One on One -Kate Carnell

One on One -Kate Carnell

Kate Carnell AO is the Small Business and Family Enterprise Ombudsman for the Federal Government. She spoke to William Poole.

AMT: Tell us about the role of Small Business and Family Enterprise Ombudsman and its broad objectives.
Kate Carnell: Sure, well, the legislation was passed through Parliament the year before last – with support from all sides, both major parties and all across benches – that produces an independent office to work for small business. The role is appointed by the Governor General, so it does not report to the government of the day.

Small business is defined as businesses under 100 employees, so it’s really small-to-medium business. The legislation sets up two particular roles. One is an advocacy role, and under the advocacy part of what we do, we have input into Government regulation and legislation to ensure it’s small business-friendly. I give advice to the Minister or Ministers on small business issues, and we can hold enquiries: both self-generated enquiries, and also the government can ask us to do particular enquiries into small business issues. The legislation gives us what are pretty much Royal Commission powers. We can seek documents from Government, from big business; we can require people to turn up; we can subpoena documents if people don’t want to give them to us. So the advocacy role is quite strong, and that is to ensure that the approach of Government and of big business is more small business-friendly.
The second bit is the more traditional Ombudsman function. We handle issues and complaints that small businesses might have against Government or large business, and we attempt to get solutions via mediation rather than the court system.
 
AMT: What might an ordinary day in the job entail?

KC: We have an advocacy team and an assistance team, which both sit underneath me. Today I’m speaking at a small business development conference in Townsville attended by a range of people who give advice to small businesses, people who educate small businesses, and also innovation centres and so on. We’re talking about what we do, what we can do for them, trying to get feedback from them on what the major issues are out there so that we can address them. I spend a lot of time working with Government on proposals and on legislation generally. And I suppose it involves also just getting feedback from small business and the SME sector on issues they would like addressed.
 
AMT: What sort of issues do you see coming up regularly for SMEs at the moment?

KC: The major issue right now is energy, by a country mile! Twelve months ago the price of power and of gas would have come up very occasionally . Now it’s front and centre. It’s the major issue that’s on the minds of lots of businesses. Their power prices have gone up significantly and it looks like continuing to go up, and for many businesses – particularly in the manufacturing space but also in the agricultural space as well – this is the difference between a viable business and a business that’s not viable. We’re seeing increases of 100% or 200%, in prices of energy – of gas and electricity. And for many small businesses, that’s the difference between whether they can continue in Australia.

I was talking to a business this morning, a small-ish manufacturing business, but they export a lot – a good percentage of what they do is exported. But they’re now seriously looking at going offshore, which will lose 50 jobs in that particular business, in a regional centre. And we hear those sorts of stories all the time.

The other issue that is always front and centre is payment times. And that is small businesses being paid slowly by big business and Government. In the speech I just gave, one of the questions was from somebody who said one of their clients has just been moved onto a new contract with a big multi-national where standard payment time is 150 days.

No small business can last that long. They have to pay their staff and their suppliers and so on. And that’s becoming unfortunately a really common situation or a common story. It appears that more large businesses are using their small business suppliers as cheap banks.

Cashflow is obviously fundamental to small business. The cost of operation like power and so on, is always a major issue. And interestingly, Australia has always been expensive from a wages perspective, but the thing we were competitive on was the price of power. That was the thing we were actually cheaper on than many of our competitors. That’s obviously changed, and it’s a real problem. It’s about being competitive against imported products, or competitive in the export market. If they’re not competitive, they will close.
 
AMT: How is the Ombudsman assisting SMEs in dealing with these issues?

KC: Where it’s an individual problem like a big business not complying with contract or not paying on time, we work directly with the big company, and I approach it at CEO level, looking for resolution. We use mediation approaches, we can require businesses to attend mediation if it gets to that – you always hope it doesn’t and that people see the light early. So we act on behalf of small businesses on those one-on-one situations where they have a problem.

In the advocacy space we might hold an enquiry, as we did into payment times. We’ll possibly put some recommendations to Government and more broadly. So with payment times we found that large multi-nationals were paying slower and slower so we’ve been working with the Business Council of Australia. They’ve established a payment time register and a code of conduct to encourage their members to pay in 30 days, and they’re encouraging their large members to sign the code and move their payment times to something more reasonable. We’ve made the point that we’re willing to give out 12 months to see if it works. If it doesn’t work we’ll be urging Government to regulate in this space. And I have to say Government is fairly positive about that, if a voluntary register doesn’t work.

So we work at a policy level with Federal Government. If it’s a State Government issue, we work with our colleagues at state level, the small business commissioners, which exist in most states in Australia. We work with them as a team to get policy change.
 
AMT: Is that often a lengthy process?

KC: It’s sometimes slow. But for example, in our banking enquiry where we looked at small business loans and we came up with a range of recommendations, that particular piece of work was tabled – the Government asked us to do that in February. We’ve now got the banks to agree to a range of our recommendations, which will be put into place in the next few weeks, and the majority of the recommendations will be in place before the end of the year. Some things take a long time, some things don’t. You can put pressure in the right places and get movement.
 
AMT: With regard to manufacturing in particular, Australian manufacturing is often described as an industry of SMEs. Why do you think that is and what is impeding our manufacturers from making the transition into larger businesses?

KC: I think we regularly find with successful Australian small manufacturers that they’re bought by big guys because they’re good companies and are seen as a good investment, so that’s one of the issues.

But the other issue we think is a large problem in Australia is access to capital. People talk about the valley of death. There is start-up capital available, there’s angel capital, there’s Government help with start-ups and so on. But once you’ve established your small manufacturing business and it’s innovative and you’ve got some tax breaks and so on, you’re at the next phase where you need to move from a small successful business into a bigger business, you need access to capital. And often it’s not little bits of capital then, it’s big bits of capital, for major factory upgrades and so on. That capital is difficult to get in Australia, particularly if you’re not interested in going to the private equity space. If you’re looking at growing your business over the longer term, private equity on the whole won’t be interested, because their view is they want to buy a chunk of the business and they want you to double your profit or double your turnover in three to five years, and then sell. That’s their model. If that model isn’t the sort of model you’re interested in, and you don’t have significant bricks and mortar – or you don’t want to risk that bricks and mortar like your house – access to capital is an issue in Australia.

Some of the other issues are obviously the Australian market is little and often heavily controlled by very few players. If you think about supermarket space: Aldi is making a bit of a dent at the moment and Coles and Woolworths have traditionally controlled the access to market for food manufacturers. If you didn’t have your product on the shelves of Coles or Woolworths, you didn’t have access to market. So you couldn’t grow your product at all. There’s been some issues with various markets in Australia. Food manufacturing is an obvious one. We have some hugely innovative manufacturers in that space but access to market is a real issue.

And we’re seeing more of those companies looking at the export market as not a secondary market but almost as their primary market, which gives them more of a chance to grow. And of course from a positive perspective, many of our markets – China and Japan and so on – like the fact that Australia is seen as safe, clean, and you can be confident that products manufactured in Australia will have in them what they say is in them and will be safe, healthy and other things we say we are. That’s helping in that space, but we’ve only got 24m people, so that limits growth and the control of market by very few players can limit growth as well.

So it’s good to see more companies look to offshore markets as almost a first step, not something secondary to what they do.

AMT: I saw an article you wrote recently promoting Efic (the Federal Government’s export credit agency). Would you say that’s a key part of your work, channelling small businesses to other bodies who can offer assistance?

KC: Absolutely! It’s surprising to me that a large number of businesses didn’t know that Efic was there and was able to provide capital for a range of things, like stock to underpin export orders. Many small businesses just didn’t know that it was there. And as I say, more of those small manufacturers are needing to see export markets as a really important prime part of their business. So they’ve got to have access to those sort of stock guarantees, capacity to underwrite large orders, all those sorts of things. It’s important that businesses understand what’s available to them now, and also it’s important to us to make sure that Government is aware of some of the challenges to small business in terms of access to capital. You often hear there’s plenty of money around – well there is, but it’s just really hard for small businesses that don’t have bricks and mortar to guarantee their loans to get that money.
 
AMT: It’s interesting what you say about the number of small businesses who just don’t realise what help is out there. Can you shed some light on any other programs available for manufacturers, either that the Ombudsman is involved in or that you’re partners to.

KC: Efic is obviously one of them. We only started last March, so that’s been the only project we’ve been heavily involved with, along with some of the start-up grants, at this stage. But what we’re seeing more and more is small manufacturers who are in that area between start-up and up-and-running or growing that business strongly, with real cash problems. So that’s something we’re focussing on with Government at the moment. It does seem that there’s a gap between start-up grants to help getting your business up and running, and then what happens when you need the next bit of capital to grow your business. Where does that come from? That seems to be a gap.

There particularly seems to be a gap in the manufacturing space. It’s not such a problem for the IT start-ups, the digital companies – for a whole range of reasons and possibly because they don’t need so much capital to get into a growth space, but they’re also probably seen as “trendier” for business angels for private investors than traditional manufacturers. I’m reticent in saying manufacturing isn’t trendy; it’s obviously something that’s really important to Australia. There’s been a view that Australia can’t compete in the manufacturing space, when of course we can. We can compete and we do a whole range of things really well, but manufacturing is probably not an area that lots of private capital has looked at.

That’s possibly also because of timelines… manufacturers often take a bit of time to get the business firing on all cylinders. There’s no fast buck, as there is in the areas of the digital economy. There seems to be quite a bit of private equity capital around for companies that want to take 50% equity with a view that a business should double its turnover within three years and sell it. Those sort of short timeframes are more difficult in the manufacturing space where you’ve got to ramp up, get your product to market, and so on. It’s often a longer timeline to get where you want to be before selling the business. Assuming you want to sell at all and not continue to grow your business.

I think there’s one other thing to focus on from a manufacturing perspective and that’s the problem we still have in Australia with government procurement, particularly from smaller businesses. If we think about the defence area, where we’ve got a whole lot of very high-tech, smart manufacturers in the defence space. It’s still incredibly difficult for Australian manufacturers to get Australian Governments to take what they seem to perceive to be a risk on a smaller Australian company rather than continuing with large multinationals. The dilemma for Australian companies is that they end up being sub-contractors to Prime contractors, where the big multi-nationals have got the prime contract with the Federal Government, and there’s lots of challenges down the supply chain: issues are around payment times, with big multinationals paying slowly; problems with IP being under pressure when you’re a sub-contractor; in high-tech spaces there’s the dilemma of having prices squeezed significantly. Government still hasn’t really nailed how they use procurement to grow Australian manufacturing businesses and Australian technology generally. Governments talk about it, but they haven’t nailed it yet.
 
AMT: Tell me about your professional background.

KC: I’m a pharmacist. I ran my own chain of pharmacies for 15 years, in various parts of Australia. So I ran my own small business for a long time, so that gave me the real-life experience of my house being on the line. And through that I ended up in politics, and I was Chief Minister of the ACT for two terms, which I suppose gave me a solid view of how Government works. After leaving politics I then ran a number of national membership-based associations including the Australian Chamber of Commerce & Industry and the Food & Grocery Council. I ran a number of those sorts of organisations, working with other small businesses. So hopefully those things comes together to give me a reasonable background for what this role should look like.
 
AMT: And what’s the most satisfying aspect of the job?

KC: Oh this is a fantastic job. I’m independent, so my role is to work with all sides of politics on behalf of small businesses. I can focus on what SMEs need. We have a budget, not huge but a $6m budget, I’ve got a great staff. We can focus on actually making a difference for small businesses. Unlike my work in national associations, where we had a membership base and you work on behalf of your members, in this case we can really focus on small business broadly and where we can we make the most difference, either individually through assistance through our Ombudsman function or more broadly through our advocacy function.

And we have the power to be able to deliver on some of these things. So how lucky am I?
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