Chris Pearce is a former businessman turned politician. The prism he looks through in his role as the political boss of ASIC, ACCC and financial services is inevitably that of a businessman who has done that and been there.
A corporate view of government
Chris Pearce is a former businessman turned politician. The prism he looks through in his role as the political boss of ASIC, ACCC and financial services is inevitably that of a businessman who has done that and been there. John Arbouw talks with the new Parliamentary Secretary to the Treasurer
Treasurer Peter Costello must take the view that if you are tough enough to win a seat against seemingly insurmountable odds then you are obviously the man to keep Australian business in line as his Parliamentary Secretary for financial markets, corporate governance (ASIC), foreign investment, trade practices and consumer affairs (ACCC) and the productivity commission.
When lawyer Ross Cameron won the inner Western Sydney seat of Parramatta 1996 and again in 1998 and 2001 in what was widely touted as a safe ALP area, he was eventually promoted to the Treasurer's Parliamentary Secretary's job. If personal indiscretions hadn't cut short his career, he would now be on the front bench vying with Tony Abbott and Brendan Nelson for a future leadership role.
Chris Pearce's career in politics is far more recent. As a businessman and former Australasia MD of one of world's top 10 software companies whose only previous foray into politics was via local government he did not seem an obvious choice to try and hold on to the federal Liberal seat of Aston in a July 2001 by-election following the untimely death of sitting Member Peter Nugent.
Despite a 4.2 percent margin in favour of the Liberals, the GST and the traditional swing against sitting members in by-elections (around 4 percent) were potent factors in dampening the Howard Government's confidence about holding Aston.
Considering the Government had just lost the safe Queensland Liberal seat of Ryan in another by-election, the 38-year-old Chris Pearce and the Liberals had every right to be nervous.
And the election proved to be a turning point in the federal election scene. In the first day or so of counting ballots, Pearce was behind his Labor opponent and Kim Beazley and the ALP were talking victory and a kick in the pants for Howard.
But the fat lady hadn't started singing. Booth by booth, nursing home by nursing home, Chris Pearce clawed his way back to take a narrow lead, first by 48 votes and then steadily increasing his margin to claim victory almost a week after the election was held.
When he won the seat again in the latest election, his reward was the plum Parliamentary Secretary job to the Treasurer.
It was an interesting political baptism of fire for Pearce who now has to prove his mettle with an Australian business community where the big end of town is suffering from corporate regulation fatigue and the SME sector continues to count the cost of compliance.
The good news is that as the day-to-day political boss of the country's largest regulators, ASIC and the ACCC and as the chairman of the ministerial council for corporations (MINCO), Pearce shares the view of business that the need to regulate has probably gone far enough. CLERP 9.5 or 10 or 11 is not on the immediate cards.
And just as he did to win the seat of Aston, Pearce has gone out of his way to meet and to be accessible to any and all who want to put their view about the state of the nation's financial markets and corporate regulation.
"My single biggest priority has been to meet as many people as possible. Far too many meetings if you ask my staff who think I am spending too much time in this area," says Pearce.
"But I have done that deliberately because I want to educate myself and find out what the issues are. I have even gone down on the trading floor to find out how brokers are coping.
"I also enjoy meeting people in the field. Look, I have only been in Parliament for four years but I was in business a lot longer than that, so I feel very comfortable in a business environment."
While far too many politicians believe that passing legislation is the biggest hurdle to reform, the reality is that the theory of one-size fits all legislation does not work in practice.
With most of the hard legislative yards completed, Pearce's task is to bed this down and make it work. And, trying to figure out which dials to tweak to make government legislation work is no easy task.
The Financial Services Reform Act is a case in point. The FSR legislation was developed over a four-year period between 1997 and 2001. It commenced in 2002 and came into full effect in March 2004, nearly seven years after the release of the Wallis report which mapped the outlines of the proposed reforms. The reforms will:
- bring various financial services (those dealing in a financial product, providing financial product advice, making a market for a financial product, operating a registered managed investment scheme, providing custodial or depository services) and products (superannuation, insurance, shares, retirement savings accounts, some mortgage and loan products) under one licensing regime;
- introduce a new disclosure regime for most financial products;
- establish a standard of conduct for financial service providers.
While the purpose of the legislation was to give the retail sector more information regarding the qualifications of those dispensing financial advice and more detail as to how their investment is being swallowed up by fees and dubious financial "experts", there have been complaints that the disclosure regime is too time consuming.
And then there is the not unexpected result is that the disclosure documents themselves are designed more to manage the liability of the service provider, rather than to inform the consumer.
But is it the legislation? Is it the way it is administered by ASIC or is it faulty interpretation by industry? Whatever the reason, Pearce signalled in February that he was prepared to address inadequacies in the legislation.
"I have not met anybody who disagrees with the fundamental objectives of the FSR," he says. "From a practical implementation aspect there have been problems in the disclosure area and have been a burden for business.
"But what happened is that when taking a great idea from go to whoa you had the lawyers, the regulators, you had people saying we have to protect ourselves from the dreaded regulator and it manifested itself in a very complex and burdensome manner. This has cost industry.
"I am quite sensitive to those kind of considerations. One of the things I have indicated is that I am prepared to have a review of the FSR and look to refining it. And refining is the key word. I am now finalising a set of proposals to change aspects of the FSR which I will release to the market in April
"There has been a whole series of CLERPs and the fact of the matter is that there has been significant economic reform in Australia. Corporate Australia has embraced this and we have done very well and most of it was needed.
"CLERP 9 was only enacted in July last year and some of the processes are only coming through now. One of the things I feel very strongly about is that we need to take a step back and let the CLERP 9 processes bed down and let's see if they are working
"I am not coming in holus bolus with CLERP 10."
But it isn't CLERP 10 that causes concern at the moment. Following the insolvency issues highlighted by the James Hardie special commission, the director-sensitive topic of insolvency is to get a fresh airing.
The US Senate has recently passed legislation allowing the adoption of the United Nations' UNCITRAL Model Law on Cross Border Insolvency. In Australia, CLERP 8 was to have dealt with this area but little has been done to date.
The UN insolvency law details the processes and protocols that can be used by courts in different jurisdictions to work in unison in terms of international insolvencies. Pearce is the chairman of the ministerial council on corporations (MINCO) which last month looked at a paper outlining some of the insolvency issues.
If there is to be reform it will be integrated and include the Government's response to other reports which cover similar issues including:
- the report by the Parliamentary Joint Committee on Corporations and Financial Services entitled "Insolvency Laws: a Stocktake"; and
- the reports by the Companies and Securities Advisory Committee on corporate voluntary administration and corporate groups.
The Government expects to release proposals for consultation with stakeholders by the end of 2005.
Pearce also announced that he would ask the subsequent industry-based Companies and Markets Advisory Committee (CAMAC) to examine the issue of directors' duties and to consider whether or not the Corporations Act should be amended to require directors to take account of the interests of groups other than shareholders when making corporate decisions.
CAMAC is a statutory advisory committee that was established provide advice to the Australian Government on issues that arise from time to time in corporations and financial markets law and practice. It is the Government's principal source of external advice on corporate law matters.
These new developments follow on from the following initiatives that have already taken by the Government including:
- the passage of legislation to provide certainty for the Australian Securities and Investments Commission in relation to the use of Commission documents passed to ASIC;
- the provision of additional special funding for a full scale ASIC investigation into the conduct of James Hardie and its advisers; and
- the preparation of a paper on corporate law refinements for MINCO.
"We do not intend to take a piecemeal or hodge-podge approach. There has been a lot of stuff to come out of the James Hardie inquiry and there have been recommendations that the insolvency laws could be tightened.
"Some people want us to do a knee-jerk reaction but I want to look at all the reports including those from industry itself and then take a holistic approach. It is important that we evaluate the impact of any potential reforms across all 1.3 million Australian companies, rather than focusing exclusively on one example of poor corporate behaviour. The legal framework governing insolvency has major implications for the performance of the economy."
But James Hardie didn't only launch the discussion about insolvency. It also created a perception, at least in the public's mind, that directors who voice the notion that their only duty is to their shareholders, provides a far too narrow a view of their responsibilities.
The issues around corporate social responsibility, the environment and stakeholders are also recognised as part of the overall boardroom agenda but far too often this is not articulated well.
"If you look at what has occurred in other jurisdictions such as the UK they haven't been overly prescriptive in this area. This might be the approach we will take because we have a strong principles-based regime.
"My sense is that we have strong regime right now and to be frank directors already consider a broad range of practices. When you are around a boardroom table directors already consider the environment and they already consider the stakeholders.
"It may not require legislative changes in director duties. It may just require education and guidance from within the industry." (AICD is currently preparing the next edition of Director Duties & Responsibilities and will look at clarifying the definition to make it clearer that directors can under the current law consider interests other than the shareholders and indeed in considering the best interests of the company as a whole they should be balancing up the sometimes conflicting interests of the various stakeholders including the shareholders).
But if industry is willing to change what has the government learned from all the reform over the past few years. While Pearce's comments are welcome news all too often there is a rush to legislative judgement based on one or two isolated corporate incidents.
"I think government has learned from this process but I would also say that business has also learned something," says Pearce. "There is no innocent party in this. A lot of the issues have been driven by a litigious viewpoint where the lawyers in the big corporations have given advice that you really need 27 pages in case you are exposed to the regulator or something like that.
"It comes down to the very literal interpretations of the Act. And it comes down to whether it should be more prescriptive or clearer. There is no innocent player. I think if you ask directors around Australia whether they have learned anything they would say yes, in the same way we would."
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