Regulatory changes mooted in Australia’s ninth Corporate Law and Economic Review Program draft bill (known as Clerp 9) are tipping the balance of power away from companies and directors and toward shareholders. Although many of the proposals are uncontroversial and have broad approval from the business community, a number of the suggestions have ruffled the feathers of several significant power brokers.
Corporate greed
The most contentious proposal is for public disclosure of the salaries of the top ten executives of all listed companies. While there’s general agreement that increased disclosure is a good thing, there are some who think there’s a risk this provision will accelerate the upward trend in executive salaries.
Another argument against the proposal is that the number of executive salaries disclosed is actually secondary to the disclosure of the performance hurdles that drive remuneration. Greg Baxter, senior vice president in charge of investor relations of building materials company James Hardie, and winner of the gong for best IR officer at this year’s IR Magazine Australia Awards, says: ‘A clear alignment between performance and remuneration is more important than what that remuneration is.’
Clerp 9’s related proposal to allow shareholders to participate in a non-binding vote over executive remuneration packages is also causing concern. Bodies such as the Australian Institute of Company Directors (AICD) and the Business Council of Australia (BCA), as well as companies such as Qantas, believe this impinges on directors’ duties and could herald the start of a disturbing trend to wrest power from the boards.
‘We are less than convinced that introducing direct shareholder involvement in non-binding votes on remuneration will be helpful to good governance,’ says Qantas chair Margaret Jackson.
‘This is a proposal – despite assurances that direct shareholder plebiscites will go no further than executive pay – that, in effect, has no limit and will undoubtedly be applied over time to intrude upon or circumvent other areas of board responsibility and decision-making,’ argues Hugh Morgan, BCA president.
‘It’s part of the role of the director to determine [executive remuneration],’ says John Hall, CEO of AICD. ‘If shareholders don’t like the payment structure they can cast a vote against the director responsible for remuneration at the AGM.’ Hall also questions the usefulness of a non-binding vote and argues that it has little meaning.
Speeding fines
Another area of debate has been the move to give the Australian Securities and Investments Commission (Asic) the ability to issue infringement notices and to fine companies in breach of continuous disclosure requirements. In its submission to the government on the Clerp 9 reforms, the Australasian Investor Relations Association (Aira) has expressed concern that the proposed changes to Asic’s powers reflect an increasing erosion of companies’ rights.
Aira argues that the provision circumvents the normal legal process because hearings will be conducted by an Asic officer. Aira is also concerned that there is no mention of firms having the right to full legal representation and there is no provision for companies to appeal decisions in the Administrative Appeals Tribunal under Clerp 9. ‘The law of evidence, even of civil evidence, does not apply,’ says Carolyn Kerr, chair of Aira.
The association is also arguing against the proposal to bring civil penalties against company officers. It believes if these rules were applied to investor relations officers, there is a risk the IROs could become scapegoats in instances where more senior staff should be accountable. Aira wants the proposal amended so that these rules would not apply to more junior officers, who are rarely party to the entire negotiation process.
Posturing
Despite the argy-bargy, most agree that debate will only be useful in ensuring that the finished product can be applied in practice. What remains to be seen, however, are the amendments that the Labor Party will put forward when the bill enters parliament later this year.
Senator Stephen Conroy, shadow finance minister, has indicated he wants the legislation changed to prohibit the payment of options and bonuses to non-executive directors and to disallow granting of non-recourse loans to directors.
But Ross Cameron, parliamentary secretary to the treasurer and minister in charge of Clerp 9, has warned business not to expect significant changes to the draft law. Only time will tell whether directors or shareholders end up on top.
