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Editorial - It’s all too clear to us, now

WHILE new Australian Stock Exchange rules for corporate governance should be viewed as a victory for common sense, I can’t help wondering if it is all too little too late – and not just from the regulator.

What I find really surprising is that most of our leading companies were not operating under such guidelines for years, rather than waiting for the poor performance of a few to blot the copybook of the entire market.

It’s a form of benchmarking.

Normally leading organisations employ such measures not only to judge themselves in terms of profit or revenue growth, but also to help the market compare their performance against the laggards.

When you are fighting for capital it is one area transparency really should work.

Smart corporations use benchmarking to protect their turf in other ways too.

See the way big companies lead in practices that inevitably make it harder for smaller competitors to keep pace – be it in quality standards, safety, advertising and labelling standards, wage deals, executive salaries, trading hours and cut-throat pricing.

Alternatively, they use their lobbying muscle to push for legislative change that suits them – which has very much the same effect, a sort of enforced benchmark.

Larger corporates hope that lower back office costs or smarter ways of winning business will more than make up for higher costs that erode competitors’ margins.

So why didn’t our leading companies forge ahead with such change and drag the market along with them?

The truth is that, like most of us, they didn’t recognise there was a real problem. Particularly when, it has to be said, our leading companies don’t need this sort of regulation.

Look back at the worst excesses of executive salaries and it’s usually associated with failure, not success. Who is complaining about CEO payouts at Wesfarmers? No-one, because even with the shares sliding they are still worth twice what you would have paid for them two or three years ago and, quite rightly, Michael Chaney remains firmly at the tiller.

Even with the benefit of hindsight the need for some of these changes is not that obvious among the majority of companies.

It must be said, too, that with interest rates so low and superannuation dollars flooding into fund managers’ pockets, the fight for capital has hardly been vicious.

But the battle for capital is tougher now and the importance of market perception has also extended into a wider field of politics.

That’s because more mums and dads than ever before own shares, and governments constantly point to the market’s performance as a symbol of our resilience in the face of global calamity. Woe betide the CEO whose decisions rattle that faith.

So we are going to have rules that good companies should have been abiding by anyway. Does that mean we are going to do away with corporate failures such as the mess of HIH?

I doubt it. Our leading corporates – and the directors’ clubs that oversee them – may well have largely missed the opportunity to capitalise on such rules. If they had been disclosing executive salaries and ring-fencing their auditors, they could have been pointing the finger during the past few years of excess – taking the high moral ground, so to speak.

It’s too late for that.

Instead, we’ve got some new rules at a time when everyone is vigilant. It’s like putting in more Multanovas when everyone’s sticking to the limit.

By the time the cowboys return for their next run at the markets, they will have found a new way around these stumbling blocks, and our so-called leaders and the regulators will be operating by rules made for another time.

Unless they choose differently this time, that is. Let’s hope so.

Young talent time in WA

SO what are the issues for WA arising from these new rules?

The concern about the availability of independent directors is a national issue, given that one of the new rules is that boards must have a majority of directors who are not just non-executive, but actually are quite distanced from the company they are involved in.

While the ASX’s rules are not mandatory – in the US it is compulsory and they are talking about finding 100,000 new directors – there will still be pressure to comply.

As I have suggested, by not seeing something like this coming our leading companies are now going to be caught in the stampede for top talent.

A run-down on the new rules from law firm Deacons has identified this issue as a particularly Western Australian one.

We are a small, isolated town where everyone knows everyone. Deacons is quite right to suggest that finding independent directors is going to be tough.

The general talk is that this rush will force companies to look for younger people, and that this will create a conflict. As the appointment of younger people with less experience will coincide with tougher rules, these new directors may be foregoing other elements of career development.

To do so they will want more money than your average retired executive, who usually takes a board seat, so expect a rise in directors’ fees as a result of this supply shortage.

Oh, and as a final note, organisations that rely on volunteer directors may just feel the pinch from this as their targets are poached by corporates.

Development down south

IF there is a dividing line between Western Australians, one might be their holiday preference – the Rottnest break versus the down south getaway.

Personally, given the choice, I tend to opt for Rotto, but that’s probably got more to do with an aversion to driving than anything to do with Margaret River.

The South West has earned a reputation for being a great destination.

Its residents have some big decisions to make because, like everyone who lives in WA, there are trade offs between our wonderful lifestyle and economic stability. I believe there is room for further development without destroying the place.

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