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Directors rue the information gap

COMPANY directors are usually the first to feel the wrath of shareholders and other stake-holders when the chips are down, but many board members feel they are being given a raw

deal.

A recent survey by Margaret Nowak and Margaret McCabe found many directors believed they were often wrongly accused, ill-informed or kept in the dark over what really is occurring within their companies.

This was the clear message from the survey of 45 independent Australian corporate directors.

Addressing the Western Australian Business Economic Forum in Perth last week, Curtin Graduate School of Business director Professor Margaret Nowak said one theme that came through from directors was that there was a huge gap between management information and that available to inde-pendent directors.

Directors believed they were: “Absolutely at the mercy of the chief executive and the management, and you rely on them enormously to give you the in-formation you need to base decisions on,” she said.

Of particular concern for directors was that negative information often was held back by managers and the CEO through fear of losing their jobs.

And while directors may feel as though they are being hamstrung, they appear likely to remain the focus of attention, as ASIC chairman David Knott noted last week in a lecture at Monash University.

“To describe corporate governance as a subject of topical interest would be masterly understatement,” Mr Knott said.

“What had already become a hot topic in Australia during 2001 has since burst out across the world, involving the direct intervention of the President of the United States.”

Mr Knott said the renewed interest followed several years of complacency.

“There is little doubt that, by the end of the 1990s, the business community was becoming wearied by the concept of corporate governance, seeing it as somewhat irrelevant, even passe, a response to the no-longer-relevant excesses of the 1980s,” he said.

“We were, I think, partly lulled by the knowledge that some of the key economic contributors to the failures of the 1980s were absent.

“We did not have runaway inflation, excessive over-valuation of commercial property, or un-disciplined bank lending practices – all of which con-tributed to the bust of the 1980s.

“We also appeared to have cleaned out most of the cowboys – [assuming that we can discount the dot.com bubble as just another of our periodic flirtations with the high spec end of the market].

So yes, it is quite true that we

had done much throughout the

1990s to justify a sense of confidence.

“Yet when companies fail, the almost predictable chorus erupts: ‘How could the regulator have allowed that to happen?’ It is an understandable response but, nonetheless, usually uninformed when directed to a conduct regulator.”

Institute for Research into International Competitiveness director Peter Kenyon said the whole issue went beyond the boardroom and affected society in general.

“It’s also the fact that our resources are being used wisely and efficiently, to the extent that free information is not present,” he said. “Then, as economists, we know that we won’t get as efficient use of resources as we otherwise would have and so we won’t be as well off as we otherwise would be, so it’s of importance to all of us.”

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