Darren Cheeseman (Corangamite, Australian Labor Party) Share this | Hansard source

I rise to speak on the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009. This is about Labor again trying to clean up the mess left behind by the Liberals when they were last in government. This bill arises from the Liberals’ decade in power when they did nothing about clear accountability issues, such as executive remuneration as it spiralled out of control.

It is about clearing up the mess that was left to us by the previous government through the period from 1996 to 2007. This is one piece of legislation that I believe has the overwhelming support of the Australian people. It is legislation that I am 100 per cent committed to. Working Australians have been outraged to hear time and time again of reports of executive salaries that have spiralled out of control—and doubly so when the executives got paid just before a company crashed or the company’s performance petered out on the stock exchange.

As usual, it takes a Labor government to fix up these excesses. The bill will amend the Corporations Act 2001 to strengthen the regulatory framework relating to the payment of termination benefits to company directors and executives. Whilst it is hard to fix all the issues because of their complexity, this bill puts in place solid reforms that will make company executives, CEOs and company directors more accountable.

The three key measures of this bill include lowering the threshold at which termination payments must be approved by shareholders, expanding the scope and provisions to include key management personnel for companies that are a disclosing entity and clarifying and expanding the definition of what constitutes a termination benefit.

I want to say upfront that there are thousands of decent, fair-minded company directors, CEOs and executives who care about the standards that they set. I know many people in the business world who have very high principles, who work very hard and who do give a damn about the people that they employ. But it is equally true that there are many motivated mainly by greed, who jack up their own pay at every opportunity—often at the expense of ordinary workers. There are people who hide this, who try to obscure their remuneration via all sorts of mechanisms.

The core elements of this bill are a clear indicator of this. Because of the behaviour of many executives, we are having to, as part of this bill, prohibit directors and executives who hold shares in their company from participating in shareholder votes to approve their own termination benefits. You would think that this sort of behaviour would not occur. You would think that people would see the clear conflict of interest and, of course, declare it and also exclude themselves from the vote. But that is not so. Greed overrides principles in the corporate sector of many companies on too often a basis.

As part of this legislation, we are introducing an express obligation on the recipient to immediately repay unauthorised termination benefits. We are introducing significantly higher penalties associated with unauthorised payments on termination benefits. These are provisions the former government should have immediately put in place when they saw the stories of excessive greed unfolding over a decade. But they did not. If the Howard government had not refused to act, these sorts of laws would have been in place during the collapses of the global recession that we are currently enduring, where we saw many major companies collapsing, with executives still walking away with truckloads of dollars.

These amendments are urgent as there is significant community concern about executive largess, particularly at a time when many Australian families are being hit hard by the global recession. The new laws will expand the definition of a termination benefit, including a requirement for a broad interpretation of the term ‘benefit’ and a requirement that the substance should prevail over its legal form.

We are trying to put an end to some of the slippery little schemes executives put in place to assist them. This will include, for example, amounts paid as voluntary out of court settlements. The changes do provide the powers to prescribe whether certain types of benefits are to be given in connection with a person’s departure from office. For example, a payment made in connection with retirement, loss of office or position includes the automatic or accelerated vesting of options and any payments in lieu of notice.

We are significantly increasing penalties for breaches as part of this legislation, with potential fines for individuals set at $19,800 and for corporations at $99,000. However, as is usual in laws of this nature, the new arrangements will not apply retrospectively to existing contracts. It will apply to all new contracts once this legislation gains royal assent.

Whilst there are many examples of good executives, there are also many examples of very average executives, with average principles. In Australia I have to make mention of outgoing Telstra Corporation Chief Executive, Sol Trujillo. Poor old Sol was totally committed to driving down costs. He and other executives threatened and browbeat the workforce, forcing individual contracts on workers and driving down conditions of employment. Then it was, ‘See you later, mate.’ He took a $3 million termination payment on top of his $13.4 million base salary. I thought that was outrageous. I think he thought he was being modest! That was when he was sacking thousands of workers and driving down their conditions of employment through the course of his reign in that office. He was not a particularly principled man in my view. He was out of touch.

When this issue comes up, we always hear the Liberals trot out the hoary old line that companies are forced to pay these salaries and benefits because the market determines executive pay. If we do not pay this, as their argument goes, we will lose our top executives. That is what the Liberals say. I believe that is absolute rubbish. I believe there are many highly qualified executives who are smart, honest, trustworthy and do want to work for Australian companies. My view is that the sort of person who wants these executive payments to continue has a question mark over them from the start.

What did Sol Trujillo achieve at Telstra for his $13 million a year plus? The answer in my view is virtually nothing. He made the service worse, none of the big reforms that were needed happened, and he intimidated and demoralised his workforce. He, like so many other brilliant executives, relied on the very blunt and very dumb management tool of sacking workers at every opportunity. There are plenty of recent other examples that we can draw upon. Sol was not alone in this. Pacific Brands sacked 1,800-plus workers but did not address the core problem, which required responses other than the simplistic sacking tool most highly paid executives often resort to. Pacific Brand’s CEO left with a golden handshake of $3.4 million as the company got worse and worse.

Everyone also knows the shocking excess of Mr Owen Hegarty of OZ Minerals. He got a bonus payment of $8.35 million, which from memory was around six times his normal base salary. I would have loved to see Mr Hegarty stand in front of everyday shareholders and argue his case. These examples, in all likelihood, would not have happened if we had put in place these legislative arrangements some time ago. At the very least, they would have had to go through a much more rigorous process to defend their salaries.

The Australian people overwhelmingly support what Labor is doing. Australians do not support amoral profiteering and thinly disguised greed. They support a decent day’s work for a decent day’s pay, as they have always done. This bill is about introducing fairness and proper process into all areas of the corporate world, and it is another example of a good Labor bill. I commend this bill to the House.

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