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Wednesday, 23 June 1999
Page: 6238

Senator O'BRIEN (7:20 PM) —On 31 May I received a pack of information from the Australian National Audit Office. The covering letter told me that the pack contained a discussion paper on the principles of corporate governance as they apply to Commonwealth authorities and Commonwealth companies, and it makes very interesting reading. It states that the definitions of corporate governance are many and varied, but there are some key elements and they are: the transparency of corporate structures and operations; the implementation of effective risk management and internal control systems; and the accountability of the board to stakeholders through clear and timely disclosure. And, of course, Commonwealth authorities and companies are accountable to parliament.

The ANAO paper also states that `the board can only fulfil its responsibilities if it meets regularly and collectively with clear agendas and records decisions and outcomes'. I might add these are basic rules that one would expect from the local sporting club, let alone a Commonwealth authority or company. One would certainly expect these processes to apply to the board of any statutory authority. The discussion paper specifically goes to the operation of boards. It also states that `the effectiveness of board meetings is dependent on carefully planned agendas and providing board papers and materials to directors sufficiently prior to board meetings' and that `it is important that minutes accurately record outcomes from meetings'. Again, this sounds basic, but it is also very important.

In relation to a corporate code of conducts for boards, the ANAO paper states:

The board and senior management are responsible for promoting high ethics and integrity standards.

It also says:

The language, attitudes and actions of directors and senior management affect the integrity, ethics, values and other aspects of corporate culture.

The reason for my interest in this paper and my heightened interest in corporate governance relates to recent estimates hearings of the Rural and Regional Affairs and Transport Legislation Committee—specifically, the evidence given to that committee by the Civil Aviation Safety Authority.

There are two issues flowing from those hearings that I wish to address. They are: the circumstances surrounding the appointment of a member of that board to a senior management position within that organisation; and also the manner in which the Civil Aviation Safety Authority board conducts its business. When both of these matters are considered against the standards outlined by the Auditor-General, Mr Barrett, I believe there is significant reason for concern. In fact, the evidence given during those hearings in relation to both these matters may require further investigation by the Senate and certainly requires urgent action by the minister, Mr Anderson.

Over the past couple of years the structure of the Civil Aviation Safety Authority has gone through a number of changes. The explanation for this probably lies in the instability in both the board and senior management over that period. The current management structure was settled around July last year. It consists of three main units: safety compliance, safety standards, and safety promotion. In addition, there is a corporate services area. These new management arrangements were debated by the board over a period of time. All board members were involved. The Civil Aviation Safety Authority Director, Mr Toller, told the committee on 6 May that no directors absented themselves from this process.

According to the CASA annual report for 1997-98, the board members at that time were Mr Dick Smith, Dr Paul Scully-Power, Mr Bruce Byron, Mr Michael Ryan, Mr Tony Pyne, Mr John Pyke and Mr Laurie Foley. Mr Foley was appointed to the CASA board on 8 May 1997, the same day as Mr Dick Smith was appointed. In fact, Mr Foley was appointed on the basis of Mr Smith's recommenda tion to the then Minister for Transport, Mr Sharp. The board not only was actively involved in the development of this new structure but it also approved a process for recruiting senior staff to fill the newly created positions.

A key player in this process was Mr Wes Willoughby. Mr Willoughby was a regional manager in the Civil Aviation Authority, and he took a redundancy package some time around 1991. Obviously, he worked for that authority until 1991. He came back to this organisation as a consultant, I understand on the recommendation of Mr Dick Smith, on 7 August 1997. His initial work, at a rate of $1,000 a day, was with an American, Mr Brodrick. His contract was then extended by Mr Smith.

In addition to the base rate of $1,000 a day, Mr Willoughby was paid $200 an hour plus expenses to advise Mr Smith. I understand that those expenses included accommodation, travel, weekend fares from Canberra to Melbourne and Melbourne to Canberra for himself and his wife, as well as access to a car. Mr Willoughby, who I understand to be a competent officer, did well from those arrangements. In fact, for the month of July that year he was paid $57,684. I learnt that from an answer to a question from Senator Mackay to Mr Toller, the Chief Executive Officer of CASA, in estimates on 6 May this year. According to Mr Toller, the current structure was formally approved by the CASA board some time prior to May last year. He thought it was around February.

A company trading as Spencer Stuart was engaged to assist with the recruitment process. According to Mr Toller, this company had been engaged by CASA before. Spencer Stuart had a close relationship with Mr Willoughby. On 7 April Mr Willoughby sought board approval to engage a recruitment firm to fill the new executive position. The matter was settled by the board in a closed session on 15 April. There was no tender process but a call for expressions of interest on that same day.

A decision was taken to engage Spencer Stuart on 24 April, just nine days later. I understand that, over a period of time, Mr Foley also had a number of dealings with Spencer Stuart, along with a fellow board member, Mr Bryce Byron. So there appears to have been a close relationship between this company, Mr Willoughby and Mr Foley before it was given the contract to provide candidates for key positions under the new structure. The contract with Spencer Stuart was signed on 5 May, but that company commenced work on the consultancy well before that. Mr Toller told estimates that this was because the company was given verbal advice that it had the job some time between 24 and 28 April.

Mr Foley had advised Spencer Stuart that he was available for work early in 1998. This occurred while he and his fellow board members were developing a new CASA structure and, along with it, a number of new senior positions. Mr Foley participated in the selection process that led to the appointment of that company. He then approved, along with the other members of the CASA board, the engagement of Spencer Stuart, but it appears Mr Foley had not advised the board of that obvious conflict of interest. He continued to be an active participant in the work of the board even though he had a direct and significant personal interest in the outcomes of a number of matters that the board had before it.

Mr Foley met with Spencer Stuart on 5 May to discuss his candidacy for one of the positions that that company was seeking to fill—that is, he met with the headhunter he had helped to appoint to discuss his interest in one of the positions he had helped to create. Again, he failed to advise his fellow board members of his actions. Two days later Mr Foley told Mr Wheatley from Spencer Stuart that he was a candidate for one of those positions, but again he did not advise the board of his decision.

At a board meeting on 15 May, the process to be followed in interviewing candidates for these jobs and the role of the board in that process was discussed. The process was to involve the establishment of a number of panels with a member of the board sitting on each panel. Mr Foley told the board he was not able to participate in that process, but he did not advise the board members why he was unavailable. I asked Mr Toller, who was present at the 15 May meeting of the board, whether or not Mr Foley told his fellow board members why he would not sit on any selection panels. Mr Toller said Mr Foley gave no reason at that time. There is a lot more to this story and, given that my time is about to elapse, I advise the Senate that I intend to resume this story at the next available opportunity.