02/12/2013 - 11:18

'Mind-boggling' compliance costs threaten value: Chaney

02/12/2013 - 11:18

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Woodside Petroleum and National Australia Bank chairman Michael Chaney says the growing compliance burden on companies threatens to compromise their ability to deliver for shareholders.

Woodside Petroleum and National Australia Bank chairman Michael Chaney says the growing compliance burden on companies threatens to compromise their ability to deliver for shareholders.

Speaking at a Governance Institute of Australia conference in Perth today, Mr Chaney said the costs of compliance had grown significantly since he began his corporate career as a company secretary at Wesfarmers, then known as Westralian Farmers Co-operative, in 1983.

“Annual reports were in those days far smaller and in my view, much more useful for shareholders,” Mr Chaney said.

Wesfarmers first annual report as a listed company in 1985 comprised 44 pages, of which the accounts took up 23. They were, as you can gather, much simpler times.

“I can’t help feeling that the fact we spent so little time on compliance and governance and so much on strategy and execution had something to do with the 3,000 per cent growth that the company achieved over the next decade.”

Mr Chaney, who served 13 years as managing director of Wesfarmers, said he believed the board should avoid intervening in the activities of company management unless it was absolutely necessary or its guidance was sought.

Wesfarmers’ purchase of Bunnings in 1994 warranted a single line in the company’s board minutes indicating that “after discussion, the board approved the purchase of Bunnings”.

“One of the things I really appreciate about that time was how much faith the board put in management,” Mr Chaney said.

“It’s something I’ve tried to emulate as a director.

“I don’t believe we’ll ever achieve the hands-off approach of the good old days though, and probably shouldn’t.”

Mr Chaney described the compliance burden on banks operating in Australia and overseas as “mind-boggling”, arguing the complexity of regulation in the financial services industry meant companies struggled to find the appropriate balance between compliance and financial performance.

He also lamented the changing role of annual general meetings, identifying proxy votes, a greater focus on remuneration and two-strike laws as giving companies “much more to worry about at AGM time”.

However, he did not agree that the expectation for companies to deliver comprehensive corporate sustainability reports added an extra unnecessary burden, arguing that companies have a duty to be responsible corporate citizens.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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