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Wednesday, 24 June 1998
Page: 3899


Senator IAN CAMPBELL (10:16 AM) —In summing up this second reading debate on the Company Law Review Bill 1997, I first want to thank those senators who took a close interest in the development of the bill and those senators who contributed to the debate in the chamber over the past couple of hours.

I particularly thank Senator Barney Cooney, who has had a very close interest in corpora tions issues both before his time as Chairman of the Legal and Constitutional Affairs Committee and of course throughout that time. Senator Cooney will be very pleased to see the next Corporations Law economic reform bill, the Corporations Law Amendment (ASX) Bill 1997, which we expect will come into this place in the next couple of days, because it picks up one of the recommendations of that 1989 report in relation to the business judgment rule which he has been a champion of for many years.

Senator Cooney, we note your reference to that seminal work, judicial work, in Foss and Harbottle. The bill also picks up a policy idea which, for the first time in Australian law—if it passes the Senate and passes the parliament—places the entrenchment of a statutory right of action for shareholders, known in the trade as a statutory derivative right of action. In many respects, it supplants Foss and Harbottle.

I might say that the Attorney-General of Western Australia, who feels he has an umbilical relationship or at least a sibling relationship, in some respects, with Foss and Harbottle, is a little bit upset that Foss and Harbottle will become less important in Australian law once the statutory derivative right of action that this government seeks to give to shareholders to enforce their rights against directors who do not take action on behalf of companies is enacted for the first time in Australian history.

Senator Cooney, your contribution to debate on the Corporations Law over the decades has been a very positive and constructive one. Of course, your speech here today is just another chapter in that contribution. I want to respond to some of the key points that have been made during the debate but, prior to doing that, I suggest that Senator Cooney's speech was very similar to the other speeches in this debate in that they did not talk about the bill; they talked about one or two submissions to the first joint parliamentary inquiry—`first' because this one has been to the committee twice—to do with corporate governance issues.

As I said in opening my remarks, Senator Cooney, your comments on corporate govern ance and directors' duties and your contribution to that debate through the Senate Legal and Constitutional Affairs Committee are well known. Out of the consultations that you did in 1989, out of the consultations that were done by the joint parliamentary committee in the early 1990s when I was the deputy chair of that committee, and out of the consultations I have done on corporate law economic law reform, the government has actually picked and put into the statute a business judgment rule. Senator Cooney knows better than anyone else in this place how hard it is to frame a business judgment rule that people are happy with. I have crossed my fingers and crossed my arms behind my back and think we have actually got a set of words and the construction of a business judgment rule in Australia that, for the first time, has support—dare I use the old Bob Hawkeism: a consensus.

That highlights the point that I have been making in private correspondence and in public comments about dealing with corporate governance issues in the way that the opposition and the Democrats—both very well-intentioned—supported, by tagging them on and making this an omnibus corporations bill. This bill was a piece of work created by the simplification task force under then Attorney-General Lavarch. It sought to look at the core company provisions. Its intention was to streamline the application process to establish a company. It does that by putting together into one form, a single form, the requirements for registering a company. There are massive savings in paperwork to companies across Australia. It massively reduces the cost of registering a company, for the approximately 80,000 new companies a year registered in Australia.

It also facilitates the use of electronic means of transmission for meetings and for communications with shareholders. It reduces the need for formal company meetings. It says that, where there is unanimity amongst directors and they have signed off on a bit of paper to say that they are unanimous, they do not need to go through the procedure of calling a meeting; something that those of us who have been company directors know will save a lot of time and headache. When there is a matter that is unanimous, why is it necessary to get everyone to put down what they are doing, come together to pass a resolution and then go away again?

It abolishes the par value of shares. It reduces the need for shareholder approval in relation to financial assistance transactions. It reduces the costs in relation to annual reports. It extends from 14 days to 21 days the notice period for shareholder meetings. There is a range of other mechanical improvements to the way companies in Australia operate.

A number of people have tried to use this as an omnibus bill to put all these directors' duties and corporate governance matters into a bill that was not designed to do so. The government recognises the importance of the consideration of directors' duties and corporate governance. It picked up the work of Senator Cooney's committee on these issues in the late 1980s and the work of the joint parliamentary committee in the early 1990s on the same issues, and picked up a public demand for focusing on directors' duties and corporate governance. We have dealt with that as one of the largest and biggest chapters in the corporate law economic reform program which is recognised by people such as Bob Baxt and Bill Beerworth, and most commentators on corporate law reform, as the single most thorough reform of company law policy in the history of companies in Australia.

Within the six chapters of the corporate law economic reform program we have significant reforms encompassed in a specific piece of legislation designed to deal with directors' duties and corporate governance. That legislation has been referred to the Joint Parliamentary Committee on Corporations and Securities. All of the proposals that the government has in regard to directors' duties and corporate governance have been referred to that committee.

I have said to the Australian Labor Party and the Australian Democrats that if they want organisations to make submissions in relation to the issues that are the bulk of the amendments we will be faced with shortly in the committee stage, then the appropriate legislative process is to allow industry, share holder groups, consumer groups, directors, institutions, corporate lawyers, accountants and other advisers to make submissions on these proposals and have any of these amendments dealt with after that public consultation.

Within the proposals on corporate governance that have been tacked onto this bill there are a number of matters that have been given that consideration. The MD&A proposal has been given that consideration by the joint committee and has been discussed at length amongst experts in this field.

The issue of the notice periods for meetings has again had long discussion and it is really just a decision between 14, 21 or 28 days, and a couple of the other proposals. Many of them have not been given that sort of rigorous analysis, which all of the corporate law proposals that this government has dealt with have been put through. They have been brought in here and clearly have not been given the opportunity for detailed consideration.

That is not to say that no-one has the right to do that. They do, but I am suggesting that, when we have a bill that specifically deals with corporate governance issues, we should seek to amend that bill rather than tacking them on and making this into an omnibus bill. You would obviously have to wait a few weeks to do that.

Those calls have gone unheeded. We had a speech from Senator Conroy saying that the government does not care about corporate governance and management discussion analysis; that we are opposed to it and that we are opposed to directors' remuneration disclosure. That is patently absurd and patently incorrect and significantly misleading.


Senator Conroy —Let's vote to mandate them.


Senator IAN CAMPBELL —Senator Conroy interjects and says, `Let's vote to mandate them.' This draws the distinction of the approach of the Australian Labor Party and the Australian Democrats. That is, if you want to prove that you are serious about something, you come to Canberra, pass a law and impose it on every single person in Australia. That proves you are serious about it. Regardless of the fact that that has proved in jurisdictions around the world to be an ineffective way to create an improvement in corporate governance, that is the Labor Party way—Canberra knows best on corporate governance.


Senator Conroy —And the Fin Review's view!


Senator IAN CAMPBELL —Allow me to be partisan in these matters for a minute, Mr Acting Deputy President, because Senator Conroy wants to make this a politically partisan debate. This is the Australian Labor Party that produced Joan Kirner; this is the Australian Labor Party that produced Brian Burke; this is the Australian Labor Party that produced the Bank of South Australia; this is the Australian Labor Party that produced the famous gold tax lunch; and they are saying that the Australian Labor Party knows best on corporate governance!

This is the Australian Labor Party that sunk $12.2 billion worth of Australian taxpayers' money down the drain every year, year after year for 10 years; and this is the Australian Labor Party whose concept of corporate governance and financial management was to run interest rates up to 30 per cent. When the Australian Labor Party talks about corporate governance and says, `Canberra knows best,' I say to the shareholders of Australia, `Beware when the Australian Labor Party says Canberra knows best.' There are far better experts on matters of corporate governance than the Australian Labor Party, which is saying, `You govern companies well when you do it the way Canberra tells you to do it; when you do it the way the Australian Labor Party tells you to do it.'

There are experts, and I refer to an article by Paul Murnane in the Business Review Weekly of 27 April last. Mr Murnane is from Russell Reynolds in Australia and he has done a comparative analysis of corporate governance in Great Britain, the United States, Europe and France. I will quote from that article because it is instructive:

The Australian Labor Party says Australian corporate governance is in tatters and that Canberra has to come in and tell us how to govern our companies.

He is saying it is a mess and we have to step in, even though all of the people who support MD&A, including the government, say the best way to do it is through a flexible, market oriented approach promoting best practice through the existing rules. The Labor Party says, `No, that is not good enough. We are going to tell you how to do it. We are going to put it in black letter law, write a few more pages of law and tell every reporting entity that they must do an MD&A because the Labor Party in Canberra knows best.' If you tick that box, it will be good corporate governance, according to the ALP.

Russell Reynolds in Australia put it slightly differently. They say that the standard of corporate governance in Australia compares well with other countries. Mr Murnane goes on to say it is a fact that:

. . . most companies have complied with high standards. All around the world you are seeing a strong push towards the Anglo-American style of governance.

Australia has a more aggressive stance on governance than other countries. Australia has had non-executive chairmen forever, whereas the US is only just discovering it. We have got a fairly smallish market so you don't get the chance to do the `Wall Street walk' . . . Institutional investors in Australia have set high standards for corporate governance.

He makes another point about corporate governance. He further states:

Corporate governance initiatives are distinct from legislation in that they are designed to assure investors that the necessary conditions of trust are in place.

In other words, the debate on corporate governance should be about promoting best practice, not imposing it from the cold hand of Canberra and central governments. Senator Conroy interjected by saying, `Let's do what the US does.' What does the US do in relation to remuneration, management discussion and analysis? Senator Conroy is a bit like the Leader of the Opposition in the other place; he knows everything. He is omni-intelligent. He is the font of almost all wisdom on every issue. So what happens with MD&A in America? He wants to impose it by a law through Canberra saying, `Everyone is going to have an MD&A, regardless of whether it makes you a better corporate governor or not.' According to the Australian Labor Party, through the wise mouth of Senator Conroy opposite, that is going to make you a good corporate governor.

What happens in the United States is that it is done through the listing rules of the SEC. What do we want in Australia? We want to do it through the listing rules of the Australian Stock Exchange? Who wants to do it through the listing rules of the Australian Stock Exchange? Senator Conroy mentioned the Securities Institute of Australia, which he says is opposed to the coalition's stance on management discussion and analysis. This is indicative of the entire debate. Labor wants to put it in black-letter law, impose it from Canberra and not allow a dynamic corporate governance culture to develop in Australia. They want to do it from Canberra. In fact, you have to do it from Canberra, not because we, the industry, shareholders or consumers think it is a good idea but because a fund manager from Florida says that it is a good idea—corporate governance international. We are going to be told what to do not by Australians and Australian shareholders but by people in Europe and New York.

One of the amendments states that we have to force companies to do what the SEC or Brussels tells us to do, not what we decide in Sydney or Melbourne or Brisbane or Perth or Adelaide or Hobart. We have to do what Brussels or New York tell us to do. Talk about throwing away sovereignty! Let us not go down to see the ASX or the SFE; let us go to New York and do what Arthur Leavitt tells us to do. I would like to keep control of what companies in Australia are required to report. The Securities Institute of Australia agree with this. Let me quote from a letter dated 29 May signed by John Jarrett, the National Policy Manager of the SIA:

The Securities Institute of Australia has long been in support of the requirement for listed companies to report to their shareholders, an MD&A requirement. We are satisfied that the introduction of this requirement into the listing rules with your agreement will be an advance on current reporting requirements. With this in mind, if the listing rules provide for MD&A, we do not believe it is neces sary at this stage to include it in a legislative requirement.

Who else agrees with us? Who was the person who proposed MD&A going into the law? It was AIMA. The people responsible at AIMA have endorsed the approach of the ASX—that is, do what they are doing in the United States: make it part of the listing rules. The Investment and Financial Services Association, which represents the big fund managers whom Senator Conroy quotes, says that it would be better if it were in the listing rules than in the black-letter law.

Finally, who else says that it should be in the listing rules and not the black-letter law? The Australian Shareholders Association says that it would be wrong to put it in the black-letter law if it can be done through listing rules. So you have every single organisation saying that it is better to do it through the ASX listing rules, but the ALP and the Democrats know better. They say, no, if you want good corporate governance, you have to do all these things in the black-letter law. That is what this debate has come down to. The government believes that almost every single organisation is saying, `No, do not put it in the black-letter law,' and most organisations are saying, `Let's have a debate about corporate governance under the corporate governance bill. Let's not slow up the progress of sound reforms in CLRB by having the debate today, let's do it after proper consultation.' But the Australian Labor Party know better. They say we have to do all these things because we want to beat up about directors' remuneration.

There is nothing wrong with a legal requirement to report directors' remuneration. There is one in the law already. What we are talking about is increasing it. It may well be that that is a very good idea, but we want to allow the interested parties—the stakeholders—to have a say in how you do it. Labor and the Democrats will not allow it to go to the committee. They will not even allow Australian shareholders to have a say on it. They know best; Canberra knows best. Impose it on everyone else.

I turn to the final support. As mentioned by Senator Margetts yesterday in another debate, the OECD did a report on corporate governance in Australia and absolutely, uncategorically endorsed the government's approach, saying that it is better to encourage a dynamic corporate governance culture than to impose prescription. I commend the bill to the House.

Question resolved in the affirmative.

Bill read a second time.