A corporate regulation forum in Perth last week was told that companies should turn regulation into an asset by highlighting the high standards of corporate governance and legal compliance in Australia.
A corporate regulation forum in Perth last week was told that companies should turn regulation into an asset by highlighting the high standards of corporate governance and legal compliance in Australia.
Speaking at the Australian Institute of Company Directors annual conference, Wesfarmers chairman Trevor Eastwood said a reputation for good corporate governance could help a company.
Catherine Walter, who became well known as a dissident National Australia Bank director, said she would prefer less corporate regulation but if it couldn’t be changed companies should make the most of the opportunity.
She said Australia’s high regulatory standards could be used to attract more money from international fund managers, who would see Australia as a low-risk country to invest in.
Freehills partner and former Trade Practices Commission chairman Professor Bob Baxt offered more specific support for the proposition, saying that companies with good compliance programs could obtain better insurance deals.
The speakers at the forum generally agreed that Australia could lighten the regulatory burden but was better than other countries.
Professor Baxt, for instance, said the Federal Government had shown “thoughtful slowness” in its response to big corporate collapses, in contrast to the US where a heavier regulatory regime now applied.
“Nevertheless we do have some major problems that we need to address sooner rather than later,” he said.
Mr Eastwood said the regulatory changes of recent years were “mostly for the better but not always”.
He cited several examples from the past to demonstrate the need for better regulation, particularly to address conflicts of interest.
An extreme example from the 1920s was that the auditor of the former Western Australian farmers’ cooperative was also a director.
More tellingly, in the 1980s, one of the directors, who was the managing partner of a major law firm in Perth, complained loudly that the cooperative was obtaining legal advice from other law firms.
If the practice continued, the director said he saw no point continuing on the board.
Mr Eastwood said non-executive directors were being forced to accept responsibility for activities that in reality are the domain of management.
He said the likely response would be the emergence of more professional directors, as people choose early in their working life to specialise as non-executive directors.
He contrasted the new breed with “old school” directors like himself, who take board roles after retiring from senior executive roles.
A particular concern for Mr Eastwood was the amount of time and effort companies now had to devote to disclosure of executive remuneration.
He said this has become a “much bigger issue” and the proposal for shareholders to be given a non-binding vote on executive remuneration would only add to the issue.
The vote may be legitimate but could also be hijacked by disgruntled employees or special interest groups.
Ms Walter said the scope of corporate regulation may be widened in future to include ratings agencies, such as Standard & Poors and Moody’s Investors Services.
She said the Securities and Exchange Commission in the US wanted to “monitor” the ratings agencies, which was normally a precursor to regulation.
Ms Walter said there were also calls for more disclosure and defined performance standards in regard to “corporate social responsibility”, which covers issues such as environmental management and community involvement.
She said extra regulation was not inevitable, and companies could help their own cause by moving towards more transparent disclosure of their performance.
Professor Baxt said the regulatory burden extended well beyond corporate governance practices, and included areas such as competition law, occupational health and safety and environmental regulation.
He said a worrying trend in some regulatory proposals was a reversal of the onus of proof, so that the presumption of innocence would not apply.
“To me that is just totally unacceptable,” he said.
Speaking earlier to WA Business News, Professor Baxt backed the adoption of a “business judgement” rule, so that the decisions of company directors could be judged against generally accepted standards.
He also called for more effective enforcement of existing laws, rather than constantly adding new laws to deal with emerging issues.
He cited the example of New York State attorney general Elliott Spitzer, who has garnered a reputation for successfully prosecuting business executives.
“You need to roll up your sleeves and do what the Spitzers of the world have done and do the hard work,” Professor Baxt said.
He said the Australian Securities and Investments Commission had also achieved some “stunning successes”, such as the recent prosecution of former HIH Insurance directors.
The cases had moved quickly through the courts and the High Court had rejected appeals.