November 2016
The past few years haven't been
great for corporate behaviour.
We have seen established
global firms doing things that
should see them closed down, for good.
Volkswagen was caught selling vehicles
that contained a 'defeat device' – or software
that allowed them to detect when they were
being tested and change their performance
to produce better results in emissions
tests. This was no small matter – VW has
admitted that the device is fitted in about 11
million cars worldwide.
And then Samsung launched the Galaxy
Note 7 smartphone on 19 August, beating
the latest iPhone to market. Within less than
two months, at least 35 of the phones had
exploded while being charged, resulting in a
global recall.
While CHOICE has rightly made a lot
of noise about Samsung's incendiary toploader
washing machines, the Galaxy Note 7
debacle was on a whole other scale, involving
an estimated 1 million handsets.
Samsung didn't come to this recall easily.
When phones first started exploding and
CHOICE encouraged consumers to demand
a refund, Samsung sent in the lawyers,
arguing that we should tell consumers they
could take a replacement handset instead.
Those replacements are now being recalled
after reports that some also exploded.
You've got to ask how mistakes on this
scale can be allowed to happen. There have
got to be senior people who were involved
in these decisions and were at least wilfully
blind to the risks to which they were
exposing consumers.
The answer is that people are paid to make
decisions like this. Maybe not directly, but
senior executives receive incentives based on
sales volumes, profit growth and share price.
As long as these metrics are moving in the
right direction, nobody questions them.
We've seen exactly the same problem close
to home. The recent ASIC investigation of
the life insurance industry found that some
insurers were declining as much as 37% of
total and permanent disability insurance
claims (compared to an industry average
of 16%).
While a bad insurance policy won't cause
a house fire, we'd say that if insurance
premiums are eating away at your super
with little chance that you'll ever see a
benefit, then the insurance policy is an
unsafe product.
The executives overseeing those insurance
businesses were no doubt being feted for
the spectacular results they were producing.
Hopefully they are now scrambling to clean
up their act before they are named by ASIC.
But we shouldn't have to wait for a
scandal for consumers to be treated well. CEOs and boards should reward executives
for performance that achieves sustainable
growth, by looking after customers.
Positive customer outcomes can be
measured and rewarded, but this will
only happen if boards decide that this is as
important as the bottom line.
Alan Kirkland, CHOICE CEO
Email: alan@choice.com.au
Twitter: @AlanKirkland
