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Kent tackles governance rules

Warwick Kent is one of Perth’s most respected company directors. In a wide-ranging interview with Mark Beyer, he spoke about editorial standards at The West Australian, auditor independence at the Coventry Group and corporate governance standards around Australia.

FOR a company director such as Warwick Kent, debate about corporate governance is much more than a theoretical discussion. It goes to the heart of his professional life.

In recent months, Mr Kent has con-fronted some of the most contentious issues in corporate governance.

Issues including the new ‘continuous disclosure’ rules, the size of executive payouts, the role of company directors and the independence of external auditors.

As a director of the Commonwealth Bank, he has been involved in the controversy surrounding the $33 million payment to former fund management star Chris Cuffe.

He has also had to contend with an extraordinary public attack by Federal Government Minister Wilson Tuckey on the performance of West Australian Newspaper Holdings’ board, which Mr Kent chairs.

As a seasoned director, Mr Kent is wary of the current flurry of corporate governance reform proposals.

In reference to high-profile collapses such as HIH Insurance, he said: “There is one aberration and you get suspicious of everybody.

“That is the way a lot of corporate regulation gets done. The regulators find it very hard to resist the pressure.

“People don’t like sticking their head above the parapet. It can make life difficult for them and their companies. That is why a lot of people are afraid to take on these things”

Mr Kent is particularly concerned about the continuous disclosure rules, introduced by the ASX on January 1, which require companies to respond to ‘well informed’ market speculation.

“Its almost uncontrollable. The big risk is that disclosure can be forced in response to unsubstantiated rumours,” Mr Kent said.

He believes sensitive commercial discussions, such as a possible merger, could be undermined if companies are required to respond to market rumours or press reports.

“There is a point where there is no benefit to anybody of extra disclosure,” he said.

Mr Kent also believes the interests of small shareholders and big institutions are essentially at one and can therefore be managed by the elected directors.

“The whole structure is built around shareholders handing responsibility to directors,” he said.

Mr Kent has experienced more than his fair share of corporate drama.

He joined BankWest in 1989, just in time to preside over two huge losses that left the bank near worthless. He subsequently steered the bank to recovery and successful privatisation.

Upon retirement from Bank-West, Mr Kent relocated to Sydney, but after three years resettled in Perth.

As well as chairing WA News, he is chairman of Coventry Group. In fact, he joined Coventry just when its east coast automotive parts joint venture with Ford Australia started to unravel.

“The joint venture has been seriously undermined by Ford’s decision not to pursue the business plan on which the venture was predicated,” Mr Kent said.

While the Ford joint venture has incurred big losses, Mr Kent believes Coventry’s other diversification does not receive due credit.

The company has a large and successful industrial products business, in addition to its traditional automotive parts business in WA and SA, which he said was per-forming well.

The performance of Mr Kent and his board colleagues at WA Newspapers has been put under the spotlight by Wilson Tuckey.

In a letter to The Australian Financial Review earlier this month, Mr Tuckey criticised WA Newspapers’ “equally under-per-forming board and senior editorial staff”.

Mr Tuckey also called for chief executive Ian Law to be given more scope to improve the company’s flagship publication, The West Australian.

“To reverse the fortunes of WA News, shareholders must start with the board,” Mr Tuckey’s letter says.

“Their accountancy skills are not to be questioned, but they should give Law the joint position of CEO/editor-in-chief and allow him to restructure the editorial process to one the people of WA want to read – and take more than five minutes to do so.”

Mr Kent chooses not to tackle Mr Tuckey head on, simply observing that: “He has no more or less right than anybody else to comment”.

However, he acknowledges that falling circulation and readership is an issue.

“I’ve been a director there for five years. Almost since day one, these issues have been of concern to the board,” he said.

As a director, Mr Kent is loath to offer specific advice on the editorial quality or direction of The West Australian. He clearly does not see that as part of his role.

Instead he offers very broad guidance.

“The board wants a paper that presents things fairly and honestly and is respected, that works to maintain reasonable standards, but which also sells,” Mr Kent said.

He also offers strong support for Mr Law, who highlighted The West’s falling circulation in a recent internal memo to staff.

“I think what Ian was saying was that we have a problem, and the solution is in the hands of the editorial people,” Mr Kent said.

He doesn’t believe the solution involves spending more on the editorial department.

“They don’t need more re-sources.”

While acknowledging the fall in circulation, Mr Kent offers some perspective.

“If you look at the readership, it’s among the highest penetration of any newspaper in Australia,” he said.

“We need to be careful that, in trying to get extra sales, we don’t upset the two hundred thousand people who do buy the paper.”

Coventry Group, also chaired by Mr Kent, provides an insight into the issue of managing external auditors.

One of the main reform proposals arising from Enron, HIH and other big collapses was that companies should regularly rotate their external auditors.

In light of this debate, Coventry Group reviewed its links with accounting firm BDO, which has audited the company since 1966.

Coventry’s board has decided to proceed this year with a competitive tender for its external audit services.

However, it does not believe that auditor independence had been compromised by the long association with BDO, and therefore BDO will be among the firms invited to tender.

On the question of engagement partners, Coventry’s board has decided that the engagement partner must be rotated every five years.

This will result in a change from BDO Partner Geoff Brayshaw, who has been the engagement partner since 1997.

Coventry also plans to ‘regularly review’ non-audit services provided by BDO but has not committed to any change.

“The basic requirement is that they shouldn’t participate in any services that as auditors they may need to review. Its really to avoid conflict over the audit function,” Mr Kent said.

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