Tony Zappia (Makin, Australian Labor Party) Share this | Hansard source

I welcome the opportunity to speak on Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011, and I commend the member for Kingston for the remarks she has just made on the bill in this place.

In recent years public anger about excessive salaries and executive payouts has been widespread. Whilst the spotlight has been taken off executive salaries in recent times there is little, if any, justification for some of the remuneration we are still seeing. Nor is this issue just a matter for company shareholders. It is a matter that the wider community has a right to take an interest in, because in most cases the remuneration packages for senior executives have direct implications for the broader community. That is why this is a public interest issue, and why those people who argue that private sector remuneration is a matter for the private sector and not the business of government are wrong. It is the argument about why this is a matter of public interest that I will address in my remarks on this bill.

Possibly every senior management appointment today is tied to performance, either by way of a performance bonus or simply because renewal of the employment contract is directly tied to performance. In the private sector the most used measure of performance and certainly the most persuasive is the annual profit or loss statement. Generally, the higher the profits the better the performance is considered. That is what most company owners and shareholders are driven by. Profit can be and usually is made from a range of actions, but when any of those actions are extreme or irresponsible it is the public that inevitably ends up paying one way or another. And therein lies the public interest test—a test that could be applied time and again, using many examples in numerous industry sectors over recent years.

We have seen farmers being squeezed by monopoly retailers, manufacturers transferring their operations overseas, high-risk loan arrangements or investment schemes, construction shortcuts where safety standards are not complied with, transport industry drivers placed under unreasonable delivery deadlines, and collusion or similar practices and possibly corruption creeping into industry practices. Cutting costs and increasing sales are strategies almost universally implemented in business to increase profits—and I will speak more about both these matters. Cutting costs and reducing overheads can be achieved by investing in modernisation strategies, upskilling the workforce, streamlining production and other forward-thinking responsible strategies. The alternatives are reducing labour costs, not complying with regulatory standards, using inferior componentry, taking extreme risks and other irresponsible measures—all of which appear to have become commonplace in business.

I turn now to labour costs. Labour costs are frequently cut by placing unreasonable demands on workers, including longer working hours, which are often unpaid; by reducing the workforce numbers and working employees harder; by paying workers less than fair wages; by subcontracting work out; and by taking work offshore. It is all about squeezing more out of the labour force. The social costs of unemployment, housing, health and family breakdown, which inevitably follow when operations are transferred offshore, workers are placed under unreasonable work pressure, or work is subcontracted out so employers are no longer responsible for work conditions are all examples of where the consequences are inevitably paid for by the rest of society.

We saw the collapse of the financial system because of high-risk lending practices or high-risk investment schemes. This was driven by executives who were in turn motivated by increased profits. Hardworking people lost their homes, their health, their savings and sometimes their lives because of the decisions of highly remunerated executives. In the five years prior to the 2008 global financial crisis, senior executives of the five largest financial institutions in Wall Street were paid $3.6 billion in remuneration. They profited whilst others lost everything. They were rewarded for their failure.

I turn now to the transport sector. Each year around 300 lives are lost and about 5,500 are injured because of cost-cutting in the transport sector. I quote from a submission from the Transport Workers Union from February this year on this very matter:

Each road death costs $1.7 million. Each injury in an incident costs $408 000. When the non-monetised social impact of road deaths, injuries and illness, family breakdown, pain and suffering is included in the measurement of what road deaths and injuries cost the community—

The damages bill is immeasurable. The report attributes the cause of the road transport safety crisis to economic factors; namely, the low level of driver remuneration and their methods of payment. As made clear in the NTC report, the high level of control exercised by clients over price, timing, destination and route causes operators to bear the costs that, ordinarily, are borne by customers. Denied a proper return, let alone a margin that exceeds the cost of capital, operators undercut each other, bid the price of transport down and attempt to recoup the losses caused by clients from drivers by not paying them for all work performed and by paying them through incentive rates. It says:

Because employment is too often conditional on strict compliance with an operator's direction and client deadlines, drivers are prone to drive while fatigued, to speed, to take drugs and to skimp on maintenance.

All of that arises because someone is trying to make a profit. Usually the CEO or an executive is the person driving that to the point that they do.

Mining and construction workers' lives have been put at risk and lives lost or injured because of work practices imposed by employers. The recent spate of mining tragedies exposes some of these practices. In the building and construction sector, each year around 50 lives are lost and around 75,000 workers are injured through accidents, which in most cases are foreseeable and avoidable and which can be attributed to cost cutting. Yet people like Ark Tribe were taken to court for standing up for their right to a safe work environment.

In food production, farm producers are squeezed for lower prices by the major grocery retailers in turn placing hardship and stress on farming families. The current milk price war has been linked to the executive remuneration of the Coles CEO with allegations that the Coles CEO will be paid millions of dollars if he increases the Coles profit. Discounting milk is a strategy currently being employed by Coles to increase market share of grocery sales and ultimately the Coles profit. The Australian dairy farmers say the discounted milk is already reducing the income of dairy farmers and threatens their ongoing viability. This is a claim that Coles is disputing of course. We have also seen farm products being sourced from overseas where production standards do not meet Australian standards, which in turn leads to health impacts on Australian consumers and a demise of Australian food production. Again these are decisions made by executives whose primary interest is profit. The impact on Australian farmers and the health impacts on Australian consumers are ultimately borne by governments.

Another of the very concerning trends in recent times has been the use of overseas registered shipping and crews. We have now had several cases of extensive environmental disasters that have been attributed to cost-cutting decisions made by executives who are driven by profit. The environmental disaster on the Great Barrier Reef when a Chinese coal carrier ran aground, spilling about four tonnes of heavy fuel oil from a perforated fuel tank, has been attributed to a seaman being fatigued, having managed only 2½ hours of sleep in the previous 38½ hours. In February this year there was another shipping incident. It was associated with the multi-cat vessel Boskalis BKM 102 whilst working on the Gorgon project off Barrow Island. The four MUA crew members were put at risk and the pristine environment was badly polluted, because of the shoddy practices of the overseas shipping company. In addition, there was the Montara oil spill, which occurred in the Timor Sea on 21 August 2009 and continued right up until November 2009. I understand that Indonesia and East Timor are now seeking compensation for the extensive environmental damage done. Even if they are successful as to compensation and even if penalties are imposed, the reality is that the bulk of the environmental damage cost inevitably will fall onto governments and society.

The measures in this bill provide increased accountability by CEOs to shareholders and conversely give shareholders more control over executive remuneration, and they will be welcomed by many Australians. It is my view that most shareholders do not endorse the kinds of practices that I have alluded to in my remarks. It is my view that most shareholders want to see their executives acting responsibly. Time will enable us to determine whether the measures in this bill are sufficient to ensure the right level of accountability by CEOs. It is my view that many CEOs are still grossly overremunerated and I would consider supporting additional measures that I believe could be taken to curb excessive CEO remuneration packages. I note the comments of members opposite and I understand that they intend moving an amendment. I also note comments they believe that essentially the government should not meddle in private enterprise. These comments were made by a number of these speakers. I reject that proposition. I believe that this legislation is a step in the right direction, and I commend it to the House.

Debate adjourned.

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