Mr HATTON (8:11 PM) —The Corporations Amendment (Repayment of Directors' Bonuses) Bill 2002 is a government response which goes some way, but not all the way, to addressing significant problems which have emerged in Australia's recent financial history. So far, a number of speakers have alluded to the One.Tel saga, to the HIH dissolution and, of course, to the royal commission which attended the dissolution of that company. In this bill, the government has attempted to put forward the proposition that certain directors' bonuses should come under scrutiny which they currently do not come under. This is so that they can, in effect, be disallowed and so that there can be a provision to take back the money or other assets that the director was incorrectly given.

According to this bill, that will occur if and only if a series of matters are taken into consideration. At clause 588FDA the bill starts outlining a series of steps, all of which must be agreed to. They are (1) that the transaction is `a payment made by the company', (2) that that disposition is made to `a director of the company or a close associate of a director of the company' or a person on behalf of either of those who gets a benefit from that, and (3) that a series of conditions are met which take account of the payment being made by the company to that person or persons. These are the conditions necessary to put that into effect. Subparagraph (c) of 588FDA states:

Apart from the last part—`any other relevant matter', which could be widely interpreted—the narrow focus of this bill is encompassed within these subclauses at 588FDA. One of the significant things it leaves out is any consideration at all of benefits that may in fact accrue to a director other than benefits directly paid by the company to the director. In consideration of this, Senator Stephen Conroy, the shadow minister for financial services, the shadow ministers whom he consulted with and indeed the caucus thought that the narrowness of the definitions within this bill needed to be addressed. Consequent upon that, the amendments that Labor has put before the House and will seek to pursue here as well as in the Senate are quite significant, quite substantial and extremely detailed.

The core point is that, if you narrow it down to too fine a point, you have a situation where it is possible that some but not all of the funds, assets or other property may be regained. So the question of whether benefits are received by directors is a key one that needs to be taken into account, and the government has not done so. The reason that is important is that there are a variety of schemes in operation—as there have been over the whole history of companies being in operations, since the original small guilds that gave rise to them—and that, without appropriate government regulation that responds to not just historical but also current circumstances and practice, you will not catch the bad practice that has been so evident in the past couple of years. We have example after example through Australia's European history of companies going bust in a very big way and, quite often within a year of going bust, being in effect reinstituted in another guise. They then run for a while and people are paid very high sums to run them, but they go bust again. We have had case after case of that happening. The shareholders in those companies are the people who are ripped off, and the Australian people at large are ripped off as well.

The opposition are entirely willing to support this bill so far as it goes, but we argue that it is fundamentally flawed in that it does not pick up the question of not just payments by companies to directors but the other goodies they may receive. One of those was detailed by our shadow minister, and I think it is also detailed in the amendments. It goes to the question of trading in financial derivatives. We know it has become a fashion, particularly over the last five years—and certainly over the last 10—for directors to be given significant options over shares in the company and for those options to be dramatically discounted. We also know, probably with particular effect and immediacy, the depth to which company directors might sink to try to keep the share price on the rise and that, in the end, that could have a dramatic effect on the company's prosperity. Probably the best recent overseas example is the American utility giant Enron, a company that was effectively gutted because the directors pursued a headline profit over dividends—that is, the directors pursued the price on the stock exchange in front of just about everything else. They put aside normal restraints, normal sense and the interests of the vast majority of shareholders, and there was virtually no restraint by the shareholders, by the other corporations and investment utilities that were involved or by people investing in it through major investment firms. There was effectively no control over what the directors distributed to themselves.

We have seen case after case of Australia's major companies—and not just the ones that have made the news, such as the failed One.Tel and the failed HIH—where enormous bonuses have been paid either directly in money given in a particular year or, and we have seen this in the last five or so years, through increased share options that have been given to directors or CEOs. The argument has been that, if they have an interest in the company—and not only a direct monetary interest in terms of what they are getting back for running the company but a larger stake within the company—then they will have more to protect. One of the important lessons that has been learnt is that that can have catastrophic effects on the way a company is run. Accordingly, because of the enormous excesses of this in the late 1990s and early 2000s, consideration has been given in company after company—both in Australia and worldwide—to pulling on the reins of disbursements to directors where they take the form of a share in the company in terms of profit.

What cuts across that is that, although it has been talked about for two or three decades—and this is apart from companies in Germany in particular and also some other jurisdictions in Europe—very few companies have dramatically pursued a policy of including their entire work force as participatory shareholders and of seeing their work force, being significant shareholders, playing a direct part in ensuring that the company was working well and profitably and as productively as possible, as it was in their interests to do so. If you are going to pursue policies of remuneration through participation in owning the company, it is a lot better to make it entirely broad based—as it is fairer to the work force and fairer to those who own shares within the company—rather than to front-load it onto the directors, the CEOs or others who are in a position to quite effectively manipulate to their own end the benefit they have been given.

In the normal course of events, there is nothing improper about remuneration being given to a director who holds a more responsible position in 2003 than a director did in, say, 1993. The company law has been toughened so that directors are required to be more accountable before the law for the decisions that are made by boards. That increased onus has brought with it a reluctance by some people to serve on boards or to serve without trying to protect themselves in some way and requiring of the company some form of protection against losing all of their assets when they are trying to do the best job they can to run the company as well as possible. But there have been a legion of circumstances where companies have gone very wrong.

The recent One.Tel and HIH examples tell us a great deal about the hidden underbelly of Australian corporate life. When what is undisclosed in those dark corners has the light flashed on it—and the HIH Royal Commission has flashed light into those dark corners—what we can see is profligacy on a grand scale. It is profligacy in terms of the corporate culture, its structure and the benefits that the CEO, directors and other senior officials gave unto themselves out of what otherwise would have been profits accruing to the shareholders as a whole. We know that the final end product of the fact that there was unrestrained profligacy is that, from one end of Australia to the other, there have been enormous problems in getting public liability cover because HIH covered so much of that area. It had effectively been able to corner that market, so when the company collapsed public liability insurance collapsed as well, with a dramatic effect on normal civic life and on the life of volunteers in one city and municipality and shire after another. The question of liquidators being able to claim unreasonable payments made to the directors of insolvent companies is dealt with in this bill, and we support that, because the object of the bill is the restoration of funds, assets and other property to companies in liquidation, for the benefit of employees and other creditors, where unreasonable payments have been made to directors in the four years prior to the company going into liquidation.

Listening to the HIH Royal Commission, you can get a feeling for the fact that the 1980s were not so long ago. In political, social, cultural and company life, it is often the case that when a period has passed what stands out most in that period can be quickly forgotten. Quite regularly, when the lessons are supposed to be learnt, there is a mea culpa or two or three, made quite publicly by the chairman of the board or the outgoing directors, and the expectation is that a company will then run in an entirely different way. We know from the Japanese experience that if things go entirely wrong CEOs of Japanese companies take things very literally and very seriously. We have seen a number of cases where their responsibilities were so heavily taken that those people committed suicide because they thought that they had brought dishonour not just upon themselves and their families but also upon the company and the shareholders they served. But in Australia's case, the Gordon Gecko mentality of the `greed is good' 1980s—where we saw, up until the crash of the stockmarket in 1987, a rash of takeovers, an attempt to build wealth that had no substantial foundation, a willingness and desire to accrue to directors, CEOs and company secretaries far more wealth than should have been granted to them, with far fewer controls than there should have been—remained. In the nineties and the early 2000s, with the lessons having been learnt from that period of excess, you could have expected that all companies would have acted differently. But our recent experience tells us that if a week is a long time in politics it is certainly a long time in company life as well, and if we stretch it to a year or 10 years we know that these excesses can occur again and again. Half a million dollars on an end of year company party was deemed not to be excessive.

Effectively, most of the misappropriation of HIH funds happened in the last year before the collapse of HIH when, it has been argued before the royal commission, those directors and the CEO knew of the impending demise of that company. That is the core of what this bill gets to, despite the fact that almost all the people giving evidence said they really did not know that the company was in trouble—they had no real contact with the fact that the company was in such serious trouble and of course they would not have taken the enormous bonuses they got if that had been the case but, given they had them, they thought they should keep them. In that circumstance, in that last year when it is possible that a company might in fact be saved, there almost seems to be a lemming-like rush to give more than should ever have been their due to those people, who should be operating properly as directors or CEOs. It is that excess and profligacy that rightly is targeted within the bill.

But we say further that, in terms of these transactions, you have to go to all the other means that have been dreamt up so far—and the ones that probably will be dreamt up in the future. Likewise, the opposition takes the view that this is one case—or yet another one—where it might be reasonable for the government to pinpoint that this legislation be made retrospective. As it is, the legislation is prospective. No-one caught in the One.Tel fracas and no-one caught in HIH can be subject to the provisions of this bill. Labor is of the view that advice from the Parliamentary Library indicates that there is nothing constitutionally wrong with making legislation retrospective—the shadow minister has already put this view, and we have certainly seen plenty of bills in the past where this has operated. There have been some specific cases where it has been put into effect. One of the things the government needs to do is to look more closely at the question of whether or not it would be right and proper to catch those directors or CEOs or those other operatives in HIH and One.Tel and other companies. If they are found, as they indeed so far have been found, to have been guilty according to the provisions of this bill, they should be brought to account. Labor is arguing strongly for that to be the case. We know, of course, that these last great examples are not the only ones, but a $4 billion company does not fall overnight—that certainly did not just happen within the last year. Certainly what helps it to founder entirely is unreasonable payments of this sort being allowed to go unchecked.

Also you will note that, in terms of the extensive changes argued for within this bill, the opposition include in subsection 4 of our amendment, under (iiic):

In the normal course of operations a company may fall into giving excessive benefits to directors. But our concentration is on a situation as massive as that which we have seen in HIH. In relation to the critical times—the question of when it is placed into administration or liquidation and whether the company were knowingly insolvent at the time—this bill needs to be toughened up even further. We support the main intention of the bill, but we also have the overriding view that it is incumbent upon the government, with the support of the opposition, to strongly regulate and legislate in the interests of not just the Australian people at large but also those shareholders who poured part or all of their savings into companies that looked like they were solid, substantial, well run and governed and regulated in accordance with Australian law. We need to make sure that companies perform according to their prospectuses and according to what is promised in Australian law and that the impoverishment and destruction of people's lives as shareholders is ended. (Time expired)