House debates
Thursday, 24 March 2011
Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011
Second Reading
12:30 pm
Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Hansard source
The parliamentary secretary at the table says that they can do that, but it will remain a grey area. I hope that the detail of the bill is enough to satisfy those who are in dispute over this matter. The boards will have to obtain approval from shareholders in the event that they wish to enforce a no-vacancy rule, which will in turn improve the accountability of the board. I think that is the provision that the parliamentary secretary was referring to. Having said that, there is still an area of concern—until the right person arrives, sometimes it is appropriate to have a vacancy on a board.
The sixth measure contained within this bill deals with the issue of cherry-picking. This is essentially the practice where proxyholders who are not the chair are able to pick and choose the resolutions on which they wish to exercise the proxies they hold. The Productivity Commission recommended that this be changed so that the proxyholders must exercise all their proxies for each resolution, in order to improve the transparency and effectiveness of shareholder voting on remuneration. Again we see that even though this is a very prescriptive measure there is some sense to it.
The final measure contained within this bill is one that will make the financial reporting process for companies less onerous. Hear, hear! This is a change to the remuneration reporting disclosures so that only key management personnel of the consolidated entity will need to be disclosed. Currently, there is overlap in the remuneration report disclosures and this measure will simplify the process for reporting purposes, and we support that.
These prescriptive measures would not be warranted if corporate Australia actually engaged in better self-governance. The general public are concerned about what they deem to be excessive remuneration. On the coalition side we welcome people who are incredibly successful and we welcome the fact that people are properly rewarded for success. There was a massive growth under the previous, coalition government in shareholder ownership numbers in Australia. Particularly through privatisation programs, we saw a massive number of ‘mums and dads’ investing for the first time directly in shares. The Labor Party started that process with the first tranche of the Commonwealth Bank. But it continued with the privatisation of the GIO and then a number of other initial public offers of government entities.
The second great moment of increase in the volume of shareholders in Australia came with demutualisation. I was a beneficiary of demutualisation, both at the AMP not long after the privatisation of GIO, and at NIB, which demutualised not so long ago. Thankfully, both times I immediately sold my shares; I do not think either of them have ever seen those prices again.
Having said that, we have seen the empowerment of Australians through investment in shares. In fact, governments, and our government in particular, have provided incentives. It was the previous Labor government that created dividend imputation, and that was an incentive for people to own shares. It was the coalition government that effectively halved capital gains tax. It was the coalition that abolished stamp duty on the transfer of shares. It was the coalition that gave the great bulk of Australians the opportunity to invest in shares for the first time through the privatisation of Telstra. The fact is that those opportunities to invest in shares, whether the shares go up or the shares go down, empower individuals and ensure they have a diversified asset base, apart from what would, for many people, be their own home.
We have seen very significant growth in superannuation. I heard the other day we now have more than $1.8 trillion in Australia in superannuation, which I think now makes us the country with probably the fifth- or the fourth-largest funds under management in the world. I understand we have just passed Canada, which is quite a phenomenal achievement. We welcome that; it is very important. With that massive change in the nature of everyday investors, the fact that more and more everyday Australians are investing in shares, the scrutiny of Australian companies is even greater.
And one of the great comparative advantages we have as a massive recipient of foreign investment is our regulatory stability. We will have debates across this chamber, and perfectly reasonable debates, about regulation and taxation and so on. I would think there will probably be a couple today in question time. But I would say to you, Madam Deputy Speaker, it is so vitally important that everyday investors can have confidence in the integrity of their investment. And that is why we need to have a strong, reliable and consistently enforced Corporations Act, and that is why we need to provide appropriate protections. Not too much, because there is a risk in life—from my perspective it is vitally important that people who engage in investment undertake risk, because that ensures that the investment is more prudent, as my colleague at the table, the member for Mackellar, would know. It is vitally important that with risk comes reward and that we do not overly tax the reward. That is a very important formula.
Having said that, we need to ensure that there is an appropriate minimum level of protection for shareholders and investors. And they have to believe that the directors are acting in the best interests of the company. Now of course that is one of the key pillars of the Corporations Act; directors have a fiduciary obligation to act in the best interests of the company. That of course includes best interests of shareholders. But at the same time there is growing anxiety on both sides of this House that remuneration of senior executives in Australia is at times removed from the reality that many people would expect. It is shareholders’ money. They are entitled to see their chief executives being paid whatever is appropriate. I cannot say with any certainty whether $100,000 or $100 million is appropriate remuneration. That is a matter for the shareholders.
But what we collectively agree in this place is that shareholders should be properly informed and that shareholders should be properly empowered. And if they have the information and they have the opportunity under the law to exercise their entitlement, to speak out about the remuneration of senior executives, then so be it. And that is why there is bipartisan agreement. There is concern. A number of my colleagues have—and I perfectly understand it—a concern that this is an additional layer of regulation, that at some point the regulation tsunami has to be stopped—and there is plenty of that at the moment. But where there is corporate governance failure, it is the responsibility of the parliament to step in.
I said something recently that a number of my colleagues on both sides of the House would not agree with in relation to women on boards. But as I pointed out in an opinion editorial in the Australian, we are concerned about corporate governance issues more generally. I do not want to be prescriptive about things. There is incredible reluctance that this parliament should go down the path of being prescriptive about remuneration or prescriptive about constitution of boards or about any area of the regulation of private enterprise. But where there is corporate governance failure in entities that have up to one or two million shareholders, those people need to be spoken for. It is about good corporate governance.
I have said this before publicly. I remember getting a phone call from Mr Kerry Packer. He pointed out a particular provision of the then new Corporations Act that he said was overly onerous in the appointment of directors. He was quite right; it was a heavily prescriptive provision. He said, ‘Son, it’s going to be very hard to get good directors when you have this additional regulation.’ I pointed out that he was right, but every time there is a corporate failure in Australia, the general public, the media, political opponents always call out for more regulation, not less regulation. There is no-one reminding people that you have to accept some personal responsibility for failure. If you invest in a company and the company falls over there is going to be some pain, but that is a risk you take in order to get the reward you want. Of course everyone wants to maximise the return and minimise the risk. That is the endgame. But we cannot continue to default to regulation to minimise the risk, because ultimately that regulation, once it becomes so onerous, diminishes the reward.
It is widely regarded throughout the investment community that the safest investment is a government bond. It might be in Australia, but there are some countries in the world where it is not such a good investment. In fact, I remember Mike Milken saying to me that he was told by the CEOs of the various banks in the US in the 1970s and 1980s: ‘You know, Mike, governments don’t collapse. They don’t fall over. That’s why it’s okay for banks like Citibank, Bank of America and others to lend money to governments, because, don’t worry, those bonds will never fall over.’ Mike Milken went back when they all did fall over. When South America started defaulting, he was buying the debt for 6c, 7c and 8c in the dollar and he was cleaning up, because governments do default. But the perception is that there is less risk associated with government investment. Therefore, there is inevitably going to be less reward. Although, again, if you want a modern equivalent, look at the bonds of Greece. The risk is higher, the reward is higher—certainly higher than Australia and a number of other jurisdictions.
Having said that, the bottom line here is: the government cannot continue to increase regulation, because it diminishes the overall reward associated with investment in the private sector. I think we need to be mindful of that whenever we come in here and, even in a bipartisan manner, support additional regulation on Australian business. The best way to support business is often for the government to get out of the way. But there needs to be some rules of the game. It is not much different to sport: if everyone knows the rules and the rules are fair and keep the game flowing, then it will be an entertaining game and everyone will enjoy it and more people will participate. But if the rules become so onerous or so confused or so open to misinterpretation, as I see in my beloved rugby from time to time with the scrum rule—you know what?—it is going to diminish the event. If we continue to prize Australian private sector enterprise, which we in the Liberal Party and the National Party are so dedicated to, then we have to find ways to reduce regulation, not to add to the additional burden.
On this occasion we are backing this initiative to give confidence to Australian shareholders that the remuneration-setting processes in Australian companies are true, fair and transparent. I remind the House that, when we going to committee, we will be moving an amendment in relation to the wording of the no vote, which occurs in the two-strikes test. Otherwise, and bearing in mind what I said before—that this is additional regulation that we are a very, very reluctant to support but we are supporting it for the reasons I have outlined—I commend the amendment bill to the House. I commend to the House the amendment we will make at a later time.
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