10.5.11 Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011
Mr HAWKE (Mitchell) (17:14): I rise to support many of the provisions contained in the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011. However, the member for Moreton presented me with an interesting opportunity to make comment on some of the intentions of the Gillard government and their methodology in conduct their legislative program in this House, and I am happy to take up that opportunity. I start by making a deeply personal confession to this House: my rugby league team is not doing very well at the moment. It is a source of great personal concern to me and it is something I struggle to cope with every day lately. I note the member for Moreton also supports a very lousy NRL team for different reasons.
Mr Perrett: Premiers.
Mr HAWKE: Yes, they are much worse than mine. The Eels are doing badly at the moment, but I know the member for Moreton would agree with me that when Wayne Bennett became available this year and was seeking to coach another club, he would not have been concerned at the thought of his club paying the $3 million, $4 million or $5 million price tag to get Wayne Bennett. They certainly need him! He knows that you have to pay the price for the best in the business. Many Australians would understand that when you want someone to do a job, you have to pay them the remuneration that they deserve.
Instinctively, I do not have a problem with shareholders and boards setting an appropriate level of remuneration for their executives. I think it is lame for members of the government to come into this House and provide specific examples of executive remuneration, without reference to the performance of those companies. This legislation is intended for those people who take what is regarded as an unacceptable remuneration when the company involved has not performed, where there is no return to the shareholders. But it is the responsibility of shareholders and the owners of these companies to set that remuneration and to rise and fall on the merits of their decisions.
Once again, we are seeing a constant procession of Gillard government backbenchers in this place, whether it be the member for Fraser or the member for Moreton, wanting to dictate terms on how to run corporations and what should be a fair level of remuneration. It is a notion that I reject. I am more a proponent of the Adam Smith model, the invisible hand in the economy, that says that these things will work themselves out—and they should be worked out by those people.
Too often in our society today we want a great return, big bucks, for our shares. That is a great thing, a good instinct, but when a company fails, we cannot separate the concept of risk from return. There is a risk in investing in companies and there ought to be risk. There are successful companies and we want to make sure that we have a government that runs a great economy that allows for great success. But of course there will be failure.
Some of the provisions in the legislation before the House today improve the ability of shareholders to have a greater say over the management of their corporation. We do not instinctively oppose those provisions. There should be transparency in regulation. There should be great transparency for shareholders in what happens within their own entities. It is important that government backs up that principle wherever possible. Some of the provisions in this legislation can assist that. We are reducing the level of complexity through some of these provisions and they are noncontroversial from the opposition's point of view. However, in other ways, this legislation does not recognise that in recent years there has been a great correction in many businesses and in the activities and interests of shareholders. And that is a good thing. I note Wesfarmers capped salaries and reduced bonus payments a few years ago. That was a great example of the market correcting itself. If I was a shareholder in an enterprise and I was speaking to shareholders around this country, I would tell them that this is something they should pay attention to. This is something they should take a great interest in. For every good example of course there is a bad example, but I say to every member in this place: we have more good examples than bad examples, and Wesfarmers is a very good one.
I agree with the member for Bradfield who made the peculiar point about baseball, where too often in public policy we seek to make simplistic policies, two strikes and you are out, referring to a sport that really has no connection with good public policy. In reality, if baseball had five strikes and you are out, it would be five strikes in policy. It is quite populist nonsense. As proposed, the coalition have some concerns with this two-strikes rule. I agree with the coalition's amendments. The member for North Sydney and others have foreshadowed an amendment when it comes to the level of support required to reject a remuneration report, which can lead to a spill of the board—a very dramatic turn of events within a corporation—where the bar has been set too low. This amendment will reduce the two-strikes rule not just to 25 per cent of votes cast but 25 per cent of the total amount of votes. I think it is a very worthy amendment for the government to consider.
If you set this threshold too low, we will not be assisting the ability of companies to perform well and to get on with the business that they need to be getting on with—that is, running their own entities, primarily. We should not disconnect what a senior executive is and the source of those business traditions. In the 1800s, as corporations grew, there was a need for particular managers to not just manage the business but manage the interests of shareholders within corporations. This is a very important concept. Today that is still the role of senior executives. They are there to manage the interests of shareholders, the people who have invested funds in those businesses. Any good senior executive sees the interests of his or her shareholders as their prime responsibility, and so it should be. Of course there will be those who do not do that. Telstra, notably, is a good example of the system not working. But I say to those sceptics: in situations like Telstra where there was a massive government monopoly, the process of deregulation and the privatisation of Telstra will be fraught with difficulty until we get to a more free market approach in this country. In Sol Trujillo's time there was a very interesting situation. When the company was performing badly in terms of its share price, the situation of the chief executive's pay structure and the board's pay structure was outrageous. Shareholders have a right to do that and an obligation to regard it as unacceptable and to do something about it. So, in terms of what this bill proposes, you can see in the government's efforts some good attempts to fix some of these problems. When we say remuneration should match performance, again that is something that is very difficult for us to regulate specifically. The proposal in this bill to change regulation with respect to the use of remuneration consultants is fraught. We cannot design a regulation or legislation to say you should use consultants in a certain way and should derive a certain outcome. That is going to be fraught with a whole series of undesirable and unintended consequences if this law is passed. Businesses are complex; the modern economy is complex. Often these attempts by Labor governments in particular, where their instinct is to regulate first and think later, lead to things that we do not want. While we may be doing things like prohibiting the hedging of incentive remuneration, and there are certainly issues around that and some worthy objectives about how proxies can vote and other things, specifically mandating about the use of consultants and how to apply a remuneration consultant again I do not think is going to add a lot of value to this process. It will not deal with what the member for Moreton just raised as a concern. I do not think it will deal with what the member for Fraser raised as concerns. Yet it does have the capacity to create opportunities for inadvertent criminal conduct. The fact that this will be backed by criminal sanctions again expands the concept of personal risk at the senior management level.
When you think about why someone would be paid such an amount of money, we need to remember that this is not the Middle Ages; this is not a person who has been born into this role—not a person who has inherited it; not someone who has the absolute force of government to appropriate wealth off ordinary citizens. These are people who primarily earn their wealth; who are being paid to perform at a very, very high level under pressure that most of us are not under, at a personal risk level, and in the face of criminal conduct. This bill adds to that burden, and I note that for the House. We are adding to the personal risk taken on by a director and the potential opportunity for them to be sent to prison by the government for acting inappropriately. Of course the government has a role to regulate and legislate, and company directors need to act ethically and within the law. It is important that we make sure they do.
The member for Fraser came into the House and went on with an expansive diatribe about who has wealth in our society. In one sense I am happy about that because it is the genuine socialist intention of the Labor Party coming to the fore in the member for Fraser, and I say we should have more of it. When socialists were socialists and conservatives were conservatives, I think things were better. With the modern Labor Party today it is hard to work out what they are. The member for Fraser certainly went on with a diatribe about who holds wealth in our society. What he failed to recognise with the increase in personal wealth of the top one or two per cent or the top five or 10 per cent was that with that increase in personal wealth came a massive increase in the wealth of our entire society. What we are seeking as a government and as a nation is to increase the wealth of all of us, to increase the ability of a person to earn a living, to have access to opportunity to make good for themselves. We should not instinctively get upset about it when somebody does well for themselves and earns a great pay packet, even if it is more than ours. I can tell you, each one of those people named by the member for Fraser and the member for Moreton earns probably more than I ever will in my lifetime, but I do not have a problem with that. It is the best system devised by man. As Winston Churchill once famously said, democracy is the worst of all systems, except for all the rest. He was right about that. Some people lament that capitalism produces very wealthy people, but capitalism lifts everybody in our society. Every other system that the member for Fraser mentioned drags everybody down—workers get dragged down, corporations get dragged down, executives get dragged down. That dragged-down model that the member for Fraser highlighted as a paragon of virtue makes us all poorer. It has been established in every Eastern European country and other parts of the world that experienced communism or socialism that to the greater degree they had such a system, the poorer their nations were. Many of them are still going through great reconstruction.
I do think that, every time a government backbencher comes in here and says that we have some individuals in our society, whether they be a Wayne Bennett or a company executive, who make more than the rest of us, we have to remember that Wayne Bennett is lauded as a hero in our society regardless of how much money he makes. And so he should be. We should not deride and denigrate those architects of great wealth in our society who are in the private sector. Every time this government says it has created all these jobs, I say it has not created those jobs; they have been created by the capacity of the private sector to invest and to create and grow the wealth of our nation. They are the people who do those things. They are the people who generate the jobs. Every day the Prime Minister says they have created so many jobs. The only jobs she has created through her pink batts scheme and other great spending schemes have come at an exorbitant cost that nobody would pay. If we had the same accountability that company directors face every day from shareholders and regulation, and other systems in this place, I do not think this government would stand up to much scrutiny at all in terns of its expenditure and use of public money and the cost per job of the jobs it says it has created. Any cost-benefit analysis of the jobs created by government expenditure would show they are not competitive with jobs in the private sector. In fact, the cost is exorbitant, lavish and unsustainable.
That is why on legislation like this I am happy to speak in favour of provisions that empower shareholders and give them greater transparency and allow them to carry out their legitimate function, but I do say to the government that this is not an opportunity for them to denigrate those individuals in our society who work so hard and produce great wealth for everybody. It is not the opportunity to lament a system which allows all of us to earn more and do better. We have great small businesses in our country that can become medium enterprises or large enterprises, and that is a great thing. We have people who can start their own enterprise and become very wealthy, and that is a great thing. We have people who choose to become senior executives or managers of companies in our society, and they should be free to earn what they deserve to earn, as decided by their shareholders and other people. This narrative that the government is building around this bill does not match the reality of what these provisions are actually going to do. Many of these provisions are good and ethical, and many of them I think will add to the regulatory burden, which will create greater and greater risk. My main point in supporting this bill is simply that we should not always seek to regulate first and think later.