Who Owns Corporate Australia?
|Our Correspondent||Jan 15, 2013|
Without fanfare, there has been a major shift in Australian corporate ownership over the past decade, and a silent one at that, that puts a big share of Australia’s business world in the hands of multinationals.
In fact the ownership-scape of Australian banks is very different from the traditional past in which Australian banks were owned by the "average Australian" through superannuation and investment funds. The annual reports of most of the large Australian public companies are dominated by names like HSBC, JP Morgan, Citibank, and BNP in the top 20 shareholders lists.
And, although major shareholders are in fact mutual and investment funds, they are now managed by foreign interests who appoint their proxy directors to the boards.
Bob Hawke, the ex-head of the Australian Council of Trade Unions did more than any other prime minister to free up the Australian economy through a series of dramatic liberalizations. Hawke began deregulating the financial system, dismantled the tariff system, floated the Australian dollar and privatized the Commonwealth Bank of Australia (planned under Hawke, executed under Keating).
What was important is that there was no longer any distinction between savings and commercial banks, and foreign banks could apply for licenses to operate directly in the Australian retail market. Keating followed on this liberalization path with the catch cry of creating a "level playing field."
These liberalizations allowed foreign investors to come into the Australian market, although foreign banks found it extremely difficult to start from scratch and compete with the locals. However, with the Asian financial crisis of 1997, and subsequent economic downturns within the Australian economy, foreign equity started slowly trickling in and buying up Australia's prime corporate assets. Mutual and investment funds were specifically important as these made excellent vehicles for investment in corporate Australia.
Table 1. Major Shareholders in Australia's "Big Four" banks (%)
Company Combined HSBC (Nominees) JP Morgan Nominees Combined Citicorp 1 Commonwealth Bank 14.10 11.13 4.18 2 National Australia Bank 16.94 14.47 3.33 3 Westpac Bank 15.10 12.27 4.60 4 ANZ Bank 18.88 15.65 5.41
Apart from the top four shareholders shown above, an inspection of the data in the respective annual reports shows that most of the other top 20 shareholders are companies with a stake in more than one big bank. Moreover, ownership figures for the second-tier banks, Bendigo and Adelaide Bank Ltd, Suncorp-Metway Ltd and Bank of Queensland Ltd, show they are owned by the same organizations that own the big four.
A close look at who owns the big four banks makes it clear that there is a lot of common ownership, suggesting that those banks may not in fact be independent, competing entities.
Due to the complex nature of the legal structures of shareholders and ways that the various shareholders work together, it is virtually impossible to determine who really controls the banks. Many of the other minor shareholders in the banks also have HSBC, JP Morgan and Citibank a shareholders, along with many other European and US banks. This argument is often countered by stating that HSBS, J.P. Morgan and Citibank are only investing on behalf of small investors. What is of issue here is control and it is the prerogative of the funds to appoint a director to the board of their choice, not the investors.
These figures are also consistent with a recent worldwide study showing that most of the world's corporate equity is controlled by no more than 25 companies, of which have many have equity in the Australian banks.
One of the most interesting aspects that complement the cross-ownership in the big four Australian banks is the number of cross directorships in other foreign banks and financial institutions that exist in a wide manner. Studies have shown how even small cross-shareholding structures at a national level can affect market competition in sectors such as airlines, cars and steel, as well finance.
Turning to corporate Australia, the picture is very similar to that of the banks. Both commercial and mining companies ownership are dominated by HSBC Nominees, JP Morgan Nominees and Citibank Nominees as the top three shareholders. These three together own 50.83 percent of Fosters, the quintessential Australian beverage company; 63.49 percent of Westfield Company directorships exhibit a tight cross-linking across commerce, banking and mining. Commerce, banking and mining are now part of an oligopoly.
Table 2. Major shareholders of Australia's largest public companies (%)
Company Combined HSBC (Nominees) JP Morgan Nominees Combined Citicorp 1 AMP 19.23 13.88 4.6 2 BHP Billiton 17.36 13.29 10.75 3 Brambles 25.85 21.73 8.77 4 CSL 24.39 17.43 6.1 5 Fosters Group 23.29 21.23 6.31 6 Macquarie bank 19.06 19.96 6.08 7 Newcrest Mining 37.83 16.57 4.94 8 Origin Energy 15.83 14.10 5.17 9 Rio Tinto 19.59 16.68 4.89 10 Sun Corp 20.23 17.09 7.1 11 Telstra 18.49 12.5 1.36 12 Westfield 31.44 25.0 7.03 12 Westfarmers 16.31 13.77 6.43 13 Woolworths 16.50 11.34 4.025 14 Woodside 16.19 11.97 2.25
The reality is that much of Australian are owned by faceless people hiding behind big nominee companies that are virtually impossible to research. Not to mention global investment banks, insurance companies and the Commonwealth public servant superannuation scheme. Many companies have directors that are involved in media, banking, and politics, with many ex-politicians coming onto boards when they leave the parliament.
We have seen the close relationships between business and politicians over many governments. And Labor has been able to stay long in government with this accommodation with business interests, ever since Bob Hawke achieved an understanding with a significant group within the dominant corporations of Australia. Big business probably has greater influence at state level where government can directly facilitate access to prime land and assets that each state controls.
Today in Australia, big business now is able to practice what could be called "bully capitalism" where they dictate terms unfairly to smaller businesses. For example rents charged to tenants in large shopping malls are calculated as a percentage of turnover, with systems in place that allow landlords to audit tenant sales, where profit is virtually regulated. Supermarkets in Australia now that a duopoly exists control over 90 percent of retail sales have been able to increase profit margins from 20 percent in the 1970s to over 50 percent today.
With so much ownership concentration of Australian business and industry through skillful fund control and use of company law and cross directorships, a very few people can exercise great influence over the Australian economy. Many company boards and directors can operate without much accountability. As the recent Jonathon Moylan case has shown, any statement about a company can easily manipulate share prices and make profits or losses of hundreds of Millions of dollars instantly.
The potential to easily manipulate share prices is there on a huge scale. HSBC Nominees, JP Morgan, and Citicorp Nominees are the first, second and fourth largest shareholders in the Australian Stock Exchange as well.
The great myth is that Australia is a competitive economy. Most of Australia's largest companies are either monopolies or exercise some form of oligopoly. For example;
BHP Billiton, Rio Tinto, Woodside Petroleum, Newcrest Minerals, Fortescue Mining and Origin Energy all have monopoly control over the resources they exploit.
The four major banks exercise almost 90 percent control over all transactions in the economy and the smaller banks have the same shareholding as the Big Four as well.
News Corporation controls more than 80 percent of all metropolitan newspapers in Australia.
Westfarmers operate Coles, Bunnings, Target, Kmart, Officeworks in duopoly markets.
Telstra has a near monopoly.
Woolworths operates in a duopoly with Coles.
Westfield group operates a unique group of shopping centres without competition
CSL has an almost complete monopoly on all blood products.
The top businesses in Australia do not exist within competitive environments and are able to earn above-average profits. This has potential consequences for local innovation, consequences for sustainable exploitation of resources, consequences for which industries survive and which industries are lost, and consequences for the cost of living for Australians, not to mention fairness and transparency in the marketplace.