Grant Chapman (SA, Liberal Party) Share this | Hansard source

The Export Finance and Insurance Corporation Amendment Bill 2006 is a welcome regulatory reform to the structure of an important statutory body, the Export Finance and Insurance Corporation. The bill will change the board management structure to reflect more closely the recommendations that were made by my fellow South Australian, Mr John Uhrig, in his important 2003 report entitled Corporate governance of statutory bodies and statutory office holders. The Export Finance and Insurance Corporation—or EFIC, as it is commonly known—has been in its current form since 1991 and, under the foreign affairs portfolio, it has been charged with four key functions: firstly, to facilitate and encourage Australian export trade by providing insurance and financial services and products to persons involved directly or indirectly in export trade; secondly, to encourage banks and other financial institutions in Australia to finance or assist in financing exports; thirdly, to manage the Australian government’s aid-supported mixed credit program—a facility which is now discontinued, although loans are still outstanding under it; and, fourthly, to provide information and advice regarding insurance and financial arrangements to support exports.

In these tasks, EFIC has been highly successful. EFIC has run consistent surpluses since 1991, except for the 1996-97 year during the East Asian financial crisis. EFIC has facilitated an increase in Australian exports from $99 billion in the 1995-96 financial year to $164 billion in 2004-05. A number of Howard government reforms to make our economy more internationally competitive have contributed to this export growth. However, it cannot be denied that the security provided to our exporters by EFIC is an important factor. According to EFIC’s annual report, tabled in the parliament several weeks ago, as at 30 June 2006, EFIC was managing exposures of some $3 billion across 32 countries. However, the Howard government recognises that there is no room for complacency.

The board management structure of EFIC currently is determined under the Export Finance and Insurance Corporation Act 1991. Following the implementation of the legislation that we are debating today, EFIC’s operation, consistent with the recommendations of the Uhrig report on corporate governance in the public sector, will fall under the Commonwealth Authorities and Companies Act 1997. We can expect that Australian exports will continue to rise sharply in the next few years with the continued emergence of China and India. It is, therefore, necessary that the management structures of EFIC be as effective as they can be to deal with large amounts of exports and future business opportunities arising from the increased interest in Australian goods and services.

It should be reinforced that this is a result of the economic stability which the Howard government has provided through innovative and effective policies. The restructuring of the EFIC board in line with the recommendations of the Uhrig report demonstrates the continuing good work of the Howard government. This involves: first, the removal of the Chief Executive Officer of the Australian Trade Commission from the EFIC board; second, the reduction in the number of other members—not including the chair, the deputy chair, the managing director and the government member—from not fewer than four nor more than six to not fewer than two nor more than five; third, after consulting the minister, the EFIC board, not the minister, as currently required, will have the power to appoint the managing director and deputy managing director; and, finally, appointments to the EFIC board, other than in respect of the government member, will be limited to three years with a limit of two terms—or three terms for EFIC board members who serve as chair.

This bill was considered by the Senate Foreign Affairs, Defence and Trade Legislation Committee during August 2006. Taking into account the submissions made by the Department of Foreign Affairs and Trade and EFIC itself, the committee recommended that the bill be passed. The Senate committee found that the proposed amendments are consistent with the Uhrig inquiry recommendations. It is important to remind ourselves when considering this bill that the bill does not alter the operations of the entire statutory body; it simply changes the management structure of the board. However, the Senate committee did express concern that the explanatory memorandum accompanying this bill failed to adequately explain the link between the particular changes it makes to EFIC and the Uhrig report.

The legislative handbook of 2000 highlights criticism of explanatory memoranda generally and in 1995 the House of Representatives Standing Committee on Procedure noted that, too often, there is potential for legislation to be misinterpreted due to the failings of explanatory memoranda. In reference to this bill, the committee said:

In the committee’s view, the explanatory memorandum accompanying the Export Finance and Insurance Corporation Amendment Bill falls short in providing the level of detail necessary to assist legislators in their understanding of the proposed amendments. It provides little insight into the operation of the provisions of the bill and how the proposed amendments are in keeping with Mr Uhrig’s recommendations. It did not follow the advice contained in the Legislation Handbook that the explanation ‘should focus on explaining the effect and intent of the Bill.’

The committee went on to say:

There is no attempt, other than general references, to tie the amendments directly to the findings and recommendation of the Uhrig Report ... nor any commentary on deficiencies ... in the current legislation that the bill is intended to address.

That is why the committee recommended:

... that the government take steps to ensure that explanatory memoranda provide members of parliament with the information necessary to be able to make informed decisions about the legislation before them. For instance, it suggests that the Legislation Handbook be worded more forcefully to alert those preparing the documentation to the importance and function of an explanatory memorandum. It also suggests that the Department of Prime Minister and Cabinet monitor and report on the standard of memoranda.

The importance of explanatory memoranda in explaining legislation cannot be overstated. However, the concerns raised by the Senate committee are not necessarily as valid regarding this legislation as they may be in the case of other legislation, because a statutory body is likely to develop its own culture, following the restructuring of its management. The committee accepted evidence that the amendments do satisfy the intention of the Uhrig report. As was argued by Stephen Bartos in the Canberra Times, in his article ‘All quiet on the review front in the long wait to be Uhriged’, of 5 September 2006, it is not necessarily the content of the restructuring across government statutory bodies that is the most important result of the Uhrig report but rather that it ensures that statutory bodies are reassessed intermittently to ensure that their operations are as effective as they can be.

In a globalised economy, where dynamism means not only expansion but also contraction, Australia must remain an attractive destination for investment. To avoid the financial crises that have befallen other nations in recent times, we must have a vigorous culture of corporate governance. That will stabilise both foreign and domestic investment. Indeed, this point was articulated by the OECD, which said:

If countries are to reap the full benefits of the global capital market, and if they are to attract long-term ... capital, corporate governance arrangements must be credible, well understood across borders ... Even if corporations do not rely primarily on foreign sources of capital, adherence to good corporate governance practices will help improve the confidence of domestic investors, reduce the cost of capital ... and ultimately induce more stable sources of financing.

The concept of corporate governance sets out to achieve the best results by ensuring decisions are made effectively through implementing, monitoring and control mechanisms. The Howard government is providing leadership on this important issue by implementing the recommendations of the Uhrig report across our statutory bodies. The Labor Party has stood still on this matter, in the policy vacuum it adopts towards business.

The rollout of the recommendations contained within the Uhrig report is an important step forward towards better corporate governance, but still more can be done. Effective corporate governance will be able to anticipate a wider range of risks and opportunities in the marketplace. Through this practical mechanism, companies are able to reassess and manage, in different ways, their non-financial risks and maximise their long-term financial value. That is something which is set markedly to drive financial markets in the future.

It is important that we remember that effective reform on corporate governance must include corporate responsibility. The best results for the market can only be achieved when we encourage business to take into account their internal governance, in hand with external responsibility, to ensure a healthy economy. The recent report and recommendations on corporate responsibility by the parliamentary Joint Committee on Corporations and Financial Services, which I chair, are, I believe, quite pertinent here. They are consistent with the implementation of the Uhrig report.

There is no room for complacency. Issues of corporate governance and responsibility are important in securing Australia as a valuable site for investment throughout the 21st century. Therefore, I encourage the government to further publicise the benefits of effective corporate governance, following the full implementation of the Uhrig recommendations. On that basis, I commend the bill to the Senate.