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Wednesday, 21 August 2002
Page: 3483

Senator CONROY (4:05 PM) —Mr Deputy President, I take this opportunity to congratulate you on your elevation to that position and to thank you on behalf of all of us on this side who are looking forward to your hospitality, which we understand you are freely offering.

Senator George Campbell —Sooner rather than later.

Senator CONROY —Yes. This matter of corporate governance is a very serious issue. Given the high number of Australians who now own shares either directly or indirectly through their super fund, it is essential that we get it right. This government has for too long not got it right. The government faces a conflict of interest and has shown itself unwilling to act against its mates at the big end of town. It has concentrated on the wrong priorities—unfairly punishing families who incur family payment debt even when they properly inform Centrelink of changes in circumstances—and not on protecting Australian retirement incomes.

This government and its Prime Minister have introduced mutual obligations for certain social security recipients and promised to penalise those who breach those obligations. The Prime Minister certainly has not said he will be relying on self-regulation for those that are beneficiaries of the abuses to show a willingness to play their part. No, he sets a different standard for those entrusted with the very serious obligations to investors, employees and business creditors—and that is not right and it is not fair. The Chairman of ASIC spoke recently of the need not to be complacent about corporate governance. He said:

What we underestimated, I think, was some quite pernicious and endemic factors at play—a new outbreak of management greed, the failure of boards to put a brake on excessive and structurally unsound remuneration practices and the many commercial pressures that influence management and boards to focus on short-term pay-offs.

John Howard's message to Australians is: greed is good. He just wants to stand back. In the face of that stinging attack on corporate ethics and corporate behaviour in the last few years, the Prime Minister stands there and says, `She'll be right; no problems; greed is good.' This government has refused to acknowledge these factors and it has put at risk the retirement savings of ordinary Australians.

On a number of occasions, ASIC officers have spoken of key corporate governance failures by some Australian companies. These have included: a dominant director having undue control over the company's affairs; non-executive directors failing to carry out diligently their duty to ensure that directors and management are accountable; senior executives not reporting improper behaviour; ineffective internal controls; auditors not maintaining an independent outlook; inadequate reporting to shareholders of company strategies; and the use of optimistic and aggressive accounting treatments which can disguise the true performance of the business. These are failures identified by ASIC in various investigations. They are real; they are happening in this country, not in the US. We have seen some of these corporate governance failures in the recent high-profile corporate collapses. These collapses have had serious consequences for the shareholders, employees and creditors of these companies. In the US, we have seen the repercussions of a loss of confidence in the market. We need to avoid that here in Australia. This requires that we act now.

Australia is not without problems and it is unwise to pretend that this is not the case. For example, an ASIC study on auditor independence released earlier this year found that the provision of non-audit services by audit firms to their Australian clients is widespread, at least in respect of major corporates. Audit firms are earning substantial fees for non-audit services. Processes for dealing with potential conflicts of interest require attention. The rotation of audit partners remains inconsistent and the rotation of firms is almost non-existent. We are also aware that ASIC has forced restatements in company accounts of more than $3 billion over the last three to four years. The government may assert, like they have in relation to the number of people who face criminal sanctions, that this is evidence of the effectiveness of our law and of the regulator. However, it is also evidence of the existence of the problems in corporate governance that this is being allowed to happen in the first place.

Another issue frequently raised is that of executive remuneration. The Prime Minister has refused to act on this issue. When you get him on talk-back radio and people call in, Mr Howard, the Prime Minister, is all sympathy to them. He is prepared to say, `Oh yes, look, it's quite worrying. The corporates have got to have a good look in the mirror and, if they don't do something, I'll do something soon.' When he was questioned recently about the $13.2 million payment to George Trumble at AMP, the Prime Minister said, `It's indefensible. That is a matter—I don't control that and I don't want to control that.' So what is it? Just empty platitudes once again. This is despite findings by the Australian Financial Review, in its survey last year on executive remuneration, showing that the salaries of Australia's top chief executives rose by 13.4 per cent in 2001, despite slowing corporate profit growth and shares going down. That is not to even talk about the options, which I will come to. It was the same period in which superannuation fund members were being told they should be happy if their fund managed a positive rate of return.

Organisations like the Australian Shareholders Association have been campaigning on the issue of executive remuneration for years. Unfortunately, they are finding that too many corporates will not tell them the full details of executive remuneration and too many remuneration packages are issuing options with performance hurdles that encourage mediocrity. The ASA also talks about companies lowering exercise prices for options, often in cases where the company has manifestly failed to perform. That is right—believe it or not, they do not want just one bite of the cherry by getting options with almost no hurdles; even when they fail the pitiful options, some of them come sneaking back to the boards and try and get the boards to agree to reprice them and take away the pitiful options that they had in the first place. That is unacceptable.

I have also spoken on questions regarding broker independence, which is something this government has just discovered, despite my raising it in this chamber over one year ago. There has been no word on this from the government in the last few years, until the last month or so from Senator Campbell, who, to give him his due, is someone who does follow these issues. Investors rely heavily on broker reports to make their investment decisions. They need to be assured that the advice contained in those reports is accurate and has not been biased because of the work being done in other sections of the financial institution for which the broker works.

The problem in Australia has not been quantified but there is anecdotal evidence to support these suspicions. These are global companies with global cultures. To dismiss what has gone on in the US on Wall Street as a US aberration, when all the practices that those firms have employed are here, is not good enough. There is the story of one analyst, who made an accurate, but unpopular, sell recommendation on one of Australia's largest bluechip companies, being driven out of the research industry after being ostracised by the company. There are other reports of firms, having tendered for or obtained corporate advisory work, producing favourable broker reports. This is happening here in Australia and it has to be addressed.

The government have been lax. What have the government done on these issues? What are they doing to protect ordinary investors? They have avoided doing anything where possible, when they could have conducted a review. I am sure that when Senator Campbell follows me in this debate you will hear him talking about more reviews. Senator Minchin yesterday, in question time, was quick to ensure that he was not required to answer questions on corporate governance, despite representing the Treasurer. Senator Coonan went for the review option yesterday: `It will all be revealed in a discussion paper—CLERP 9—to be released later this month.' She parroted Senator Campbell—he slipped her a note and she read it out dutifully. It was good to see, but we will have the actual organ grinder rather than the monkey today.

The Treasurer and the Prime Minister are quick to say that more regulation is not needed. That is the Prime Minister: `I don't want to burden those hardworking executives; we don't want any more regulation.' Labor says: now is not the time for less regulation; instead, we need strong and effective regulation to protect Australian investors. But we should take a closer look at what this government has done in a number of relevant areas. Firstly, there is executive remuneration. In 1998, Labor moved an amendment to the Corporations Act to require the disclosure of the detail of executive remuneration in a company's annual report. The government clearly did not want this amendment. They clearly did not want transparency in the arrangements surrounding executive remuneration. In relation to that amendment, Senator Campbell, who had carriage of the bill in this chamber—the same Senator Campbell who will be following me in this debate—said: `We will be not supporting the Labor amendments.' His preference—wait for it!—was for a committee of review, to review and then not act. Begrudgingly, he then offered not to oppose the amendments when, with the help of Senator Murray, the numbers were clearly here in the chamber. Senator Murray will remember that debate, I am sure. Labor has always worked very closely on these issues with Senator Murray, and he deserves credit for that.

This was an amendment to empower shareholders, and the best the government would do was to not oppose it. They have continued to not oppose it by ignoring the level of noncompliance with its requirements. Thanks to research commissioned by the Australian Council of Superannuation Investors, we now know that 52 per cent of the top 100 listed companies that issue options to executives do not fully disclose the details of executive remuneration. They refuse to disclose the value of the options, despite an amendment in 1998 requiring them to. What did the Treasurer say yesterday when he was asked about this? The Treasurer said, `Refer to me any information of any company that is not complying with Corporations Law.' We whipped out a few names for him today. We referred him to the 52 per cent of companies. We took him through a few names and what did he say? He said that, oh no, it was not his job to refer anything to ASIC. We asked him to refer it to ASIC, to direct ASIC to investigate these breaches of the Corporations Law—and what was the Treasurer's response? He took a hands-off approach as usual, missing in action.

ASIC, for which the Treasurer is the responsible minister, has said that it cannot enforce this provision. That is a very important thing, because it is waiting—and this is what it said in answer to questions at Senate estimates—for the government to clarify the provisions. Senator Murray, when we moved it, you and I thought it was pretty basic, pretty straightforward and pretty clear; but the corporate sector all of a sudden found that they could not understand it, and they have told ASIC they do not understand it. The government knows what needs to be done, because in 1999 the Joint Parliamentary Committee on Corporations and Securities recommended the necessary changes. Even government members accepted the arguments of Senator Murray and me, saying, `Yes, if there is uncertainty, this is what the government should do to clear it up.' On 6 February 2001—yes, that is two years later, for anybody who did not do the maths—the government tabled its response to this committee's report, accepting the committee's recommendations. So even the government was shamed into accepting the committee's recommendations. But what has happened in the 18 months since? Nothing—only more reviews. Senator Campbell will talk about more reviews. The government does not want the disclosure of executive remuneration. Let us be clear about this. It does not want to bring sunlight into the cosy deals done, whereby executives are paid huge packages without any reference to their performance or that of the company. But the shareholders pay these packages. It is their money which has been expended, and too often they are not told about it.

I was lucky enough last week to attend the speech of Sir David Tweedie, the head of the International Accounting Standards Board, in Sydney. He is in charge of implementing international accounting standards across most of the world, bar the US, in the next few years. He said, `The time has come.' `We all know,' he said to a room full of accountants, `that these options are an expense to the company, and we have voted 13-0 to expense options.' They will be releasing a draft standard. It was voted 13-0 to make this happen. Unfortunately, it is not going to happen here until 2005.

Senator Ian Campbell —Rubbish!

Senator CONROY —Then you stand up in the debate and say that you will introduce legislation and make it mandatory straightaway.

Senator Ian Campbell —I say I won't do that, for good reason.

Senator CONROY —What did David Tweedie go on to say? He said, `Look, I have companies coming to me and saying, “What are you doing? Why are you doing this?” He said, `It happens to be the fact of the matter.' They said, `But you can't do that!' and he said, `Why not?' David Tweedie, the head of the International Accounting Standards Board, said, `Do you know what they say to me? They say, “If we told shareholders the value of these options they would never agree to them.”' And he said, `That is exactly why we are going to do it.' At least somebody in this debate around the world is being honest. At least some companies are taking the lead in the US. In the US, we have seen some of the biggest companies in the world finally fess up to this—and what does this government do? It sits there and says, `Oh no, we can wait until 2005; it'll be fine.' In relation to Macquarie Bank, it says, `Yes, we agree they're an expense and, yes, they should be expensed but we're not going to until we are made to.' Make them, Senator Campbell! (Time expired)