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Wednesday, 16 June 2004
Page: 23864


Senator WEBBER (10:51 AM) —As has been mentioned, the Corporations (Fees) Amendment Bill (No. 2) 2003 and the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Bill 2003 are designed to give effect to CLERP 9. Corporate reform is a vital area that goes to this country's economic wellbeing, both now and into the future. These bills are about ensuring that the regulation of the marketplace is relevant and up to date and that the regulatory mechanisms that government imposes on the marketplace to protect its citizens are able to deal with the level of risk that exists. I believe that all senators would agree that unfettered markets do not operate in the best interests of our fellow Australians. Australians understand that transparency and a preparedness to share information with all is the best protection they can have from the unscrupulous and devious people who exist in any society. When the unscrupulous and devious are operating major companies, effective regulation is even more important. We have seen over the years that the unscrupulous and devious can wreak economic hardship way beyond their own company and in fact affect the whole economy. No-one would doubt that the excesses that were reported in the HIH Royal Commission should not have taken place. They took place because effective regulation did not exist.

It is incumbent on all governments to ensure that companies have to abide by minimum standards. The regulation of the marketplace has, at its heart, information. With information available, suppliers, regulators, shareholders and consumers can make informed decisions within the marketplace. Without information, everyone is at risk. It is much more difficult to behave like an Enron or an HIH when information is readily available and regulation is effective and timely.

There has to be a balance in the marketplace. Going all the way back to the South Sea Bubble in the 18th century, investors have been at risk from an unregulated market place. Nowadays, with an increasing number of Australians also being shareholders, the risk from the unscrupulous and devious operating in companies is increased. Australians who have saved and who have funds available to invest need to be able to make informed decisions based on publicly available information. Nothing is more important in this process than the audit process. If the audit processes are flawed, investors are placed at risk. No-one would invest in a company where there was any doubt about the integrity of the audit.

However, there is also the future to consider in this discussion. With over nine million Australians now having superannuation, regulation is more important than ever before. The future wellbeing of those nine million Australians is dependent on having decent and effective corporate governance. If our companies are allowed to operate as an Enron or HIH, the retirement futures of those nine million Australians are at risk. With so much of their future tied up in investments in companies through shareholdings held by the superannuation funds, we must ensure that now and into the future our corporate sector is well governed and effectively regulated. Having said that, it is important to note that the ALP has clear points of difference with the government's approach to these bills.

As Senator Conroy has outlined, there are a number of key changes that the ALP intends to move to these bills. Firstly, there is the issue of executive remuneration packages. Every time the ALP has raised this issue Senator Coonan, in particular, has launched into a rant about how we on this side are all suffering from some kind of income envy. The government's simplistic response to this ALP policy demonstrates how out of touch they are with the concerns of their fellow Australians—indeed, with their fellow shareholders.

Those opposite believe that Australians think it is reasonable that large numbers of executives get these massive packages, and yet their performance does not match the money. For example, in a recent survey conducted by the Business Review Weekly, the 20 highest paid CEOs had seen shareholder value increase in just five cases. The average Australians—many of whom now receive some kind of bonus or performance component in their take-home pay—know that unless they meet their performance targets they miss out on the money. Australians find it hard to understand how it is that 15 out of the 20 highest paid CEOs can underperform yet still receive their full package. Rather than being about income envy, what the ALP policy is all about is transparency and performance. We do not argue that all people should receive the same. Rather, we argue that all should be treated equally.

One of the problems with executive remuneration is that the information is not available and shareholders have little or no say in the process. That is simply not good enough. Perhaps this could be put down to the government's hands-off attitude to the big end of town. If the government's mates in the corporate sector could not hand out the big packages, who would be buying the tickets to their fundraisers, one may ask. One wonders whose advice the government would take. Let me quote from Hansard, 16 February 2004:

The government has, on many occasions, noted the importance of a co-regulatory approach and has looked to the ASX Corporate Governance Council as a source of best practice guidelines.

Those words were spoken by the Treasurer on these bills in other place. So, the government would contend that they are taking the advice of the ASX Corporate Governance Council to ensure that community expectations are being met. However, it is interesting to note that those guidelines say that companies should not provide options, bonus payments or retirement benefits to non-executives. One would, therefore, think that if that is what they are saying in their guidelines the government should include them in the legislation. If you accept the argument that the market moves too quickly for the legislation and that the ASX Corporate Governance guidelines should be used more generally, then the argument extends to the proposition that every time the legislation is amended it should take the guidelines as a given. This would assist in ensuring that the legislation closely follows the practices recommended by the ASX. By putting into the legislation these disclosure arrangements we get the best arrangement. As things change, the regulations can be amended. To put up a process that is not as strong as the ASX guidelines seems like a cop-out.

Another area of concern is that the disclosure regime that will accompany these bills regarding executive remuneration is not well known. It is important to all Australians that there are clear and precise processes in place for the disclosure of executive packages. Shareholders need to be able to be assured that all the information used by the executives to determine these packages is also available to them.

Another amendment which the ALP is strongly committed to is to ban the practice of non-recourse loans to directors and other executives. Currently, only loans above a certain amount—in this case, $100,000—need to be disclosed. Why do we have a system that allows directors and other executives to use company funds as their personal piggy bank? Surely if you or I wanted to buy shares in a company we would have to source the money through normal commercial practice. Why should directors and executives not have to go through the same process as you or me? Again, it is not a case of income envy, but rather another argument about equality and transparency for all—the same treatment regardless of your position.

The next area where Labor disagrees with the government is that of termination payments. You can see the government's approach in this particular section of the bills. Section 200B of the bill prevents a payment being made in connection with retirement from a board or managerial office, unless shareholder approval is first obtained. That is a good point; that is fair enough. But the government, in sections 200F, 200G and 200H, then provides exceptions to that rule. That is clever stuff and, as is normal for this government, too clever by half. How can you make a rule and then make a whole bunch of exemptions? This government has done it yet again.

Labor believes that the thresholds for these approvals are again set at too high a level: one set of rules for most people, yet another set for people at a certain level and, of course, exemptions for people at the top end of town. Again, this is about equality of treatment. The largest corporate collapse in our history, HIH, was the subject of a royal commission. The royal commission made, as is normal, a number of recommendations to address the deficiencies that it identified. What happened to the recommendations of the royal commission? These bills do in fact give force to some of Justice Owen's recommendations. However, they do not give force to all of his recommendations.

The Labor Party will give force to all of Justice Owen's recommendations from the HIH Royal Commission. One key recommendation was that there be a four-year period before a company's auditor or audit partners would be able to join the client. Based on the HIH example, this is a sensible course of action and one that the government has not seen fit to give credence to. Secondly, the royal commission recommended that auditors would not be able to provide non-audit services which would compromise the independent role expected of company auditors. These measures, recommended as a result of identified deficiencies, should in my view be implemented. Yet again, the government has failed to do so.

The ALP also requires that auditors provide more information than is currently the case. This concept of an audit opinion, as part of the company's annual report, would allow shareholders and potential investors to be clear about all advice provided from the auditors to the company—again reinforcing my opening position about the clear and precise provision of information to all.

Labor is also of the view that more needs to be done to strengthen analyst independence and enhance the disclosure requirements so that potential investors can place more credence on such information. Labor is committed to increasing the power and role of shareholders. Labor would require more extensive disclosure and would ensure that shareholders have an increased say in the operation of the company they choose to invest in. But there is always a balance to be struck between the rights of companies and those that they deal with. However, that balance should always weigh up risk. Unless shareholders and investors are confident that the company is operating within the law and that sufficient information is available, then the current changes do not go far enough. Rather than listen to Minister Coonan rant about income envy, the Labor Party is interested in the effective corporate regulation to protect our fellow Australians and their investment in their future wellbeing.

Question agreed to.

Bills read a second time.

Ordered that the consideration of these bills in Committee of the Whole be made an order of the day for a later hour.