- Home
- Hansard & Papers
- Legislative Assembly
- 15 October 2003
Federal Government Corporate Law Reform Package
Printing Tips |
Print selected text
| Full Day Hansard Transcript
« Prior Item |
Item 23 of 47
| Next Item »
Page: 3911
Urgent Motion
Mr JOSEPH TRIPODI (Fairfield—Parliamentary Secretary) [3.55 p.m.]: I move:
That this House:
(1) welcomes the Federal Government's proposed corporate law reform package, and
(2) calls on the Federal Government to extend measures to allow New South Wales shareholders a greater say on executive salaries and bonuses and the banning of bonuses to non-executive directors.
The excesses of corporate Australia have been in the media of late, and for all the wrong reasons. With each headline of multimillion-dollar bonuses being given to executives despite balance sheets running into the red, shareholders are left to wonder why this is allowed to happen. We have seen shareholders left in ruins following the collapses of Enron and WorldCom in the United States of America, and OneTel, HIH Insurance and Ansett in Australia. These scandals have highlighted the need for a tougher approach on corporate law. The Federal Treasurer, Peter Costello, has put forward the next phase of corporate law reform, the Corporate Law Economic Reform Bill—known as the CLERP 9 bill.
It is interesting that in March this year the Howard Government voted down Federal Labor's proposal to require companies to put a non-binding resolution to shareholders on executive remuneration. However, recently the Federal Government had a change of heart. We welcome its change of heart and the fact that that important proposal is contained in the CLERP 9 bill. But, whilst some of the reforms contained in the bill are welcome, they do not go far enough. Shareholders are not confined to the blue rinse set, sipping champagne on their yachts at Point Piper. More and more shareholders are battlers who have invested their hard-earned savings. They are the mum-and-dad shareholders who expect executives to manage their funds in an appropriate and transparent fashion.
Many Australians have an exposure to the share market via their superannuation. Given that the retirement income of many Australians is dependent on the vagaries of the share market, the importance of corporate governance becomes clear. Shareholders have cause to be concerned as they have seen their dividends dive as executives run off with their multimillion-dollar bonuses. Importantly, we have seen the Federal Treasurer asleep at the wheel, allowing these excesses to occur. In contrast to the Howard Government's self-regulatory approach, Labor believes in taking an activist approach. In 1998 Federal Labor and the Democrats inserted in the Corporations Act a provision which for the first time required that companies disclose the remuneration paid to directors and top executives. Prior to that amendment, Australian companies did not have to disclose to shareholders what they paid their officers. That seems hard to believe today.
The Federal shadow Minister responsible for financial services and corporate governance, Senator Stephen Conroy, recently released a paper entitled "Labor's Approach to CLERP 9: Cracking down on Corporate Greed". The paper sets out the reforms that should form part of the CLERP 9 bill. If the Federal Government is serious about corporate law reform, it will adopt Labor's policy all the way. That includes, for example, banning loans to directors and company management, prohibiting the payment of options, bonus payments and retirement benefits to non-executive directors, requiring that directors disclose all relationships with the company and other directors when standing for election, not just other directorships, and doubling penalties for serious breaches of the Corporations Act 2001. We have yet to see whether Treasurer Costello will adopt these important reforms. But there is another concern that should set alarm bells ringing for New South Wales shareholders: the Federal Government's attempt in another piece of proposed legislation to actually water down shareholders' rights.
Under its Corporations Amendment Bill 2002 the Federal Government proposes to shorten from 28 days to 21 days the notice period required for the calling of company meetings, abolish the right of a single director of a listed company to call a meeting and abolish the 100-member rule, which gives minority shareholders the right to call a meeting. I am pleased that Federal Labor will oppose each of those proposals, but as Senator Conroy recently pointed out, it highlights the hypocrisy of the Howard Government. On one hand it agrees with Labor that shareholders should vote on fat-cat salaries and the CLERP 9 bill, but on the other hand it introduces a separate bill to reduce shareholders' rights. The only thing John Howard has done about obscene salaries is talk about them. In May this year, in response to furore over the payout to former BHP Billiton chief executive officer Brian Gilbertson, Mr Howard was quoted in the Australian Financial Review as saying:
It's your responsibilities [as] apostles of the capitalist system, you want to keep the capitalist system free of too much government regulation, well you've got to deliver.
Even since the release of the CLERP 9 policy paper in September last year, the salaries of chief executive officers have continued to defy community expectations. For example, the former chief executive officer of Southcorp, Mr Keith Lambert, took home $4.4 million after only 18 months at the helm, in spite of the fact that the group's profits plunged by $204 million. Fortunately, shareholders at yesterday's meeting of Southcorp got their chance to express their discontent with its performance. We welcome shareholder activism; we invite it. We will try to introduce reforms at the Federal level to give shareholders the opportunity to become more active and to provide them with the necessary tools to do so. In 2002-03 David Murray from the Commonwealth Bank took home $2.5 million, a 7.4 per cent increase in salary, despite the net profit of the bank slumping 24 per cent in the same period.
The Howard Government's self-regulatory approach has failed to produce outcomes that benefit the shareholder, the employee or the retiree. The reaction of the business community to proposed changes to the law relating to executive remuneration has been fascinating. They have adopted a head-in-the-sand approach. They do not realise the depth of feeling in the community about fat-cat salaries, and they refuse to acknowledge that some corporate governance reforms need to legislated. Australia is not immune from corporate scandal—ask any shareholder in One.Tel, HIH, Ansett or any other company that has failed recently. If those sitting opposite are serious about protecting the rights of mum-and-dad shareholders in their electorates, they will join us in sending a clear message to Canberra that the Federal Government should support strong corporate governance reforms.
Ms GLADYS BEREJIKLIAN (Willoughby) [4.02 p.m.]: I am surprised that the State Government acknowledges the enormous contribution of the Federal Government to corporate law reform. It is rare for the Labor Party to acknowledge even a small part of the fantastic achievements of the Federal Government. I am surprised also that the State Labor Government regards this matter as being sufficiently urgent to move an urgent motion about it, bearing in mind that the Federal Government's extensive Corporate Law Economic Reform Program has been ongoing since its election in 1996. As honourable members opposite should know, the Corporate Law Economic Reform Program commenced with CLERPs 1 to 6, which have been legislated and are in operation in the community. CLERP 9, which was announced one month ago, is simply at the tail end of the evolving CLERP process.
A cynic such as myself might ask why the State Government has brought this matter to the Chamber at this time. I would argue that it is an attempt to divert attention from the many responsibilities the State Government should be fulfilling in health, education and transport. Rather than concentrating on those issues it is trying to divert attention from them and is instead focusing on Federal issues. However, I welcome the opportunity to make some comments about the Federal Government's extensive corporate law economic reform package, which has evolved in an unprecedented fashion. As members of this House are aware, after 13 years of neglect by the Federal Labor Government the Federal Coalition Government, after its 1996 election, embarked on an unprecedented extensive corporate law economic reform program that has modernised business regulation, fostered a strong and vibrant economy, progressed the principles of market freedom, increased investor protection, and increased quality disclosure of relevant information to the market.
I take this opportunity to congratulate the Federal Treasurer, Peter Costello, on managing to bring about these almost revolutionary and evolutionary changes to corporate law through consultation with relevant stakeholders, community organisations and the private sector. His efforts have been matched by our sustaining a phenomenally low unemployment rate and prosperous economic conditions. I also take the opportunity to commend the work done by the Assistant Treasurer, Senator Helen Coonan, who has supported the Treasurer on these important initiatives. About one month ago the Treasurer announced aspects of CLERP 9. Previously the CLERP reforms modernised accounting standards, fundraising provisions, directors' duties, takeovers, electronic commerce and financial markets, and simplified lodgements.
On 18 September the Federal Treasurer introduced draft legislation for CLERP 9, which principally puts auditor supervision on a new basis under the Financial Reporting Council, gives legislative backing to auditing standards, requires new auditor independence, requires companies to disclose the fees paid for non-auditing services in their annual directors' report, introduces proportionate liability, introduces incorporation of auditor firms so that auditors bear their full liability for losses out of proportion to their contribution to them, enhances continuous disclosure—the draft legislation goes even further than the proposals or actions of the United States—gives the Australian Securities and Investments Commission power to issue on-the-spot infringement notices for inadequate disclosure and enhances confidence in our markets. It is a balanced package that was carefully crafted to be a reasonable response without going to extremes in either direction.
It is a bit rich for those opposite to claim that that rather comprehensive and extensive set of reforms does not go far enough, particularly when one considers that for 13 years the Labor Party did nothing to advance corporate law reform. Government members can say what they like, but the reality is that the Federal Government has introduced unprecedented levels of corporate law reform. It has acknowledged that corporate law reform is an evolving process with technological changes and shifts in global markets. The State Labor Party regards corporate law reform as a one-stop shop in which a number of reforms are introduced in isolation without consideration of other aspects, global markets and shifting paradigms.
Prior to the introduction of CLERP 9 the Federal Government consulted interested stakeholders and parties, as it did with CLERPs 1 to 6. That process will continue. The Treasurer has indicated that all interested parties, including the private sector, stakeholders and shareholder organisations, will have until November this year to make informal submissions. After considering those submissions the Federal Government will deal with these matters further and formally introduce legislation. I remind the House that it is the Federal Government's extensive and professional handling of the economy that has enabled mums and dads to enter the share market. Prior to 1996 ordinary Australians lacked the confidence to enter the share market, but that has changed. I am pleased to say that more and more ordinary Australians are finding the confidence to enter the share market, and that confidence is bearing fruit.
That is another achievement on which the Federal Government should be congratulated. In addition, organisations such as the Australian Shareholders Association have flourished. Those organisations have made important inroads into giving shareholders more power and authority to express their views at annual general meetings and to force boards to become more accountable to shareholders. I suspect that, just as consumerism has increased in its proficiency and widespread effect throughout the community, shareholders rights and values will continue to evolve similarly.
The second part of this urgent motion prompts me to note that there is widespread community concern about allegedly excessive remuneration in both executive salaries and bonuses and bonuses to non-executive directors. That will be dealt with appropriately. However, we need to ensure also that those legitimate concerns are balanced adequately by ensuring that Australia has the best chief executive officers it can get. We do not want to suffer from brain drain and we do not want our talented people to go overseas because they cannot find suitable remuneration in the Australian market. I totally accept the widespread community concern about executive remuneration and I know that many shareholders are concerned about it. However, that concern needs to be balanced by ensuring that the private sector has the freedom and ability to retain significantly qualified Australians to head our major corporations. It is only with good corporations being led by good Australians that we can ensure shareholder and consumer confidence and that a major factor of the Australian economy continues to flourish robustly.
[Interruption]
Mr Brad Hazzard: You high-taxing lot! I wouldn't put you in charge of a chook raffle. I wouldn't put you in charge of a company.
Ms GLADYS BEREJIKLIAN: The honourable member for Wakehurst mentions a legitimate point that I should have alluded to earlier in my speech. A member of the highest-taxing State Government in this country has the hide to question legitimate reforms. He has the hide to question unprecedented reform which has increased consumer confidence and shareholder confidence, reform that will result in more Australians that ever before being able to enter the share market. The details of CLERP 9 were announced only a month ago by the Federal Treasurer. Those details show that the self-regulatory approach, coupled with the extensive CLERP process which the Federal Government has introduced, has resulted in unprecedented reform of corporate law and corporate governance. I commend and congratulate the Federal Government for the fantastic work it has done in that regard.
Mr MATT BROWN (Kiama) [4.12 p.m.]: I support the motion, especially after listening to the diatribe delivered by the honourable member for Willoughby. What a shocking apologist she is for the Federal Government! She accuses the State Government of being high-taxing, despite the fact that week after week in the Australian Financial Review many economic and media commentators acknowledge that the Howard Liberal Government is the highest-taxing government ever, even during wartime. The honourable member for Willoughby acknowledged shareholders' concern about bonuses and high executive salaries. However, she said that although she recognised the concern, it was bad luck, and that shareholders should not expect the Liberal Party to look after their interests. It wants to look after its mates who are receiving massive salaries and bonuses.
I was appalled that the honourable member for Willoughby did not have the guts to state that the Liberal Party in this State will do something about the concerns of shareholders. She could join my colleagues on the Labor side of the Chamber and tell the Federal Government that the shareholders and investors of this State are sick to death of corporate executives being paid large sums while shareholders investments and retirement funds are being whittled away. The poor attitude of the honourable member for Willoughby highlights the contrast between the different approaches adopted by the Liberal Party and the Labor Party.
The self-regulatory approach adopted by the Howard Government has failed to produce outcomes that benefit the shareholder, the employee or the retiree. Voluntary guidelines, such as those applying to the investment banking industry, have been a proven failure. The Federal Government must legislate for tougher corporate laws to crack down on the market practices which have led to outrageous executive remuneration and corporate collapses. The effects of some of the more recent corporate collapses are simply devastating. Consumers were left in the cold after the HIH collapse, workers are still waiting for their entitlements following the Ansett collapse and shareholders have written off their investments following the demise of One.Tel. Those groups of people receive only lip-service from the honourable member for Willoughby, but no commitment.
Shareholders have been relying on the long-awaited CLERP 9 bill to crack down on corporate greed, restore confidence in financial reporting and empower shareholders to take on Australian boards. It has been over a year since the Federal Government published the CLERP 9 policy paper, yet fat cat salaries have continued unabated. The only way to crack down on corporate greed is to take an active approach. We need laws that will improve company boards' accountability. Boards are responsible primarily to shareholders, and shareholders have to be armed with the information they need to make an informed choice. I note that the reforms proposed by Federal Labor go a long way towards empowering shareholders. For example, they require the disclosure of golden hellos and golden handshakes. They will ban the payment of options, bonus payments and retirement benefits, other than statutory superannuation, to non-executive directors. They will require directors to disclose all relationships with the company and other directors when standing for election, and will double the current penalties for serious breaches of the Corporations Act from five years to 10 years. What is wrong with that?
The honourable member for Willoughby has not addressed those types of policy issues. She says that we need to attract the best company directors in the world and that it is all right for people to come over to Australia, cause our companies to lose a lot of money, do secret deals and then leave the place with a great big suitcase full of cash. In contrast to that, Labor members are trying to come to terms with how that type of thing happens in the first place. I suppose that is an example of the thinking on the North Shore compared to the rest of New South Wales. When it is remembered that the retirement incomes of Australians depend on the ups and downs of the share market, the importance of shareholder activism becomes clear. The way to increase shareholder activism in Australia is simple: empower the shareholders.
Given the power of boards to set remuneration, it is understandable that shareholders feel powerless in the process. That is why it is important to increase the number of executives who will be required to disclose their remuneration. Currently companies have to disclose only the remuneration of directors and the five most highly paid executives. Labor believes that companies should be required to disclose the remuneration of at least 10 of a company's most highly paid executives, in addition to the disclosure of the directors' remuneration. Companies should be obliged by law to disclose the board's policy on duration of contracts, notice periods and termination payments, the board's policy on performance conditions, the value of options granted, exercised and lapsed unexercised, the board's policy on equity value protection schemes, and graphs plotting shareholder return for the previous five financial years. I commend the motion to the House.
Mr BRAD HAZZARD (Wakehurst) [4.17 p.m.]: Obviously the Opposition does not have any problem with the welcome by the State Government of the Federal Government's proposed corporate law reform package. Today we should be discussing the fact that the Federal Government has embarked upon a consultation period to examine a number of corporate governance issues that the community is concerned about. As the honourable member for Willoughby indicated, there is concern in the community about some of the remuneration packages of directors and senior officers of major companies, but whether that necessarily translates into a valid reason for markedly changing the system by delivering massive power into the hands of shareholders to restrict those fees is a moot point.
Mr Joseph Tripodi: It is only their money, why would they be interested?
Mr BRAD HAZZARD: The honourable member for Fairfield seems to be engaged in class warfare. He is not as simplistic as his utterances seem to imply. His comments suggest that he is simply taking a position without examining the complex issues that surround the whole nature of corporate governance. As the honourable member for Willoughby stated, we obviously need to have the best people running our companies. If governments were to conduct themselves in a way that did not address these issues carefully and sensitively, the best, brightest and most capable people would head off to overseas companies. To ensure we have a healthy employment environment we need an environment that ensures the health of both our major and smaller companies.
For the New South Wales Labor Party to resort to the age-old class warfare and opportunism of simply saying that there should be some sort of blanket limit on what company directors should be paid is naïve, simplistic and silly. However, the Federal Government has acknowledged that there are concerns, as we all do. As part of the review it has looked at what role shareholders should have in reviewing the income and remuneration packages of company directors. Under the bill shareholders will be able to vote on that issue. That crosses over the policy of both the Labor Party and the Coalition, but it is an acknowledgement that somehow a balance has to be struck. The recently released draft bill addresses those sorts of issues, which may hit the front page of the Daily Telegraph, but the CLERP 9 policy papers have addressed other issues, for example, whether auditors should be able to join the boards of the companies they audit.
The bill puts in place some fairly carefully crafted structures which will address those sorts of concerns. After a period of public consultation it has been recognised that some of the smaller audit companies may be disadvantaged. The Federal Government is trying to find a way to ensure that the broader community's interest is advantaged while some of the smaller audit groups are not disadvantaged. I would have enjoyed speaking on this matter for an hour or so, because it is an important issue. Unfortunately, I have only five minutes. The Federal Government is continuing the consultation process. The bill can be modified following sensible public debate—not the sort of class warfare idiocy that has been promoted in this debate by the State Labor Party, the highest-taxing State Labor Government ever in New South Wales. The Government has shown itself to be unable to run the State, let alone companies. [Time expired.]
Mr STEVE WHAN (Monaro) [4.22 p.m.]: I support the honourable member for Fairfield on this important issue.
Mr Brad Hazzard: If you support him, you should support us as well.
Mr STEVE WHAN: I support some of the comments made by Opposition speakers as well. It is important that we acknowledge that some positive issues have been raised in the debate on the CLERP 9 bill. However, a number of areas still need to be addressed. Too often in the past few years shareholders, employees and governments in Australia have been left to pick up the pieces of corporate excess. In the 1980s it was trendy to agree with Michael Douglas, who said that greed is good. In Australia we know that greed can be taken too far; it is never good. Corporate greed is damaging Australians and their investments. I agreed with the honourable member for Willoughby, who pointed out that many mums and dads were now getting into shareholding. More average Australians are now able to get into the share market than before. That is why it is so important that the Government takes a greater interest in ensuring that the investments of those shareholders are protected and that they have an adequate say in the management of the companies in which they invest.
The Howard Government's economic management, which was lauded earlier by the honourable member for Willoughby, has left Australian households with record levels of debt. Statistics show that Australian households now have the highest-ever level of debt, mostly as a result of the Howard Government's economic management. That makes it all the more important that households have adequate protection and that they are not left out to dry when companies fail or executive excesses take away the value of the company. We know that there is public anger. That anger was expressed when the former boss of Southcorp took a $4.4 million package after only 18 months at the helm, despite the group's profits plunging by $204 million. Commonwealth Bank shareholders saw David Murray take home a 7.4 per cent increase in salary, despite that bank's net profit going down. The Australian people have expressed their anger, and the Federal Government has expressed sympathy with those views.
On a number of occasions we have heard Mr Howard make comments such as "I think people have a right to be angry". But all too often members of the Howard Government make those statements but do not back them up. It is pleasing to know that Labor's proposal to give shareholders a vote on executive remuneration has been adopted. However, more of Labor's proposals need to be taken up. For example, requiring directors to disclose all relationships with the company and prohibiting the company's auditor from providing non-audit services that compromise the independence of the auditor have been proposed by Labor but have not so far been taken up. The Howard Government often puts its economic rationalist free market ideologies ahead of the rights and legitimate concerns of Australian shareholders. That was evident again today in the contributions of the members of the Opposition.
The Opposition takes a self-regulatory approach that fails to produce outcomes. That is often evident in the obscene salaries that are announced in the media. The time when gentlemen's agreements were good enough to ensure the behaviour of companies and their directors has passed. The Federal Government should take a greater role in legislating to require companies to disclose excessive salaries at the top level and to ensure that no conflicts of interest impact on the value of shareholders' investments. I was interested to hear some of the comments by the Opposition speakers about tax levels. The evidence is set out before us, of course, in the budget papers. The New South Wales Government raises about $17 billion in taxes and this year the Commonwealth Government will raise about $230 billion. Off the top of my head, that means that the Commonwealth will raise about 13 times more tax than New South Wales. The Commonwealth Government is taxing ordinary Australians through the GST and a range of other measures. It is the highest taxing government in Australia's history, but at the same time it expects ordinary Australians to sit back and allow directors of companies to take excessive salaries at the expense of their shareholders.
Mr JOSEPH TRIPODI (Fairfield—Parliamentary Secretary) [4.27 p.m.], in reply: I agree with only a few of the matters raised by members of the Opposition. One of those is the statement by the honourable member for Wakehurst that this is a big issue and that he would have liked more time to debate it. That is why Labor has moved this motion: we agree it is a big issue that requires urgent consideration. The reason it requires urgent consideration is because it is all about investor confidence. If we are to have a properly functioning and efficient economy, investors need to have confidence in public companies. The Labor side of politics has always been concerned about that matter, whereas the Liberals have always been concerned about looking after the chief executive officers and their friends on company boards who often express support for the Liberal side of politics. That is nothing more or less than a payback.
Over the past few years, the Federal Labor Party has been pushing aggressively to empower shareholders and to give them the right to participate in the governance of the corporations in which they hold shares, to give them the right to protect the money that they invest in those corporations and to give them the power to determine exactly who governs the company and how the company will be governed. The Federal Government introduced some reforms, but it did so reluctantly. It was dragged, kicking and screaming, along that path. Some of the reforms in the United States of America—the Sarbanes amendments to United States Corporations Law—have upped the ante, increased standards and empowered shareholders to demand more disclosure from executives and the management of major corporations. Given that those reforms occurred in the United States, it made it difficult for the Australian Government to drag its tail and hold up this process.
[Interruption]
The level of disclosure required by United States firms is amongst the highest levels of disclosure required in the world. Australian firms do not have anywhere near the level of disclosure that is necessary to satisfy shareholders and their information needs. I wish to respond to some of the suggestions made earlier about the prudence of the Federal Government's management of taxation issues. Never in the history of Australia have Australians been taxed more heavily than they are now. The Federal Government prides itself on being a low-taxing and low-spending government, but never have Australians been taxed more heavily or burdened by a government than they are at the Commonwealth level. GST windfalls have been humungous. However, that is not due to any great management skills of the Commonwealth Government.
Rather than dispersing that money to the States, the Federal Government pointed at the GST revenue but cut everything else. The Federal Government ran away from its responsibilities in the provision of health services over the past few weeks, but only after it said that it did not have any money to provide those services. Soon after that it revealed that it had a $7 billion surplus. It revealed the hidden money. We were told that the Federal Government did not have any money, but it then revealed that it had a $7 billion surplus—money that it had taken away from Australian taxpayers. The Federal Government tried to convince the community that it is good at managing the economy, but it is a failure. I refer briefly to the Australian Prudential Regulation Authority [APRA] and the HIH disaster. I do not know how anyone in the Liberal Party can front up in any parliament in this country and say that they are good at corporate governance after the HIH failure, which cost taxpayers billions of dollars. Joe Hockey walked away scot-free and unaccountable.
Ms Gladys Berejiklian: Point of order: The honourable member should be reminded that he has to address matters that were raised earlier when he debated this motion.
Madam ACTING-SPEAKER (Ms Saliba): Order! There is no point of order.
Mr JOSEPH TRIPODI: The HIH debacle cost taxpayers billions of dollars. Members of the Liberal Party come into this Parliament and into the Commonwealth Parliament and tell us that they know how to manage the economy. They are an utter disgrace. They have caused massive suffering to policyholders all around the nation. It has cost taxpayers billions of dollars to help fix the problems because of the Federal Government's failure to properly run the Australian economy.
Motion agreed to.
Last modified 05/12/2007 16:33:19 : Update this page