Alex Malley with James Daggar-Nickson

29 August

Subjects: Virgin Australia, Qantas, President Obama, social media

DAGGAR-NICKSON: Welcome back to the program. Well, both Virgin Australia and Qantas unveiling losses for their full year earnings. Question is, how are the two companies positioned moving forward and what should investors make of it all? Well for his thoughts we’re joined now by Alex Malley, CEO of CPA Australia.

Alex, as always, great to have you on the program.

Qantas and Virgin. Look, both losses but seemingly different narratives building up around these two airlines.

MALLEY: There is and I guess on top of all of this is that – the global story of business is that it’s becoming increasingly costly and complex to have many local competitors in a broad market. So of course you’re seeing alliances and all of those sorts of tactics to stay relevant in a market. So I guess at the top of all of that we need to say that but we are seeing very different stories, even though they’re both losses, and they’ve got particular scenarios.

I saw Borghetti speak at his announcement today and his tone was that of a leader, you could see that he was talking to the strategy, that everything was consistent with the strategy, the announcement was in line broadly with expectations, the cost reductions, the integration of the business, the strategy moving forward, the culture of the staff was solid. So that’s, if you like, a plausible structured story that’s consistent.

Qantas has got a whole series of challenges ahead of them even in relation to legislation. The announcement was not consistent with perhaps what people thought might happen. There are issues around culture, how people are coping with that internally. These are really big challenges, so very interesting to see the two companies come out around the same time.

DAGGAR-NICKSON: How important is the internal culture, I suppose the level of confidence in the company that any sort of particular staff member is working for?

MALLEY: Look, the longer I’ve been a CEO, the more I’ve realised how wrong I was in my early years thinking culture wasn’t totally important. It’s everything. Because, they’re the people that run your business every day. They’re the people that talk to your customers. They’re the people that every day of the week have to believe in where you’re going and if you have a great culture, no matter how complex and difficult the circumstances, competitors can’t replicate good culture. They can try and copy your TV ads, they can try to copy the way in which you do business but they can’t copy your culture.

DAGGAR-NICKSON: And who sets that? Is it you? Is it the CEO that sets that?

MALLEY: I think the tone at the top is really important and I think it’s fair to say that when you look at someone like a Borghetti, who’s had an interesting career going from one airline to the other, the one thing anyone would say about John Borghetti is his capability and understanding of service, his personable, hospitable manner and the manner with which he tries to take people with him. And that comes through in everything he does and when you do that from the top then people start to understand what you want to achieve. And at his parents had a restaurant in Melbourne he learnt the service hospitality ethic at the ground level and it comes through in the way he does business. So, look both those airlines, they’re good airlines, they’re doing the best they can but I think they’re very different stories.

DAGGAR-NICKSON: Juxtaposed, a somewhat calm and collected John Borghetti today with what you saw with Alan Joyce, a man understandably under pressure announcing as a headliner $2.8 billion loss. As a CEO, that’s got to be difficult?

MALLEY: Enormously and as I said, I think there was a greater level – and I’m speaking now as just a person watching – there was more comfort about the assuredness of being consistent with strategy. Now Qantas is now talking about saying we’ve seen the worst of it but again, because we’ve seen sort of a reasonable run of bad news, people need to arrest that and say okay, we’ve got to move forward.

So I think Alan Joyce, fairly, is under some level of pressure at the moment, you understand that, but again it comes down to debt levels, it comes down to how competitive you can remain, it comes down to the culture of your organisation. How willing people are to come with you and I think that is the story that all investors should look at with all their investments, is have a look and get a sense of the culture of the organisation vesting in whatever sector. It’s really important.

DAGGAR-NICKSON: Can you make parallels of the importance of culture with the political realm as well? You’ve got a government at the moment continuing to struggle with its own budget, a lot of talk about concessions, did a lot of talk about whether the government is willing to concede on some of the issues within their budget, what does that say about culture as well?

MALLEY: I think it’s a good question and I think that linkage is the same. That there’s a culture and people have to believe in it. Somewhere along the way, the advisers in politics have taught their politicians that saying that they were wrong or that they’ve changed their mind for the right reasons is a weakness. I think not acknowledging it is a weakness, just as I think showing some empathy sometimes is probably most the powerful thing you can do.

I think more and more the politicians need to define the culture of their advisers and the way in which they are going to do business as a politician, as a minister. So, if you look at Joe Hockey in the last few weeks, he’s had a tough run and in leadership he’s not going to be the first or last to feel a moment of isolation. I have, everyone does, but it’s how you trade out of that and part of that trading out of that is to acknowledge things yourself even if it overrides some PR advice, just tell people what you think. If you’ve made a mistake, call it, call it in the most colourful language you need but tell people you understand that it’s a big issue.

DAGGAR-NICKSON: As a leader, where do you find the identity, the strength and conviction of identity to be honest about those sorts of things? It can’t be easy, particularly as we suspect, if advisers are perhaps suggesting differently?

MALLEY: Well great leaders don’t always take all their advice and they form their own view. And I interviewed Julia Gillard two or three weeks ago in a 300 seat event and I said to her if there was something you’d do differently, what would it be? And it was something to the effect of, I’d probably steal myself away a bit more and just consider my position before I form my final position. And I think that’s fair in all leadership and all principle but the one thing about leadership, whether you’re a CEO, whether you’re a Treasurer, whether you’re a Prime Minister, if you think about the fact that you’re dying from the moment you get the appointment, and if you were told you were dying and you had a limited time, then live all you can in that process before you die. I think the problem is, instead of doing that, instead of the full conviction to die with a sense of glory and achievement, they decide they want to defer the death and see if they can live twice as long and perhaps in the end, do half as much because they haven’t shown the courage of their convictions. And I think that’s at the core of what’s probably going wrong in public life, in public leadership and potentially in some business leadership.

DAGGAR-NICKSON: Is it a new phenomenon or is it something you think that comes and goes, depends on the individual?

MALLEY: I do think there’s been a pretty long period of time in politics where we haven’t seen a Keating or a Howard or a Hawke who at least you had a sense of who they were, and what they were willing to do. And I’ve not doubt that any one of those three leaders, periodically said, listen, I’ve heard your advice, thank you but no, I’m going to do this, I’m going to say that because that’s what I feel is the issue. People aren’t electing advisers and you never defer your instinct to anyone and some of these guys have outsourced their instinct. The minute you do that in leadership, you’re in a lot of trouble.

DAGGAR-NICKSON: Now we don’t often switch focus to US politics but we were discussing this issue before coming on air and that’s President Obama sparking a social media reaction because of the suit he was wearing. This is while giving an updated briefing on the issues with Syria, the issues with ISIS and the US’s role and it’s his tan suit they keep focussing on.

MALLEY: If ever there’s an indictment that we’re all party to in some way, shape or form is that moment where he’s coming out in a tan suit, as it turns out, to talk about Syria and the Ukraine and all the complexity and the challenge and the tragedy that that is and something like 6,000 tweets shot out before he had finished what he was talking about because apparently that was the key issue of the moment. But that is such an indictment and so to be fair to the public leaders of today, that’s the sort of crap they’ve got to deal with, that that becomes a bigger issue than world economics, or world business, or world tragedy. It’s stunning.

DAGGAR-NICKSON: Is it a new paradigm for public people, particularly leaders that it is more and more difficult to control the narrative because of social media, because of a 24hr news cycle. It’s hard to own it.

MALLEY: It is hard to own it but I think that’s becoming part of their cop out, that they’re saying, we’re now only going to turn up to Sky or anywhere else and do a grab and get out of there. And I think what you’ve got to do is almost take it on and if you take the principle of you’re dying and you’ll either live two terms because you’re being courageous and you’ve shown some personality, or you might live two terms and live a pretty ordinary life of grabs, then I think there’s a bit of a cop out when a lot of the politicians and business leaders will say, well, you know we don’t go out anymore because, you know if we do, if we say something about our business, we’re going to be tied to a wall.

I think if you’ve got a good relationship with your board, CEO and board has got a strong relationship, you know what you’re trying to achieve. I think all leaders need to go out and share their personal values which should be reflective of the business they’re running and too often, when they talk about a market correction, I always talk about, give me a human correction. Markets don’t exist, that’s just human behaviours all roped into a particular pool but fundamentally, we need to see more leaders come out and talk about what’s wrong with their business and to the credit of both the CEOs of the airlines, given their slightly different stories, they’ve both come out and they’re talking the talk but I think that needs to be a continuum so that announcement days don’t become a surprise, they just become a constant because you’ve been talking to the market.

DAGGAR-NICKSON: Does the market to investors, do you think want that and does the electorate want that? The person who comes out and says look, I’m just going to lay it on the line here, this is what is happening, be honest here.

MALLEY: I think the electorate want to know who you are so the only thing about reality television that’s true, is that it’s not reality. They want to see John Borghetti come out and share a bit of his heart and soul about his business and why he thinks it’s going the way it is in a positive way. People want to know, perhaps how Joe Hockey feels about having that bad week a couple of weeks ago and how he’s going to trade out of that and how Tony Abbott feels when he’s dealing with some really complex issues. Share your emotion. That to me is a strength, whereas I think they’re being trained to believe it’s a weakness and I just think that’s fundamentally flawed.

DAGGAR-NICKSON: Alright, we do have to leave it there but Alex, please enjoy your Friday morning. Thanks very much.

MALLEY: Thank you for that, thank you.