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Education, Employment and Workplace Relations Legislation Committee

SMITH, Mr Stephen, Director, National Workplace Relations, Australian Industry Group

Committee met at 09:21

CHAIR ( Senator Marshall ): I declare open this hearing of the inquiry into the Fair Work (Registered Organisations) Amendment Bill 2012. The inquiry was referred by the Senate to the committee for inquiry and report by 25 June 2012. The bill would amend the Fair Work (Registered Organisations) Act 2009 to require that the rules of all registered organisations deal with disclosure of remuneration, pecuniary and financial interests; increase the civil penalties; strengthen the investigative powers of Fair Work Australia; and require education and training to be provided to officials of registered organisations about their governance and accounting obligations.

I remind all witnesses that, in giving evidence to the committee, they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee.

The committee prefers all evidence to be given in public, but under the Senate's resolutions witnesses have the right to request to be heard in private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in camera. If you are a witness today and you intend to request to give evidence in camera, please bring this to the attention of the secretariat staff as soon as possible. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera. Such a request may, of course, also be made at any other time.

This public hearing is being televised within Australian Parliament House and also being broadcast live via the web. I ask that people in the hearing room ensure that their mobile phones are either switched off or turned to silent.

I welcome Mr Stephen Smith from the Australian Industry Group. Mr Smith, you may have heard before we commenced that the proceedings may be interrupted by quorums or divisions in the chamber, and I apologise in advance for that. It is the nature of having a hearing while the Senate is sitting. I now invite you to make a short opening statement, at the conclusion of which I will invite members of the committee to ask questions.

Senator ABETZ: Chair, very briefly—and I do not want to get into a dispute between us—I put on record the coalition's disappointment at the short notice and the truncated nature of this inquiry, where witnesses who would have liked to have been able to be here, given the short notice, simply have not been able to be here. As a result of that the coalition is appreciative of those who have made themselves available at such short notice. We just want to place on record our disappointment with the way this legislation is being guillotined through the parliament, and with the truncated hearing.

CHAIR: That is fine, Senator Abetz. We certainly acknowledge that this is a speedy process. Having said that, I thought the Senate was commencing at 10 o'clock this morning, so I was not expecting the bells to start ringing for another 30 minutes. I am sorry, but we will have to suspend the hearing until we can return from the chamber.

Pr oceedings suspended from 09:25 to 09:34

CHAIR: Mr Smith, I now invite you to make some opening remarks.

Mr Smith : We welcome the opportunity to express our views on this bill. Registered organisations of both employers and employees play a very important role in Australia, as the committee is well aware, both in representing their members' interests and in contributing to community objectives. The Senate committee of course is well aware of the important role of registered organisations in appearing before this committee on many occasions. Overwhelmingly the officials and staff of registered organisations of both employers and employees are dedicated, hardworking, ethical people who work for the benefit of their members, the industries that they represent and the broader community.

Ai Group is a registered organisation. We have been registered since 1901. In fact, we have registration certificate No. 1A in the New South Wales system. We have been registered federally since 1926 and we are registered in other states, like Queensland. On our councils and national executive sit the chief executives and senior executives of many member companies. They are either large or small organisations. They give up their time for no remuneration. It is very important that legislation governing registered organisations remains balanced and appropriate and that inappropriate and unlawful conduct within one organisation is not used as an excuse to impose unfair laws and unbalanced or excessive laws on all registered organisations, in terms of either the compliance burden or any other aspects of those laws.

The terms of the Fair Work (Registered Organisations) Act 2009 were agreed upon, as the committee is aware, between the coalition government and the ALP opposition about 10 years ago. Those terms were originally in the Workplace Relations Act and they are now in the Fair Work (Registered Organisations) Act. Significantly, in our recollection, that was the last piece of legislation of any note in the workplace relations sphere which the two major political parties reached agreement on and went through with the agreement of the two major parties. So it was a significant piece of legislation.

We believe the government's proposed changes to that legislation are balanced and warranted and we do support the reforms. We believe the provisions of the Fair Work (Registered Organisations) Act have worked generally effectively, but recent events have highlighted some deficiencies in those laws. The bill triples the current penalties and increases the investigative powers of Fair Work Australia. We think that is appropriate given developments and FWA's recent investigation into the HSU. We also believe that it is appropriate that transparency and accountability be improved through increased disclosure of payments to officers of registered organisations and of payments to related parties. We were consulted by the government in the development of the new laws and we do acknowledge that the government worked hard to ensure that the concerns of Ai Group were taken on board in terms of the red tape burden. We are unlike many other peak bodies in that we are a registered organisation, and one of the largest registered organisations in Australia, so these laws do directly affect our operations.

Following the passage of the bill through parliament, the government has committed to consulting with Ai Group and others about the model rules that will be developed, and we welcome that consultation. We have not identified any problems with the provisions of the final version of the bill; however, in the event that any problems do arise, we would urge parliament to remain open to amending the legislation. But, as I have said, we have been consulted in some detail and various concerns that we did have along the way have been addressed in the final terms of the legislation to ensure that it does not impose an unreasonable red tape burden on organisations like ours, which was our main concern.

CHAIR: Thank you, Mr Smith. I am just wondering, on recent events which you have referred to and which have given everyone some very deep concern, whether you believe that the changes that are being proposed now will assist in either identifying that sort of behaviour quicker or stopping that sort of behaviour starting in the first place.

Mr Smith : I think they will—in many different respects. The penalties are being tripled, so that will act as a deterrent. But the increased disclosure of remuneration, payments, conflicts of interest et cetera—all of these things are obviously designed very much with the recent events in mind, because, when you look at those events, at the results of the FWA's investigation into the HSU and at the various key issues that have arisen there, quite clearly in our assessment the government has looked at those problems and how they should be addressed through the terms of this legislation.

Senator ABETZ: Mr Smith, thank you for your evidence. The AIG is a registered organisation, and I note that the organisations which are to appear before us today are not, Therefore, all they might be able to do is to speak on behalf of others—but it does not actually apply to them, unlike the Australian Industry Group. Would most of the officeholders in the Australian Industry Group be company directors?

Mr Smith : Yes. Under our rules, the people that sit on our national executive and on our branch councils in the various states have to be either chief executives or very senior executives in the organisation. So we differ from a lot of other employer groups, who might have—for example—HR people on their committees. Under our rules, they are typically the chief executive of a large or a small organisation.

Senator ABETZ: What is their remuneration for so serving?

Mr Smith : There is not any remuneration; they give up their time. In terms of meetings such as the national executive meetings in Canberra, which happen every quarter, we pay for the expenses of travel, and, because the meetings go over two days, we pay for the accommodation. But, apart from expenses of attending meetings such as that, we do not pay for expenses associated with the meetings in each state. So there is no remuneration.

Senator ABETZ: That is what I thought. The bill tells us—if I recall correctly from reading it last night in some detail—that the five top earners of the organisation have to disclose to the membership what remuneration they are getting, together with any other benefits. Of course, if in the AIG nobody in the officeholders—let us say the president and those positions—are being remunerated, you will have all of them as the top five paid officials because they all get paid the same amount: zero.

Mr Smith : There will not necessarily need to be any disclosure, because we would need to go through and look at various boards and so on. For example, a couple of the members of the national executive are directors of Australian Super, so we would need to think through all of the requirements of the legislation—issues around who is an officer. Registered organisations, whether they be employer groups or unions, are structured very differently, and this is why flexibility is important. We have very detailed returns to Fair Work Australia and very detailed rules, and we are a very large organisation. Certainly, on the employer side, if you measured it by the amount of revenue that came into the organisation, we would be by far the largest employer organisation in Australia, and we are quite diverse because we not only have operations in many states but also have officers in many regional areas and so on. So we are quite complex, and we will need to work through in a lot of detail the requirements of this legislation. But we accept the government's objectives and support those objectives, which the opposition would share, that we do need to have a greater degree of disclosure and accountability. It is really getting the balance right.

In terms of suppliers, we have thousands of suppliers every year, because we are a big organisation. That is why, in working through this with the government, we had to be sure that it is not going to tie us up in a red tape burden that could be completely counterproductive. So in our view, the final shape of the legislation creates the right balance.

Senator ABETZ: I want to dig further in relation to this balance. It seems to me that most of your members, let us say, in the AiG, as company directors would have passed company directors courses and might have accounting or other degrees. Yet as I understand the legislation and despite all that expertise, they will need to submit themselves to a training course in how they need to conduct themselves in relation to the financial and fiduciary duties in circumstances where it is going to be the General Manager, of all people, of Fair Work Australia who, chances are, does not necessarily have many qualifications—and I do not know whether she does or she does not, but one would doubt whether she would have the same degree of qualifications as your members—and your people will be, quite frankly, wasting their time, won't they, going through a course on how to behave as a representative of the AiG when they are representatives of shareholders in their companies and can only do so by virtue of a string of qualifications et cetera? I am just wondering what will members of the AiG hope to learn from such a course?

Mr Smith : This was an issue that we discussed in detail with the government because, for all the reasons that you have raised, we were quite concerned about the impacts on our organisation. Say there are 70 chief executives or very senior executives sitting on the branch councils on the national executive. Because a CEO of a major company was extremely busy and could not attend a training course on a particular day, what we did not want was to discover that suddenly they are ineligible to be on our councils. That issue was accommodated by ensuring that there will be flexibility in the types of programs that the General Manager of Fair Work Australia can approve. We have noted in our submission the quite lengthy extract out of the explanatory memorandum about this and what we understand is that we will be able to develop appropriate arrangements for our organisation and we will be able to go along and say, 'These are the people that need to be trained and this is how we propose to do that training,' whether it is a training session that accompanies those council meetings or whether it is an online program that we develop or whether it is a program that is able to recognise prior learning where someone, for example, has an accounting degree and it is a relatively recent one et cetera. So that flexibility, even though we have not got a tangible outcome, will be useful. If it turned out that the sorts of skills those people have got are not able to be recognised, then we would be concerned, but we understand from our discussions with the minister and the department staff that that will be flexible.

Senator ABETZ: Because it seems to me that, without wanting to flatter your organisation, it would be fair to say that the AiG has doyens of industry willing to serve in a voluntary capacity, and I am wondering whether this may in fact mitigate against them being willing to so serve. Bt seems to me that is a bit like—what is an analogy?—making a professor of mathematics go to a course to learn his times tables. To be in the positions that some of your executive are, they have gone through company courses, they know about fiduciary duties, responsibility to shareholders et cetera. This idea of nearly one size fits all seems to me to possibly not suit. But you are saying that you are convinced the government will provide you sufficient flexibility?

Mr Smith : What we understand is that the final shape of the bill and the explanation of the intent in the explanatory memorandum ensures that the general manager of Fair Work Australia must have a flexible approach to approving programs. So as soon as this legislation is passed, if it is passed, we will go and meet with the general manager of Fair Work Australia and put to the general manager how we propose to deliver that training, if there is to be recognition of prior learning how we propose that there assessed et cetera. As you have identified, it is a completely different situation for our organisation versus, say, a union that may have committees with union delegates and so on who may not have had financial training. There does need to be that flexibility. Through the discussions that we had during the development of the bill we are satisfied at the present time that there is that flexibility. But, as I said, if it proves not to be the case—

Senator ABETZ: But there is no exemption allowed in the legislation is there?

Mr Smith : There is no exemption from the requirement to have met the objectives of the training, but we would see that recognition of prior learning consistent with all contemporary training programs should be part of that picture. It still does need to be worked through, but we understand the government's objective that they want to ensure that everyone has these skills, and final provisions of the bill are intended in our view to be flexible to take that into account.

Senator ABETZ: I have no difficulty with the intention. It just seems that no exemption is allowed from the requirement to undergo training, and it seems to me that if you are highly qualified Bachelor of Economics, Bachelor of Accounting, have a company director's course under your belt et cetera, one wonders what you would actually learn through this compulsory training. And if I might say with due respect to union officials, especially these days, a lot of them in fact do have economics degrees and accounting degrees and are qualified in areas that would suggest that the training course would not be necessary. So I am wondering if the general manager were satisfied that somebody had sufficient working knowledge of their responsibilities by virtue of other qualifications that they might be given a certificate of exemption rather than having to go through, to use that analogy again, of having a professor of maths go to a course to learn the times table that he or she knows in any event.

Mr Smith : We raised the issue that you have raised in some detail. It would be good to have some more tangible provisions around exemptions and so on. But the other aspect to it is, if there is to be an exemption person by person, that in itself creates a red tape burden, because we would then have to get all the details of all the qualifications. I suspect that people might say—

Senator ABETZ: If I may interrupt, chances are that that would be preferable to having to front up to a course for a few days for somebody—to photocopy their degrees from whatever or their company director's certificate and shoot that into Fair Work Australia and as a result get an exemption certificate.

Mr Smith : We understand that we are not talking about a course of a few days.

Senator ABETZ: What impression were you given, then, if I may ask?

Mr Smith : The impression that we have is that the typical skill mix of the group of people that are the officers of the organisation would factor very heavily of course into what training would be appropriate. In the case of a group of senior executives, we would be extremely concerned if they had to do a two-day training course. We would envisage that we would organise a far more flexible approach to training for those people. We will need to talk through that. But what that might comprise, for example, is when we get our councillors together for meetings or we get the national executive together that there is a training program organised in conjunction with those meetings of X hours. We would still need to think through that, but we will just not get chief executives of major companies to attend a two-day training course. We understand that it does not mean that.

CHAIR: Just on that, because I think you identify section 154C(1), that the general manager will be able to approve a range of training of different formats, styles and lengths in recognition of the different significance of financial management duties have to the roles of different officials, as well as the backgrounds, experience and qualifications of those officials. So it does appear that there is enormous flexibility, depending on the background of people.

Mr Smith : Yes, that is our understanding.

Senator ABETZ: There is no exemption. That is the only point I was trying to get at.

CHAIR: Yes, I understand.

Senator ABETZ: When were you first consulted about this bill?

Mr Smith : It has been referred to in the parliamentary debates and I think publicly. The consultation took the form of a meeting of the National Workplace Relations Consultative Council. But, as you would be aware, the deliberations of that council are confidential by virtue of the legislation. But that was the form of consultation that the minister had with the unions and employer groups about the legislation.

Senator ABETZ: Were you consulted before that consultative council meeting?

Mr Smith : We did, coincidentally, have a meeting with the minister's advisers a few days prior to that. It was a general catch-up with one of the minister's advisers. The issue came up there, but it was not in any detail at all. We certainly did not see the bill. It was really just flagging the fact that the government's intention was to introduce this bill. The minister in fact did end up attending that short meeting with myself and Innes Willox, but it was really just raising the issue; there was no detail.

Senator ABETZ: Your members, who are company directors, if they misbehave in their duty as a company director, have the possibility of facing criminal charges under the corporations law. Is that correct?

Mr Smith : Yes.

Senator ABETZ: What would be the difference, and let us use the term 'defrauding', if a company director were to defraud shareholders, as opposed to one in a representative capacity on the AiG board defrauding AiG members, who, for all intents and purposes, are also shareholders in AiG? What is the material difference, if there is any? I personally do not think there is one, but I would be interested in your view, if you believe there is one.

Mr Smith : The concern that we would have is the bill triples the level of the existing penalties. As you identified and as I identified, the people that sit on our councils and national executive are doing it as an industry service. They get no remuneration. They give up a huge amount of their time, and they do that in good faith. And they set our policy. We think the level of penalties that are proposed, which are triple the existing penalties, and all of the disclosure requirements—

Senator ABETZ: But they are only civil penalties, and I am, with respect, asking about criminality here, and you have not touched, with respect, as yet, on the issue of why defrauding a shareholder should potentially be a criminal matter but the same person defrauding AiG members should not be a criminal matter. I don't get it.

Mr Smith : The point I was making is that we certainly, as a concept, have no difficulty whatsoever with that, of course. If there is any criminality or any inappropriate behaviour it should not occur. But what we would be concerned about is if, in the light of one situation that has arisen—a very serious situation, with one registered organisation—the laws are dramatically changed, they would act as a deterrent to people giving up their time to sit on committees of employer groups. If you are a busy chief executive, you are perhaps not going to have the time, not going to have the same—unless you are getting remunerated for it, like you are in a company or on a board, you would be quite concerned, potentially, if the laws became so unbalanced and the penalties became so excessive; it really does need a balance.

Senator ABETZ: Some people might argue that if you do not get paid for your job you might actually have a greater temptation to engage in criminality. I do not know, but I would have thought that criminality is criminality. Exactly the same behaviour, as a company director—defrauding shareholders—is deemed criminal, yet you engage in exactly that same behaviour, as a director of the AiG, and that miraculously is not criminal? I am sorry—

CHAIR: Is that right? I am not sure of that. Nothing in this bill exempts any office holder of a registered organisation from criminal prosecution, does it?

Mr Smith : If behaviour is criminal then it is criminal. All we are talking about is: we do not—

Senator ABETZ: No, but the corporations law—

Mr Smith : see any new—

Senator ABETZ: Can I cut through, because time is getting short, and focus. In the corporations law, there are specific criminal provisions, are there not?

Mr Smith : Yes. I am not an expert on corporations law, but I—

Senator ABETZ: Certain conduct under the corporations law is deemed to be criminal and can be prosecuted; that same conduct, being undertaken by a company director, under the corporations law is criminal; the same conduct by the same person who, instead of ripping off shareholders, is ripping off AiG members, is not criminal. I am just wondering what our public policy arguments are for such a divergence—that ripping off shareholders is criminal but ripping off AiG members is not.

Mr Smith : To answer the question properly I would need to know what specific provisions of the corporations law you are referring to, because—

CHAIR: Is it 185?

Senator ABETZ: I do not know.

Mr Smith : If fraudulent behaviour is engaged in, and other types of criminal behaviour—as you identified, Senator, Ai Group has—

Senator ABETZ: Section 184, I am told. I was off by one.

Mr Smith : Yes, I would be happy to have a better look at it—

Senator ABETZ: Yes, if you could. You tell us that the penalties are being tripled. Well, under the corporations law, for an individual company director, if they muck up—to use that technical term—what is the maximum penalty they can face? Are you aware of that?

Mr Smith : Not off the top of my head, but it certainly is more significant—

Senator ABETZ: It is in the tens of thousands, isn't it?

Mr Smith : But it is a very different situation. Chief executives of public companies and directors on boards are typically very well remunerated for what they do. Here we have people who are giving up their time—whether they be people sitting on union committees or on employer group committees—as a public service. As I said at the start, in 99.99 per cent of the cases—we cannot say it is 100 per cent because we have found there are some issues with the HSU, but in the vast, vast majority of cases—this type of behaviour is not going on. We have very rigorous procedures within Ai Group. We have best practice—

Senator ABETZ: We have laws against murder in this country, and 99.99-recurring per cent of the people do not commit murder, but we still have laws against murder to try to militate against such crimes. That is why we have legislation. I fully understand that we can quarantine 99.9 per cent of union officials and employer officials, but at the end of the day I just cannot understand why behaviour by a company director against shareholders leads to penalties in the tens of thousands, yet that same behaviour by that same person against the members of the Australian Industry Group, as a maximum, would have a penalty of $6,600. How is that going to act as a disincentive for misbehaving—or are the penalties in the corporations law far too high?

Mr Smith : No, we are not saying those penalties are far too high, but registered organisations have an important role in Australia—they always have and hopefully always will—in being a representative body in the workplace relations system and more broadly. We think that the laws need to be balanced. This triples the existing penalties. Apart from this HSU issue, there is no evidence of any of this behaviour going on in other organisations.

Senator ABETZ: I draw your attention to the member for Barton's speech only yesterday in the House of Representative. The member for Barton is the former first law officer of this country—the former Attorney-General, Mr McClelland. He believes that the penalty regime is not sufficient, and in fact he referred to other occasions when rip-offs by officials of their registered organisations have occurred. Coming back to the AIG, I understand that people give of their time voluntarily in a sense of public service, but, just because somebody volunteers their services, why should the penalties be any less if they behave in an illegal fashion? If somebody rips off the Red Cross or their local footie club, of which they are the volunteer treasurer, are you saying the penalty should be less than if they ripped off the same amount of money from their employer? I would have thought the penalty would be the same, because they had a duty to their employer on the one occasion and to the members of their organisation on the other occasion. I cannot see the material difference or the value difference.

Mr Smith : I will just answer that briefly. There are many different penalties in the existing legislation, and some are penalties for not putting in returns on time and more procedural-type things. The penalties in the corporations law relate to specific behaviours relating to that legislation. We do not think those provisions can be directly compared with these others. I am happy to have a look at those specific provisions, but criminal—

Senator ABETZ: But that is acting in good faith. As I understand it—and I may be corrected—I am not sure the penalty regime for putting things in late is being changed by these amendments. It is not acting in good faith by accruing things to yourself that you should not be accruing to yourself that attracts the penalties. But I will leave it at that. Thank you very much, Mr Smith.

Senator THISTLETHWAITE: I have just a couple of brief questions of Mr Smith. The AIG is not a corporation, is it?

Mr Smith : No, we have always been a registered organisation.

Senator THISTLETHWAITE: And its activities and behaviours are not akin to those of a corporation; they are more akin to those of a registered organisation.

Mr Smith : That is right. We have a special role in the workplace relations system. We have all sorts of rights and responsibilities and we are subject, of course, to onerous penalties and so on under the Fair Work Act—including, amongst other things, criminal penalties for certain behaviours.

Senator THISTLETHWAITE: So you would agree with a view, would you not, that it is not appropriate for this parliament to pass laws which place corporate obligations on an organisation such as the AiG or any other registered organisation?

Mr Smith : No, we think that registered organisations have had a long history and they have a special place not only in Australia but globally. We are a representative body for employers, as a union is for employees. There is a specific exemption under the corporations legislation for the industrial relations system, and it would not be appropriate to suddenly deem all registered organisations as corporations. They are a completely different type of organisation. Some industry groups that have chosen to become corporations, but they have never been registered organisations. We do have a special role and special responsibilities.

CHAIR: Mr Smith, thank you for your appearance before the committee today.

Mr Smith : Thank you.