A personal view: Extending Democracy to the Boardroom

Wednesday, 01 October 2003


    Communication by, and education of, directors remains two crucial skillsets ignored or overlooked by many companies.

    There have been two recent wake-up calls suggesting that the recent emphasis on corporate governance and corporate behaviour has yet to run its course. This may disappoint those directors and those boards who believe that the post-Enron, post-HIH fuss over corporate governance was a distraction albeit a necessary one and that we should now just get back to the more serious effort of making money. It is a foolish notion and a dangerous one.

    Conformance to corporate governance and financial performance are not mutually exclusive. They are the two vital ingredients of corporate success and, as recent international surveys have shown, good corporate governance behaviour does beneficially impact financial performance and investor decisions.

    On the day he gave a speech to a NSW Division lunch David Gonski, chairman of CC Amatil, Hoyts and Investee Australia, was nominated as one of the country's most powerful business leaders by AFR magazine. His speech (available at www.companydirectors.com.au) provided some timely messages about corporate governance.

    A lawyer by profession, Gonski is no fan of knee-jerk corporate regulation particularly when it comes to executive share and option remuneration.

    "I am concerned that an obsession with these two potential solutions could, like anything taken to the extreme, actually have the opposite effect," he said.

    What he does favour is the increasing use of board nomination committees. Importantly, he wants to broaden boardroom democracy to include shareholders and he suggests companies incorporate such a facility on their websites.

    He is also a strong advocate of director education and wants to see recognition of this in the annual report. "Continuing education is required in all great professions – why should directors be different."

    As readers of this column would undoubtedly know, the need for better communication between directors and the owners of the company has been a regular topic. Gonski says boards should set up two-way communication mechanisms on the website to give shareholders a chance to air grievances on a regular basis rather than once a year at the AGM.

    "Directors are failing to effectively communicate with stakeholders. Most directors among us are not 'top of the pops' getting our messages across. Quite frankly we do it badly. Communication is essential to improving the community image of company directors and those who manage companies. You must have governance but probably the most important thing is communications."

    The other corporate governance message, ironically also from a lawyer, comes from Sek Hulme in a paper written for the Australian Council of Superannuation Investors in which he questions the corporate governance credentials of dual listed entities such as BHP and Brambles.

    He makes some timely observations on some of the inequities suffered by shareholders of dual listed companies such as BHP in terms of voting powers related to takeovers or simply the removal of directors.

    Hulme says the DLC structure did not emerge in Australia pursuant to Parliamentary or public debate regarding the possible implications for shareholders or the nation, and the terms upon which we should have it, if we were to have it at all.

    He says it was devised by the legal advisers to large corporations, without any debate whatsoever of those kinds. It was devised within a legislative structure intended for a different purpose, and the creators of which had never envisaged it bringing forth such a creature as the DLC.

    "To enable the BHPBilliton DLC structure to be adopted in Australia, the Australian Securities and Investments Commission gave dispensations with respect to not less than 160 provisions of the Corporations Act," Hulme said.

    He says the DLC structure is contrary to the policy which legislatures have been following, of strengthening the ability of shareholders to maintain some control of boards and management. No corporate development in the last hundred years has done more than the DLC structure has done and promises to do, to weaken the position of shareholders and entrench the position of board and management.

    The message from both Gronski and Hulme is that corporate governance is something that needs constant work and that even accepted corporate structures and arrangements need to be looked at through the prism of today's corporate governance expectations.


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