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Fear and loathing

Illustration: Simon LetchA series of graphic TV ads that are part of a new public health campaign show an off-putting substance as yellow and lumpy as boarding school custard roiling in a way that wouldn't be out of place in an Alien film. It is meant to be body fat, specifically ''toxic'' visceral fat that sits deep inside the body and smothers vital organs, such as the heart.
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The Live Lighter campaign is a joint venture between the West Australian Heart Foundation and the Cancer Council, and its ads are based on the same behavioural principles as the highly successful National Tobacco Campaign, which has been confronting Australians with images of tarry lungs, gangrenous toes and oozing arteries since 1997.

Using anti-smoking-style tactics in a weight-management context is novel, but also controversial. Critics claim such campaigns compound the stigma surrounding obesity and that they have little effect. Some say scare tactics just make people shut down, a criticism that has also been aimed at road safety and skin cancer awareness campaigns.

However, Simon Chapman, the renowned tobacco control activist and professor of public health at the University of Sydney, says one of the most persistent myths surrounding public health is that ''scare tactics don't work''.

''Overwhelmingly, what you find from people who have made changes is that … it was fear about adverse consequences which motivated them,'' he says.

There have been attempts at positive health messages around tobacco control, he says, ''ads showing wholesome young people slotting basketballs through hoops … [but] they had zero cut-through; an absolute wallpaper effect.''

Research has shown that humour, too, is an ineffective motivator, says David Hill, a behavioural researcher and former chairman of the National Expert Advisory Committee on Tobacco, who has been instrumental in both the National Tobacco and Live Lighter campaigns. ''Non-smokers love humorous anti-smoking ads,'' he says.

When people criticise scare tactics, Chapman says, ''they are often getting confused with whether an ad is likeable rather than whether it is effective.''

Hill refers to the strategy used in the Live Lighter and National Tobacco Campaign ads as a ''doctor's-eye view'' rather than a scare tactic. ''[The NTC] was called a shock and a scare campaign, but it's the truth. It's actually showing what's going on in there. I think we face a similar situation with overweight/ obesity. The trends are awful and, at the very least … we owe it to the public to show what's really happening inside their bodies.''

Both Chapman and Hill do acknowledge, however, that obesity brings a special set of challenges.

There are people, Chapman says, ''who do have physiology that makes it very difficult for them to lose weight … and there is a serious discussion to be held about the consequences for those people who feel they are being stigmatised and left behind.''

''Losing weight is tougher, I accept that,'' Hill says. ''But these are desperate times so we have to try.'' A comprehensive series of evaluations is in place to track the effectiveness of the campaign over time, he says.

The author of Fat Chance: My Big Fat Gastric Band Adventure, Melanie Tait, 32, was put on the first of many diets at age seven. The result? By 2009, when she underwent weight-loss surgery, she had about 50 kilograms to lose. Tait has now lost a lot of that weight but says she still battles daily with appetite and a body that's reluctant to shrink.

Asked to look at the Live Lighter ads, she admires the production values and agrees the graphic images ''certainly stick in there … but at the same time I don't think fat people need to be associated with being toxic any further than they already are.

''I think it would give pause to anyone who does have a weight issue but, that said, I don't think there are many people who are overweight or obese who aren't already well aware of what it's doing to their body. They already know it's a problem and they wish they could fix it.''

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Please, sir, can I have some less?

IF YOU are wondering how closely listed companies watch each other when it comes to the sensitive topic of executive pay, consider announcements made this year by Australia's two biggest miners.
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In February, Rio Tinto's chairman Jan du Plessis said: ''Tom Albanese and Guy Elliott have notified the remuneration committee that they do not wish to be considered for an annual bonus and I think that is absolutely right.''

A fortnight ago, BHP Billiton chairman Jac Nasser said: ''Marius Kloppers and Mike Yeager have advised the remuneration committee that they do not wish to be considered for a bonus for the 2012 financial year. The remuneration committee and the board respect and agree with that decision.''

Suddenly abstinence is fashionable.

Not only did BHP follow its rival in abandoning bonuses for its top executives due to multibillion-dollar write-downs in recently purchased assets, it also chose the same way of presenting the news.

The pitch was that forgoing the bonus was a voluntary initiative by the executives involved, an offer accepted by their grateful boards.

It forestalled the ignominy of the boards withholding the bonus payments, which would have looked more like a punishment.

In turn, the bonus announcements should improve the atmosphere at the next annual general meetings for the two companies.

Then it will be the turn of shareholders to be gracious. When the time comes to vote on the remuneration report, there will be less reason for them to take the cane to the directors.

The triggers for the sacrifices were a $US9 billion write-down in the value of Alcan, which Rio bought for $US38 billion in 2007, and a $US3 billion write-down in the value of US shale-gas assets, for which BHP Petroleum paid $US5 billion in February 2011.

Last year the bonus for Albanese, Rio's chief executive, was $US1.2 million. Its chief financial officer, Guy Elliott, received a bonus of $US989,000.

Kloppers, BHP's chief executive, received a cash bonus last year of $US2.3 million and the head of BHP Petroleum, Mike Yeager, received $US1.3 million.

BHP and Rio are not the only big companies cutting pay. This week the chief executive of BlueScope Steel, Paul O'Malley, and his counterparts at Goodman Fielder, Chris Delaney, at Platinum Asset Management, Kerr Neilson, and at ANZ Bank, Mike Smith, announced new or continuing pay restraint.

They followed the chief executive of Commonwealth Bank, Ian Narev, the head of the Coles supermarket chain, Ian McLeod, and the chairman of funds manager Perpetual, Peter Scott.

Bosses who are taking home less in 2012 in long-term incentive pay because the required performance hurdles were not met include the chief executive of the wealth management group AMP, Craig Dunn, and the chief executive of Macquarie Bank, Nicholas Moore.

It's hardly a stampede but the number of executives of large companies making a virtue of austerity is in contrast to the explosion of executive pay in the past 20 or so years.

Research published by the Australian Council of Superannuation Investors shows that in the decade to 2010, median fixed pay for chief executives in the top 100 ASX Australian companies increased 131 per cent and the median bonus increased 190 per cent.

This compared with a 31 per cent increase in the S&P/ASX 100 index over the same period.

In a small way, the recent announcements are a neat reply to the familiar refrain from prominent company directors that laws to ensure greater disclosure would only have the perverse effect of increasing pay by making it easier for executives to discover how much their peers were being paid.

Perhaps in tough times compulsory disclosure will create peer pressure of a different kind.

The context for the pay cuts is a tough global economy and a local sharemarket index that fell 11 per cent in the year to June. Another factor is the second year of new laws designed to give shareholders greater say over executive pay.

The so-called ''two strikes'' legislation came into force in July 2011 and could bite this year. During last year's annual meeting season, 23 companies in the S&P/ASX 300 index received ''first strike'' votes of 25 per cent or more rejecting the remuneration report.

If the same companies, listed in the table, receive a second-strike vote of 25 per cent or more this year, shareholders will then automatically vote on whether to go to a spill of the board.

If more than 50 per cent of shareholders vote in favour of the spill motion, another meeting must be held within 90 days when all directors must seek re-election. The threshold at the second meeting is also 50 per cent.

Shareholder advisory group Ownership Matters has been discussing remuneration with listed companies on behalf of its institutional investor clients.

Its director, Dean Paatsch, says it's too early to tell whether the pay cuts announced recently are a result of the new legislation.

''The thesis really about two strikes is that it doesn't give shareholders any more rights than they already have,'' he says. He points out that any shareholder with a 5 per cent stake already has the right to call a meeting to consider a board spill.

''What it does do is put a director's reputation on the front page of the paper, and that's the most valuable asset that a non-executive director has. Two strikes puts that at risk through media attention.''

It is common for executives of listed companies to receive a fixed salary and to be eligible for a cash bonus if short-term hurdles are met, and for shares if long-term hurdles are met.

Sometimes a cut in one of these is outweighed by a rise in another.

When it was reported recently that Commonwealth Bank was freezing the pay of senior executives, including Narev, the new chief executive, it revived memories of a similar initiative under his predecessor, Ralph Norris.

Norris cut his fixed pay by 10 per cent for the six months to December 2009 ''during the worst of the global financial crisis'', CBA said in its annual report.

However, the impact of this cut, which resulted in Norris' fixed pay falling from $3.3 million to $3.1 million in the year to June 2010, was swamped by increases in the value of various share-based payments Norris was entitled to under long-term incentive plans previously approved by shareholders.

His total remuneration in the year to June 2010 rose from $9.2 million to $16.1 million.

Paatsch says that while the recent sacrifices of short-term bonuses by Albanese and Kloppers are ''more than symbolic'', the pair have done well in the past year under their long-term share schemes.

When the Rio annual report was released in March, it emerged that Albanese's total remuneration in the year to December rose.

His fixed salary increased from $US1.4 million to $US1.6 million. His cash bonus fell from $US1.2 million in 2010 to zero, as du Plessis had announced in February. The value of shares he was awarded under long-term plans rose from $US3.7 million to $US4.6 million.

After adding superannuation, his total remuneration for the year was $US8.62 million, up from $US8.36 million in 2010.

BHP, which has a June balance date, reports its full-year results next week.

Paatsch says the bonus sacrifices ''have got people talking … but what's not remarked upon is that the [long-term incentive plans], which were issued at a time when the share price was on its knees have all been paid out''.

Like Albanese, ''Kloppers as well has a substantial amount of equity that's vested in the last year,'' he says.

The share awards are based on plans, approved by shareholders three to five years ago, that the executives would receive shares if the company outperformed a peer group of other large companies.

Mike Hogan, a partner of the accounting firm Ernst & Young, advises listed companies on remuneration.

He says his clients are focusing more than they used to on explaining their remuneration policies.

''It's no longer just a regulatory or compliance issue; increasingly it's an engagement tool as well,'' Hogan says.

He says the change is not so evident in relation to long-term incentives offered to executives, typically in the form of shares.

The long-term hurdles are easily identifiable measures, such as growth in earnings per share or improvement in total shareholder return.

However when it comes to short-term incentives, usually cash bonuses, ''there are areas where the board does need to apply its judgment and they do so'', Hogan says.

''The long-term incentive tends to take care of itself because it is typically objectively quantifiable. It's the short-term incentive that's really the focus for institutional investors and the shareholder advisory bodies.''

Some companies are publishing charts linking the company's performance to executive pay. Others are writing explanations.

He says increases generally in fixed salary have been ''very, very constrained, consistent with the broader market''.

When it comes to bonuses: ''If the performance is there and the outcome is there then they will get paid something; if the performance is not there, then they won't.''

He says it's too early to judge the impact of the new legislation. ''Nobody's keen to get a strike and, I imagine, nobody's keen to get a second strike,'' he says.

An example of the new tone from listed companies is Thursday's announcement of a 16 per cent drop in annual net profit from funds manager Platinum Asset Management.

At last year's annual meeting, 3.86 per cent of shareholders voted against the remuneration report.

''Despite the low 'no' vote … the company has taken the opportunity to better explain the basis and structure of remuneration paid to its key management personnel ,'' Platinum's chairman, Michael Cole, told shareholders on Thursday.

He highlighted that in the year to June there had been no increase in base salary paid to any of the key personnel, only two of the six received a bonus in 2012, there were no options granted or exercised during the year, and ''the managing director waived his right to receive a bonus in 2012, and this has been ratified by the remuneration committee''.

Shareholders had to read further into the report to see that the managing director, Kerr Neilson, had also forgone a cash bonus last year.

That gesture went unremarked by Cole in the 2011 results announcement.

Neilson's main return from Platinum is not his $448,000 remuneration as managing director, but the dividends he receives as the owner of 57 per cent of the company.

The final dividend of 13¢ per share announced on Thursday was 2¢ lower than last year's second-half dividend, but that is an outcome Neilson shares with all shareholders.

The role of directors who are also owners of large stakes in public companies could affect the outcome if there are any second strikes this year.

When the gaming company Crown suffered a 55 per cent vote against its remuneration report last year, chairman James Packer said the new law would leave the company in a ''farcical position'' because he would use his 46 per cent stake to support the sitting board.

Under the new rules, shareholders associated with a recipient of remuneration are not allowed to vote on the adoption of the remuneration report, either at the first strike or the second strike.

Nor, if there are two votes against the report of more than 25 per cent, can they vote on the automatic resolution to call another meeting to consider a board spill.

However, they are allowed to vote if the second meeting proceeds and all directors are forced to seek re-election.

The likelihood that even two strikes against companies with owner-directors will not lead to a change in remuneration has led to some criticism of the new regime.

Another argument commonly raised by directors and executives is that the two-strike regime can be abused by a shareholder who wants to spill the board for reasons unrelated to remuneration.

In a note to clients last week, law firm Minter Ellison warned opponents of the new system that if it was ''seen to fail'' it could be replaced by something more draconian.

The note's author, lawyer Nicola McGuire, says the concern being expressed by companies is that even if a spill motion were not guaranteed to succeed, a dissident shareholder with 20 to 25 per cent could force negotiations on changing the composition of the board merely by threatening to vote against the remuneration report.

McGuire says if such concerns persuade a future Australian government to change the regime, recent reforms in Britain are likely to be closely examined here.

''The UK has put a binding vote into place, rather than the Australian advisory vote that then leads to a board spill,'' she says.

From October 2013, British remuneration reports will be split in two. Future pay arrangements will be put to a binding vote of shareholders, with a 50 per cent voting threshold.

''If they don't approve the resolution, the remuneration has to be in accordance with a previously approved policy until the new one is approved,'' McGuire says.

A second part of the report, relating to how the pay policy has been implemented in the year just passed, is only subject to an advisory vote.

The contents of this part of the report must adhere to new rules designed to make executive pay more transparent.

It must contain a single figure of remuneration for each director, and a chart comparing company performance and chief executive pay.

McGuire says the main aim of the UK politician overseeing the reform, business secretary Vince Cable, was to enhance communication between management and shareholders.

Not all the recent announcements of abstinence are aimed only at shareholders.

The chief executive of uranium miner Paladin Energy, John Borshoff, said this week he was likely to accept another 12 months on reduced pay after taking a 25 per cent pay cut in November.

While acknowledging the cut last year was a response to investor concerns, Borshoff also said it was good for staff morale.

Nor are all the pay cuts linked to poor performance.

When Wesfarmers reported an 11 per cent increase in its annual profit yesterday, there were plaudits all round for the head of its Coles supermarket subsidiary, Ian McLeod.

In June Wesfarmers shareholders learnt that the chairman, Bob Every, had persuaded McLeod to sign a new contract to take effect from July 2013 at much less than half his current pay.

In the year to June 2011, McLeod's total pay was $15.6 million, including $11 million in short-term share awards. From next year his total pay could be in the region of $5 million to $6 million.

Paatsch says: ''Ian McLeod is one out of the box in the sense that his initial package was so incredibly generous that this is simply a return from the stratosphere to high altitude,'' he says.''The only way from there was down.''

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Four crucial days to decide Europe’s fate

AFTER yesterday announcing a 5.5 per cent higher $4.5 billion profit for the nine months to June, ANZ chief executive Mike Smith said - as others have said in this profit reporting season - that he isn't running the business on the assumption that subdued trading conditions will soon end.
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Even if Europe comes up with a plan to resolve its sovereign debt crisis, the world is in a ''multi-year debt workout,'' Smith says. The short-term outlook for Europe is, however, crucial and there are four deadlines looming: next Friday, September 6, September 12, and October 8.

September 6 is a big one. It's the day the markets want European Central Bank president Mario Draghi to definitively explain his July 26 promise to ''do whatever it takes to preserve the euro''.

The ECB met a week after he spoke, and Draghi announced that the central bank was considering ''outright open market operations'' in sovereign bond markets.

The bank would address concerns of private sector bond owners in the process, and the European Union needed to be prepared to activate its own bailout funds, he said, but only with ''strict and effective conditionality''.

What Draghi is believed to be planning is a two-pronged defence of the euro that will focus on Spain and Italy, the two nations most in danger of a debt-market meltdown.

The ECB will step into the markets and begin buying sovereign bonds that Spain and Italy have already issued, focusing on shorter-term paper where its buying gets the most traction. The EU will separately buy new longer term bonds from Spain and Italy - but only if they agree to tighter EU fiscal controls.

Draghi said on August 2 that the buying would be ''of a size adequate to reach its objective''. That objective is a sustained rise in Spanish and Italian bond prices and a proportional fall in bond yields and borrowing costs.

Draghi wants to eliminate a ''convertibility discount'' in Spanish and Italian bond prices that reflects fears that the two nations will fall out of the euro system.

He also wants to convince private sector bondholders that ECB buying will not turn them into second-class creditors, as Greek private sector bondholders became in February when they agreed to a 53 per cent bond write-down and the ECB did not, on the grounds that it could not directly finance the stricken nation. If they are confident they will rank equally with the ECB they will be less likely to undermine the ECB buying by selling into it.

Draghi's August 2 comment that the ECB would ''design the appropriate modalities'' of the plan in coming weeks puts the ECB's September 6 meeting in the spotlight. He has to provide more details at that time to maintain his momentum and the global market rally his comments triggered.

The European Union's part in the plan will, however, be in suspense until September 12, when Germany's Constitutional Court decides whether to grant an application by 12,000 German citizens for a temporary injunction against German laws that help create Europe's new €700 billion ($A820 billion) bailout fund, the European Stability Mechanism. The ESM must be approved by EU nations that account for 90 per cent of its capital base: Germany's funding share is 27 per cent, so its agreement is essential.

An injunction would not be instantly fatal to the emerging plan. The court would need to make a final decision about whether Germany's participation in the ESM is constitutional, and a temporary fund the ESM is designed to replace, the European Financial Stability Facility, is still alive. It would, however, further delay the ESM, which was originally intended to debut last month, and the temporary EFSF has much less firepower than the ESM after spending more than half its €440 billion kitty on other bailouts.

Greece's crisis is also still not contained. Its economic output in the June quarter was 6.2 per cent lower than a year earlier, and unemployment is running at 23 per cent. There's a real question about whether budget cuts it agreed to in February in return for a second, €130 billion bailout are the right medicine - and no doubt in any event that the coalition government Greece elected in June will be unable to deliver the first tranche of cuts in time for a planned €31 billion injection of bailout money needed to keep the lights on.

Germany is taking a hard line as usual in public, and insisting that Greece must deliver cuts on time to get its money. The Greek government wants a two-year extension for the entire program.

Representatives of the bailout troika - the EU, the European Central Bank and the International Monetary Fund - have been conducting a stocktake, and are due to report back to the EU on October 8. Market anxiety will ramp up as that date approaches if there are no signs of a compromise, because if the Greek bailout is derailed an old, dangerous scenario reappears: a third bailout will need to be negotiated, with all its complications, or Greece will default and exit the euro, with potentially calamitous repercussions in the Spanish and Italian bond markets.

The final piece of the puzzle is Spain's banking system. The EU has agreed to inject €100 billion into Spain's banks without tipping Spain into a full bailout, and Spain's parliament meets on Friday to vote on the deal and its attached conditions, including the creation of a new ''bad bank'' that will harvest bank debts that have gone wrong. The biggest casualty of Spain's property market collapse, Bankia, is waiting for a €19 billion injection, and needs it soon.

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Wickenby charges quashed

TWO high-profile targets of Project Wickenby have scored a major victory after the New South Wales Supreme Court found their right to a fair trial had been so compromised by authorities' handling of material against them that criminal charges should be permanently quashed.
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The ruling raises questions about whether other Wickenby prosecutions have also been compromised.

Lawyer Ross Edward Seller and Patrick David McCarthy were charged in March this year over an alleged tax fraud, which involved a Scotch whisky operation, and their links to the Wickenby-targeted Swiss-based firm Strachans, run by Richard and Philip Egglishaw.

The pair, in a Wickenby operation code named Operation Polbeam, were compulsorily examined by the Australian Crime Commission in 2007 over their business dealings in 2001-02.

The men's appeal centred on material obtained during the crime commission hearings - transcripts of their examinations that were forwarded to the Commonwealth Director of Public Prosecutions, and also the role of a key witness in the coming trial. The expert witness had been seconded from the Australian Taxation Office and had observed the men's crime commission examinations.

A ''very happy'' Mr Seller said he would ''let the judgment speak for itself [about his opinion of the Wickenby investigations]''.

''The relevant thing is if this is [happening] on other cases. I think it's an issue that flows.''

When asked about seeking compensation, he said: ''These things are being mooted at the moment, but I think it's early days yet. We have to see if there's any appeal.''

Justice Peter Garling yesterday found the ''conduct of the Crime Commission, in conjunction with the Commonwealth Director of Public Prosecutions, has deprived them of the protection which the law ensured. Any trial would not be fair.''

He noted that charges were only stayed by courts in ''extreme'' circumstances, as there was a strong public interest for criminal allegations to be prosecuted.

But he said it would offend the ''administration of justice for the applicants to be confronted by prosecution authorities who have had access to material ordinarily caught by the privilege against self-incrimination, but which has been compulsorily obtained''.

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New QBE chief upbeat despite sell-down

JUST hours after taking charge of the 126-year-old QBE Insurance, John Neal felt the sting of jittery investment markets.
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Shares in the global insurer were sold off heavily as QBE delivered a $US760 million first-half profit and the new chief executive was forced to issue the third profit margin outlook downgrade this year.

But Mr Neal, the former head of QBE's Europe businesses, was taking the sell-down to a two-month low in his stride. ''It's just one day,'' he told BusinessDay on his first day in the role. ''I'm certainly looking longer-term.''

Mr Neal believes QBE can emerge as a top 10 global insurer, competing against European companies Zurich and Allianz. With a market capitalisation of $15 billion, QBE was yesterday ranked 18th among the world's general insurers.

''We're one of the few truly global insurers in that [top] pack and so many of them are concentrated in one market,'' Mr Neal said.

''One of our challenges is to leverage all that expertise we have in QBE and therefore be able to grow in multiple markets.''

Yesterday's sell-down left a tinge of disappointment for Frank O'Halloran, who formally stepped down as chief executive yesterday morning after more than 12 years.

Mr O'Halloran transformed QBE from a mid-level insurer into a worldwide player through more than 120 acquisitions on nearly every continent.

While Mr O'Halloran will remain with QBE for a further fortnight as he finalises some administrative roles, it was Mr Neal who fronted analysts to run through QBE's first-half numbers. The 13 per cent lift in profit for the six months to June 30 was overshadowed by insurance margin pressure and a slight fall in premium revenues to $US8.9 billion.

QBE's interim dividend of 40¢ for the half was also below expectations of 42¢. The dividend was down from 62¢ a share this time last year.

QBE shares plunged as much as 11 per cent in early trading, before clawing back some ground to end 4.5 per cent lower at $13.05.

For his part, Mr Neal believes the market had been getting ahead of itself.

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