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Monday, 14 October 1985
Page: 1168

Senator PETER RAE(5.45) —I want to make some fairly broad general remarks in this second reading debate on the Companies Amendment Bill and the Companies (Fees) Amendment Bill. First, I agree with Senator Hill's comments about the operation of co-operative federalism in this particular instance. I believe that this a good demonstration of where one should not use co-operative federalism, and where one needs something that is flexible, fast acting and capable of rapid change to meet the needs of a particular time. The National Companies and Securities Commission and the structure under which it operates cannot be so described. In case people are not aware of the detail, although it has been referred to a number of times, I know that there are still some people who are not aware that the National Companies and Securities Commission operates through its delegates or its agents in each of the States. We still have the corporate affairs commissions which tend to have their own ways of going about things, but over the top of them and working through them is the National Companies and Securities Commission.

I believe that the stage has been reached where little attention is paid to changes in company law by the parliaments of Australia, which is an undesirable situation. Relatively little attention is paid to them because there is relatively little that any parliament can do without holding matters up because they then have to go back to Ministerial Council. At least we have improved the original situation, which required unanimity in Ministerial Council, to a situation where now a majority is adequate to make change. One can anticipate some desirable changes. One of the first changes should be to go through the whole legislation and out put every second clause. One could go from there to see what one had to put back in.

The legislation is a monster. It looks like the proverbial camel; it is a horse designed by a group of people. We have got the lowest common denominator among all the various people who came together in this exercise in co-operative federalism. Everybody wanted what they knew to be put into this legislation. Instead of a simplification of the existing 14 laws that applied to the companies that traded around Australia we have wound up with something which in content is about three times as complex. That is one of our great regrets in the Senate. A Senate committee did a lot of work to recommend and point out why it was desirable to have a single, national responsibility for national companies which, under the Constitution, is clearly intended. That statement comes from somebody who normally argues for States' rights and I make that quite clear. But company law on a national basis was clearly intended by the founding fathers under placitum (xx), section 51, of the Constitution to be a function of the Federal Parliament. Having made those comments, I pay tribute to the work carried out by the original Chairman of the Commission, Leigh Masel, and the original deputy chairman, John Coleman. I know that they had to battle hard to develop a relatively complex set of laws with relatively little, and certainly no cohesive, force behind them. It was a matter of building up an organisation that would be able to undertake the work that was its responsibility.

They were at first also hampered by the problem of adjusting to the Public Service Board oversight of what was required in balancing the need to keep down costs with the need of the organisation to be able to operate efficiently. It took quite a period of time for the National Companies and Securities Commission to obtain a staffing level sufficient for it to do the job that was necessary. I believe that Australia owes a very considerable debt to those two gentlemen, both of whom have now retired at the conclusion of the terms for which they were appointed. They provided a balance to each other in many ways and worked towards the development, as much as could be done, of a successful organisation which, as I have said, was described initially as a camel instead of a racehorse.

The new Chairman, Mr Henry Bosch, I think has started well. He has brought forward a number of new approaches to the function. In particular, he has raised the matter of takeovers and mergers and the benefit or otherwise which they bring to a country such as Australia. I think we have to look carefully-I would like to hear debate in this chamber-of the matter of takeovers and mergers and whether they bring benefit or detriment to a country of our size with a market of our size. Let me show the size of our securities market by saying that several years ago the Senate Standing Committee on Finance and Government Operations did a survey of all the Commonwealth statutory authorities. It found, when it aggregated the various financial figures relating to those authorities, that the land, buildings-most of them at original purchase price, not at revalued price-and external investments of the Commonwealth statutory authorities amounted to more than half the value of the market capitalisation of all the public listed companies in Australia.

That gives some idea of the magnitude of the statutory authority sector. When we add to it as well the State statutory authorities we can see that we are a country with a very mixed economy. A large part of it is publicly operated. We have a relatively limited securities market. I believe that one of the things necessary for Australia to be able to develop and to get out of a number of the problems which we have is to build greater depth and breadth into that securities market. Our stock exchanges have fewer than 1,000 listed companies, yet last year more than 100 takeover bids were made. That was one-tenth of the number of companies listed. I refer to what Mr Bosch said in an address to the Takeovers, Mergers and Acquisitions Conference held in Sydney on 11 July 1985. He said:

Public discussion of takeovers in Australia in recent years has tended to assume that they bring benefit, both to shareholders and to the economy at large. Some of those who instigate or take a frequent role in the takeover process have been elevated into folk heroes-the acceptance has been far too uncritical.

We went on to review some of the advantages. He referred in particular to the three principal arguments which are usually advanced in defence of takeovers. The first is that they stimulate boards of directors and managements. Secondly, they lead to the replacement of weak managements by stronger ones. Thirdly, they lead to the rationalisation of industries and the better use of resources. In the pages which follow is his commentary on each of those. He comes down to raising a real question of whether they have given the advantage which many people claim they have. There is considerable doubt that they have brought great benefit to this country, although, undoubtedly, some of them have.

In relation to the problems which takeovers create, let us consider, first, the problem of the limited breadth and depth of the market and, therefore, the limited scope which it is able to handle and the extent to which the market does not fulfil the function of capital formation for private enterprise to expand in this country. Secondly, we have the problem of the falling percentage of personal investment in shares in this country. I believe that that is a matter of concern. If people live in a country in which there is a free opportunity to participate in the growth areas of the economy-one can hope that the growth areas include principal listed companies-people can feel that they are growing with the nation and having a share in the growth of the nation. This applies particularly to employees of companies. One of the reasons why I believe that we ought to be reconsidering some of the public sector is so that we can try to get the ownership and control of more operations and enterprises into the hands of the employees so that they will have an incentive and a reward for what they do. I think a lot of work needs to be done in relation to considering that.

At the moment we have the problem of the troubles in the unit and property trust area. I will not go any further than just to identify that. That is a very clear area of people being disuaded from investment in the stock market as such, but placing their money in trusts of one sort or another. Unitary and property trusts have grown exceedingly rapidly. As the Telford situation makes only too clear, not always have they been managed with the greatest perspicacity which is required. We have the need for many corporations to borrow overseas because of the relatively low savings in Australia. I believe that again it is a matter of considerable concern to this nation that we do not save as well as we used to. We do not save as well as we could and we certainly do not save as much as we need to. If this country is to develop we will need to encourage more people to save and to invest.

We have the problem of an element of high roller gambling being present in the takeover game. I think one of the things that have concerned many people has been to see people making tens of millions of dollars out of a takeover bid which was obviously playing with the market rather than playing with the operation of an industry. At the moment there is nothing to prevent people from doing that. I do not criticise people for taking advantage of what they are allowed to do. But that raises the question of whether we need to review the law in relation to takeovers and mergers to see whether we should make it more or less restrictive. In some ways some of the restrictions we have at the moment give opportunity to those who would be the high rollers, as opposed to the freedom which might be given if we did not have as many laws and particularities of which advantage could be taken. Maybe we need more specific laws in relation to that but the one thing that is for sure is that we need to consider it. As corporations are creatures of legislation and are made by regulation, they are and must be subject to regulation, whatever they do. When I say `regulation' I do not mean that one has to regulate everything they do, but their existence alone requires that there be a form of regulation. They are artificial creatures created by regulation. One has to decide how far one goes in imposing further obligations on those bodies which have been created.

Some of the pluses in relation to takeovers and mergers are that we have seen some Australian corporations become big enough to take a major international stance. I think Murdoch and the News Corporation, Abeles and Thomas Nationwide Transport Ltd, the Bond Corporation involvement in airships, the Holmes a Court involvement in British media and all the rest are examples of the sorts of developments which have given Australia and Australian business an opportunity to grow very rapidly through the strength which has been initially obtained in Australia. The bigger companies, through amalgamation by one means or another, have increased international trading status and linkages.

Again one can point to what has happened with Elders and the development which it has undertaken in trading as well as business acquisition in other countries. That, along with the entry of foreign banks into Australia, can enhance our long cherished prospects of developing in this country a finance centre for the western Pacific. By the western Pacific I mean from north of Japan to south of Tasmania. I mean the whole of the western Pacific. One of the things this country could do-if we had got on with it earlier we could be doing it right now-is fulfilling the function of being a finance centre for the western Pacific. There are problems with Japan being able to fulfil that role; there are problems with Hong Kong being able to fulfil that role; there are problems with Singapore being able to fulfil that role. Yet all of these countries are doing it to a much greater extent than we are and all of them are doing it because of our default. We have sat back, too regulated, too limited, too isolated and too restrictive to be able to encourage that sort of development to take place. I think we need to lift our game, lift our sights, lift our visions and look outward in that respect.

Another of the problems which we have to bear in mind-I know I am talking about something which has not yet come before us but I refer to it in this context-is the possibility of a capital gains tax and the way in which that can work to the detriment of those who have invested through the stock market in securities and shares in companies. The person who may be the loser in a takeover battle and who loses that which he has built up over a period of years may find himself with what is a most unwelcome capital gain which is then taxed. So having lost the battle in the takeover he loses the battle in relation to the funds. That is one of the things which has not been adequately taken into account at this stage but it is something which has a double penalty for the loser. It will certainly not encourage investment as it should. As opposed to that, takeovers can be of great benefit to many shareholders. Sometimes a person gets into a position where he is locked in; he cannot get out of it because of the lack of breadth and depth in our markets. It is only through a takeover that a person can get out of something that he might not wish to be in.

Other concerns which are important in relation to mergers and takeovers are questions of the creation of monopolies, or duopolies, and the creation of just simply non-competitive markets, notwithstanding the Trade Practices Act. We have the risk that any benefits to shareholders arise at the expense of consumers or suppliers rather than as a product of economies of scale or superior management. Again that is one of the things which some people who talk about the benefits of takeovers forget. They forget that one of the reasons why the new company-the merged company-is being more successful is that it has control of the market. There is no competition to keep its prices down.

Senator Haines —Precisely; especially in the retail area.

Senator PETER RAE —Senator Haines said: `Especially in the retail area'. I want to make sure her interjection is picked up and is in Hansard. I wish I had time to talk about it but I have a number of other things I want to talk about. I want to talk about the concentration that there has tended to be-it tends to encourage a like public belief-on the notion that the stock market is something like a casino. When the takeover game is being played to too great an extent the average person sees that sort of action as high roller gambling, as I described it earlier, rather than the serious readjustment of business operation for its greater efficiency, greater profitability and greater wealth creation.

Another of the problems is that management tends to spend a lot of its time looking over its shoulder. Decision making for only short term action takes place and the result ensures that predators are warded off. However, they are too nervous to engage in long term planning because very often long term planning involves investment which does not create a return for quite some time. As we become more and more complex so investment becomes bigger and very often the lead time becomes longer. The more one engages in that sort of development the more one exposes oneself, as a director of a company, to a takeover. The sort of investment where there is a long lead time does not provide cash flow. The beneficial development which we need in this country is sacrificed on the altar of short term gain in the management of far too many companies in this country.

Australia needs to be more competitive internationally. We need far more research and in particular we need far more development. Our record in research is far better than our record in the application of the successes of that research. I will have to keep my good news stories of all the areas in which we have been successful in developing as a result of research. There are a lot of them. One which I like in particular is a computer company, an offshoot of one of the world's leading companies, which is selling technology back to its American parent. It is interesting to know that the new London taxi-cabs have transmissions that were made at Albury-Wodonga in Australia. The radios that are fitted into London taxis these days are made in Melbourne. These are the sorts of things which I believe show that we can have a good story if we have the right attitude. But too often we have the cringe mentality; too often we have the short term development mentality; too often we have a failure of both unions and shareholders to see the necessity for investment over a long period. For that investment to take place one must have either further investment by shareholders or profits made and retained. If neither of those things happens it is not very likely that one will get the development that is necessary.

This, of course, brings forward the privatisation debate. If we are talking about the breadth and depth of the market we need to further our national economic development and we need some privatisation, where possible, to restore the breadth and depth of the securities market so that we are not limited to 1,000 listed companies and a reducing number at that. We need encouragement to direct employee participation in the employer corporation. We need the encouragement of investment savings wherever possible by the small as well as the large if they wish to and if they have faith in the system. Too often people have been directed into other forms of investment which have not necessarily been reliable.

That brings me to investment advice and the delay which we have experienced in receiving from the National Companies and Securities Commission the promised paper in relation to a new law relating to investment advisers. In this country we have had a need for investment advice to be available and to be given objectively. One of the experiences one tends to hear about too often is that the percentage of advice which comes from bankers is for investment in an offshoot of the bank. If the advice comes from brokers it is for investment in shares in which the brokers have an interest. If the advice comes from other forms of investment advisers, such as those associated with trusts, the advice is likely to be to invest in a trust. In other words, there is a lack of independent advice and this is often complained about. To my knowledge no one has done an absolute survey so what I have said may be the exception rather than the rule. But certainly it is a complaint which has been heard and heard quite often. It is something about which the Senate Select Committee on Securities and Exchange certainly found some evidence in the 1970s.

I would like to quote something in relation to the question of whether we need a greater incentive to productivity and competitiveness and whether these things can be brought about as a result of some degree of privatisation or some greater concentration of opportunity of employee participation in an employer corporation. I would like to sum up this matter by using the words of Mr Bosch, the new Chairman of the National Companies and Securities Commission, in a speech he gave to the Accounting Association of Australia and New Zealand in Sydney recently. Mr Bosch said:

Wherever we compare a free enterprise system with a centrally planned one such as East versus West Germany or North versus South Korea, we find that our system works and theirs does not.

Why is this so? Why is free enterprise so successful? Let me suggest just two factors. First, free enterprise harnesses the innate acquisitiveness, competitiveness and even aggressiveness of man to socially productive ends-this is Adam Smith's invisible hand at work.

Second, our system provides a measure which enables and encourages rational decisions to be made.

I think that that shows the attitude which has been adopted by Mr Bosch. It shows the attitude which needs to be adopted more widely.

I would also like to take the opportunity today of welcoming the creation of the Australian Investment Planners Association. This organisation has developed a very extensive code of ethics. This organisation will give training and provide an inter-relationship with other professional bodies. I believe that the Association will assist in promoting the professionalism which is required in this area of our economy and economic activity.

Finally, may I say that there is a quite urgent need to recover parliamentary interest in the development and change that is taking place. Development and change are not only brought about by governments. They can also be brought about as a result of parliamentary awareness and consideration. There needs to be exposure of what is required. I believe that a committee of this Senate needs to be constantly in a position to communicate with the National Companies and Securities Commission so that it can hear publicly, or in camera if necessary, about what is happening to the securities industry in Australia, corporate activity in Australia and the management thereof, so far as is necessary, by regulation. We could then possibly have a better approach, a more publicly tested approach, to the question of what changes by way of deregulation are necessary as well as what changes to the regulatory framework are necessary. I urge, as I have urged on prior occasions, that we move in the Senate as soon as possible to refer to one of the appropriate committees a reference for the continuing oversight of companies and securities law in this country.

I thank the Senate for the opportunity to make a few comments about this area. I am only sorry that we do not have a longer time to debate this matter because I would have liked to cover a number of other areas. No doubt we will get an opportunity to do so on another occasion. As has been said, we support the legislation.