Job tenure has a very direct impact on leadership style and effectiveness. Myths abound regarding CEO job security, but in reality, research shows that Australian CEOs typically hang on to the job for 8 years before retiring with a golden parachute. The point at which you find a leader within their tenure has a clear influence on strategic business planning and investment decisions.
The reason is simple. The willingness and ability of individuals to implement change is greatly influenced by how long they expect to remain in the job. It is much easier to make an unpopular decision if you don’t expect to be around for the consequences.
Infrastructure and major business investment decisions can easily be skewed in these situations. Project feasibility and Return on Investment (ROI) can be incredibly subjective, depending on your measurement time horizon. For a leader with a definite exit date, investments with long term payoffs have little downside.
While promising something you can never achieve is second nature for politicians, in the past they were usually smart enough to promise policy changes. Now we have political parties promising to rip up commercial contracts without compensation, and junk newly built infrastructure assets while simultaneously demanding that the infrastructure be delivered faster for their own constituents.
On that basis, national infrastructure now only has the life of any given parliament to achieve a ROI.
In this environment, it is little suprise that the media roll their eyes and start quoting Sir Humphrey Appleby whenever a politician announces a new feasibility study for a project.
While government feasibility studies are usually ridiculed by project opponents, they can be a valuable resource. A typical federal government feasibility study is a combination of business case, stakeholder consultation, and project design document. Many large businesses could certainly achieve better investment outcomes if they used a similar process for their own large investments.
Railway infrastructure investments have been political poison in NSW for decades. Since the 1970s, many projects have started without construction funding being agreed, and then been quietly shelved.
When the Prime Minister visited Wollongong recently, a flurry of government announcements covering infrastructure priorities appeared. Wollongong is clearly feeling enormous pain as Australia’s manufacturing industries continue to move offshore. In addition to being one of the first locations to receive NBN high speed Internet services, a freight rail project which was killed in the 1980s was thrown a lifeline.
In a little remembered incident, a third freight train line connecting Wollongong to the rest of NSW was partially built in the 1980s, before being cancelled by the NSW government – leaving half built bridges, kilometers of cuttings through mountains, and involving serious amounts of wasted effort and money.
Infrastructure Australia was recently asked to consider funding the completion of the rail line, and commissioned a new feasibility study for the Maldon to Dombarton freight rail link. The goal of the project, to reduce the huge volume of trucks carrying heavy cargo on steep mountain roads into and out of Port Kembla.
In an outcome that could hardly have been unforseen, the feasibility study found the $650m rail link was not viable – based on financial measure of return on investment. The major exporters and importers using Port Kembla told the study authors that they will not use rail transport, preferring to clog the roads in the region with hundreds of heavy trucks hauling freight up steep mountain passes. As a result, the project was found to be a financial basket case.
Regardless, the Prime Minister announced that the project would be progressed to initial construction, and further substantial funding was granted.
Major business investments and decisions should not be made by whim, or with disregard to financial reality. But it is important for business leaders to have a vision, and communicate clearly the path forward for the organisation. Sometimes it boils down to an exercise in communications, and winning over the doubters. But it should be little surprise that when a leader has one eye on the door, they might simply view risks and rewards very differently to those around them.