Graduation address given by Mr Joseph Skrzynski AM

Mr Joseph Skrzynski AM gave the following occasional address at the Economics and Business graduation ceremony held at 9.30am on 2 June 2006. Mr Skrzynski is the Managing Director of Castle Harlan Australian Mezzanine Partners group (CHAMP), and a Fellow of the Senate of the University of Sydney as well as Chair of the Senate's Investment and Commercialisation Committee.

Graduation address

Thank you (Chancellor), and at the outset may I give my warmest congratulations to the Graduates, whose academic achievements have been recognised here today to their parents, partners and family members, who should be justly proud of these achievements, and whose support, no doubt, the Graduates so much appreciate. Finally, of course, to the University and faculty, to the professors, lecturers and tutors, and all those who have enabled and guided them to these find achievements.

It is indeed an honour to be invited back to address this assembly. I well remember 36 years ago sitting where you are sitting in this hall at my graduation. I recall wearing a very bright red tie on the day. Now, I don’t know what Professor Sutton said to you today, but I recall the legendary Herman Black saying to me, as he handed me my degree, “With a tie like that, you’re bound to end up in real estate!”. Perhaps I should have heeded his advice, given real estate prices since! He was right that I wasn’t headed for conventional mainstream business, but it wasn’t real estate, it was venture capital and private equity that was to become my passion.

Hermann Black was our economic history lecturer, and one of the greatest lecturers I have ever had.

I can still recall his lecture, where he vividly conjured up of the atmosphere at the International Congress, which resulted in the Bretton Woods agreement. His description of the theatre of the occasion, of the English Ambassador and the French Ambassador and the American Ambassador, and how they made their entrances to upstage each other where they sat, what their motivations were and what they were trying to achieve – it was riveting, and it brought to life the reality of the people, the egos and the politics behind economic history.

As it was my task later on to engage with government about policy, his lecture was a very useful primer to understanding that government economic policy is a social science construct, where there are no absolute truths, or if there are they do not prevail as of right, and that real life results reflect both competing theories and the people and politics of process.

Another great teacher was Ray Chambers, the then Professor of Accounting, and to whom I can fairly ascribe a large measure of success as I have had in business. You see, he was an unusual accountant. He would have us believe that almost all of the prescribed texts to be found in the accounting sections of the Merewether Library and the Fischer Library, at the time, were misguided or indeed wrong. That was pretty exciting stuff for a young student to be able to poke holes in the accepted expert views with the sanction of your professor! He was in his field a true revolutionary. The first year of the honours accounting course was a year of pure logic, and personally I don’t think anybody should be able to get their university ticket without doing a unit of straight logic.

His second honours year was famous company frauds that came to light within six months of a clean bill of health by one of the great global accounting firms, and he demonstrated the ease with which formal records could be falsified.

This led to an analysis of business information systems and a comparison of such a system with the accounting standards of the day. It became pretty clear that the information systems businessmen used day to day in running their businesses had precious little to do with the statutory official annual accounts, which were duly filed with the regulators, shareholders, lenders and the public at large. The reality of the business to the insiders was quite different to the picture being presented in these statutory accounts to the outsiders.

Business people were using somewhat subjective, but relevant, data whereas orthodox accounting was using more objective but patently irrelevant data.

Fortunately for the profession, I did not become an accountant, but I did learn how to read between the lines, how to look for the real hidden values or liabilities that the official numbers would not reveal. And in terms of doing due diligence on potential private equity investments, this was an invaluable skill indeed.

Two other experiences at university encouraged me to think that maybe I could survive in the business world.

I was fortunate enough to become the Treasurer of the S.U. Union, and in that capacity had responsibility to supervise the management of what, to a 19 year old, seemed a large and vast business indeed. A first hand immersion into trading reports, inventory control, staff engagement practices – the whole paraphernalia of running a business to a budget. And I liked it, and it taught me a lot!

This is an aspect of VSU that the government obviously doesn’t properly understand - the opportunity it gives students to accept responsibility for, and to manage complex organisations whilst they are students. I know there are many people who are now in responsible positions in society who had an accelerated experience towards those positions through the ability to be student directors of various campus societies and activities.

The second experience was a much quirkier one. As Treasurer of the SRC, I had to give effect to an SRC policy that no student should have to spend a night in jail for lack of refundable bail money. This was in 1968/69, and that was the time of the great Vietnam demonstrations.

So there I was, pockets bulging with huge amounts of cash – $5, 10, 15 thousand dollars, running around finding out where the arrested students were being taken, and then spending the rest of the night bailing them out, bail of course being the bond that they would turn up the next morning and face whatever charges they had to in Court. It’s refundable bail, and so the next day I would be back at the same police stations, with my little chits of paper ($50, $150, $200 bail), collecting the SRC’s money back.

Having taken the precaution of adding up these piles of receipts on a calculator over my breakfast, I knew the numbers I was looking for. Poor old Sergeant Plod, on the other hand, over worked and under paid, and needing rowdy students in his police station like a hole in the head, was often less accurate with his mathematics. If the number was lower than what I expected to collect, I would suggest we count again. On the other hand, if his number was higher, then who was I to argue with an officer of the law?

So by this process of all “overs” and no “unders”, the Student Council made a tidy profit of $1,000 on its bail fund. So I thought to myself, come capitalism, or come the revolution, there could always be a way to make a quid.

Perhaps Peter Costello heard about this, and that is why the VSU law was introduced. I certainly hope not.

Certainly, I would have got an ASIO file for my activities, but it is interesting to reflect that my fellow radicals of the day went on to be such notable dangers to society as Michael Kirby, High Court Judge; Jim Spigelman, Chief Justice of NSW; Alan Cameron, Commissioner of Australian Securities & Investments Commission; fellow economists Percy Allan, Secretary of the Treasury of NSW; and David Hill, Chairman of the ABC. So, as you can see, a little revolution can go a long way.

But when I reflect on these times, I realise that things have changed enormously on campus. And that leads me to the apology, or “sorry” statement in my address to you. I do feel that my generation owes yours some sort of apology. And this is why:

In the ‘60s and ‘70s, education was effectively free. Commonwealth scholarships were easy to come by, and then under the Whitlam government it was actually free. We had the time to get involved in student activities – sporting or otherwise. We had the time to take full advantage of what ought to be a glorious period between school and work.

That is far from the case today. Many of you will have worked 2 to 4 days a week in order to provide for yourself and for your education. Some of you may have had your HECS paid, but more of you will leave here with a debt on your shoulders. A user pays system that WE didn’t have to face. And that will come on top of an economic landscape that we Baby Boomers in Australia, and indeed in most OECD countries, shaped to our benefit.

We twisted the tax laws to make it very attractive to own property, and hence drove up its price. The first modest housing that a student graduate would purchase in my day, was about 4 times of a reasonable starting salary. Today it’s 8 times. Combined with a HECS debt, it creates a vastly different starting point for you, as opposed to my generation.

I personally am aghast at this. I think it is an unproductive misallocation of resources in Australia that real estate has absorbed so much investment. And I am aghast that we don’t invest in our best and brightest through tertiary education, but rather slavishly implement user pays. The irony is John Howard was Treasurer when I was a student, and Prime Minister during your time. I suspect he won’t say sorry on this one either, so you will have to do with just my sorry.

The second thing I would like to talk about is “professional deformity”.

You know the old cliché about each profession.

For example, a lawyer is someone who knows the definition of everything and the meaning of nothing. Whilst an accountant is someone who knows the price of everything, but the value of nothing.

In other words, the strength of the core disciplines that we learn in a particular profession can become its very weakness. For example the quantitative analysis that underpins so much of what we study in a commerce degree, whether it be in accounting, finance, statistics or securities analysis – hones and sharpens our mind to understand numbers and numerical relationships and mathematical possibilities. And if we excel at these, it propels us in our profession. And the chances are, they are the skills that we grow most. So the question is: do we grow them at the expense of other things?

Metaphorically, do we become mentally like a grotesque body builder on steroids?

So I call this a professional deformity. It is the over balancing of one set of skills over another. And why do I worry about this? Well, because it is the balance of qualitative analysis and quantitative analysis that is essential to success in business and public life.

We hear a lot about economic rationalism, and we hear a lot about the need to measure and be precise about things, to have KPIs. I agree with that. But what worries me, is that much of what is important in society and in business is not easily measured, and hence there is a tendency to exclude it from analysis.

However, the sustainability of the society that we want to live in, requires us to grapple with issues that are not just economic and quantifiable, but which speak to other things like quality of life and community. For example, GDP is commonly used to measure a country’s well being, but it has little to do with the quality of life and community satisfaction.

You might think that is a bit high flying, and potentially of not much concern to your professional life. You may be right, but let me frame it to you in another way:

Leaving aside wholesale fraud, such as Enron, or more locally, HIH, I believe that business longevity will increasingly depend on the sustainability of its business model, and not just its short term profitability, contrary to the current obsession with quarterly results.

Successful companies have to, not only achieve their quarterly profits, but they have to invest ahead of the curve to maintain those profits and grow them. And part of that investment has to necessarily look at the context around the company that allow it to grow and prosper. Factors such as : availability of an educated workforce, a functioning community, with infrastructure and respect for law, the pricing of raw materials as those increasingly come to properly reflect their total cost, including environmental cost.

So environmental consciousness has to be part of a sustainable business model. And the list goes on. The company needs a community goodwill bank for the security of any long term business in our society. It needs to have a point of view about regulation and government policy. It needs to have a concern for its community standing to weather the inevitable bumps that will come at some point.

So can I urge you today, as you step off into your professional life – be it corporate, in government, or in education – to keep a piece of your fertile mind open and alive to the wider issues, the context of the activity in which you find yourself.

When I graduated, Arthur Andersen was a hugely respected global accounting firm, one of the Big Six. It does not exist today. It was brought down by the damage to its reputation as a result of being sucked into servicing the needs of a client company paying them fabulous fees for pushing the envelope on integrity and accounting standards.

Also, in the last three years, heads have rolled and hundreds of millions of dollars in finance have been paid by top Wall Street banks in settlement of security laws infringement.

I trust that the University has equipped you with great tools to be immediately effective in your new jobs. But I trust also that the distinction of having been to a university is the distinction that you keep and grow – a capability for creative analysis, for looking behind the numbers, to their meaning and to the quality of the people and the processes that make up the activity of which you are a part.

Do not rely on the name plate of your employer. Develop and rely on your own judgements, guard your own reputation, grow in balance and avoid professional deformity!

Well, finally, fellow graduates, I wish you good luck and just fortune in your careers!