of which is ‘to be as rich as possible’. Another perspective on this is offered by Jill McMillan who argues that companies are held captive by ‘the tyranny of the bottom line’ and profits are for the benefit of the ‘privileged class of organisational shareholders who possess the dominant right to maximise return on their investment and the commitment of management to pursue that goal.’

But if much of the money is invested with ‘organisational shareholders’ (meaning institutional investors) comes from citizens investing for their retirement, then it should be us that guides which values dominate investment, and given a chance to have a say, I believe many people would have not ‘profit at all cost’ as their number one value.

Below is a simplified version of my suggested model for a two-way communication system with their members.Model for engagement

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10.13.13
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Democratic capitalism achieves communism’s goal

Phillip Adams’ was bemoaning the failures of capitalism this week in The Weekend Australian, adding it to the pile of other failed ‘isms’ and he points out that we need new answers to stem the widening gulf between those that have and those that don’t. He proposes a hybrid economic model.

We don’t need to invent a hybrid. We have already done it, we just don’t recognise it. Democratic capitalism has succeeded in achieving communism’s ultimate goal. It has shifted the ownership of the means of production to the citizens away from unelected elites. In most Western nations, the citizens provide the money for substantial chunks of the equity markets and the bond markets. It is just when we put our money into our retirement funds, managed by institutional investors, the ownership of those funds is suddenly assigned to those institutional investors. Our money become ‘their investments’. When really, these investors are merely managing our money and it is our money that buys the shares (which are units of ownership in companies), so we own the companies. The key is to make the institutional investors listen to a wider array of voices as to what constitutes a long-term ‘value’ building in a company.

The problem is we are still living in an age that assigns a higher moral value to people with money (or control of other people’s money) rather than people with knowledge. We lionise business leaders for their ability to make money, not their ability to change the world for the better. We agonise that we will not have enough money in retirement to maintain our lifestyle, so we turn a blind eye to bad company behaviour in favour of returns. We value our ability to buy things, more than our ability to understand things.

Perversely though, more and more of us comfortable in our middle class lives are getting uncomfortable about how big business is shaping our society, our planet and the futures of those who may not have the opportunity to worry about whether to go to Bali or holiday at home this year.

If we want this to change, we have to challenge this power structure and its associated values. We need to engage with institutional investors and get them to step up to the plate in engaging with company management and boards on issues that matter to us. We need investors not to punish companies on the stock market when they choose to do something that is better for all of us in the long term, but shaves off some profit in the short term.

Institutional investors need to democratise investing and create opportunities for people to engage with them and share their views. A starting point may be a simple online tool, like Vote Compass. It was used in the latest Australian election to help voters understand what mattered to them and which party best represented their views. A similar tool could help institutional investors understand how we feel about particular issues. Institutional investors could then represent these views to senior managements of companies and hold them to account on behalf of us all.

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10.02.13
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Greed unfettered by conscience reigns again

Five years ago, the US government and regulators allowed investment bank Lehman Brothers to collapse.  The bank was to be the example to the industry of what happens when greed and the pursuit of profit at all costs prevails.

Sadly, it appears they didn’t learn a thing. Greed unfettered by conscience remains the order of the day.

Investment banks exist to grease the wheels of the economic machine, bringing investors and businesses together. These servants of company development and economic growth, however, appear to have transformed themselves into the masters of the corporate universe.

Investment banks’ role is to arrange companies’ borrowing, issues of shares and conduct a lot of the share trading and broker merger and takeover activity. They put people with money together with people who want that money to invest in their business. This means they have a vested interest in promoting lots of activity, which is what generates their revenue. So it doesn’t matter whether a deal creates long-term social and economic problems or not, their only interest is deals being created. How else will they hit the targets that pay their gigantic bonuses?

Now the UK Chancellor of the Exchequer is going into bat for the financial services sector to protect their ‘right’ to receive uncapped bonuses. There is grave concern that the bonus cap may led to an increase in base pay and that top ‘talent’ may go to non-European competitors who don’t have to comply with the cap. To be clear, the bonus cap will only apply to those who earn more than €500,000 (~$AUD720,000) a year….so they are hardly on struggle street. But a pay packet of this size is not about being paid what someone is worth, it is a way of gaining status through a comparison with peers.

Perhaps a walk along struggle street might help the investment bankers reassess their views about the reward they need to carry on their work. It may also give them some perspective about the devastating impact of their sector’s behaviour and how long it takes to recover. Right now, More than 46 million Americans are living in poverty and the median household slipped, all thanks the hangover created by the global financial crisis. While job growth may by recovering in the richest country in the world, the jobs are in low paying sectors of retail and restaurants. Meanwhile, the stock markets are recovering and the bankers are getting their bonuses again.

Earlier this year, the investment banking industry was asked to explain why they charge institutional investors for access to the chief executives of their client companies, often without the companies even knowing. The investment banks don’t provide the money for anything, institutional investors on our behalf do. Institutional investors need to exercise their financial muscles to wrestle the investment bankers back into their role as servants.

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