27 February 2003

Interview with John Laws

LAWS:

Good morning.

CAMPBELL:

Good morning John.

LAWS:

We're paying a lot of money for failure aren't we?

CAMPBELL:

Well the AMP shareholders are, and I think what would anger AMP shareholders more than anything else is that they have seen the value of their stock go down considerably. Yet at the same time the rewards that the executives and directors are receiving are way out of whack. I think all your listeners would agree that people should be paid on performance - if you have a good performance. I don't mind people getting paid a lot of money…

LAWS:

No, no the more the merrier. I think it's great if people make a lot of money but when they diminish the value of an organisation like AMP by 50 per cent and then get paid $20 million for doing it…

CAMPBELL:

No, no it's outrageous, and I think what needs to be done and what we're doing, what the Australian Stock Exchange is doing, is making sure that these contracts are revealed at the time they're entered into, not some time afterwards when its all too late to change it. So basically expose it to shareholders at the time the contract is written so the shareholders have it before them at annual general meetings and they can debate it and discuss it, and if they don't like it vote it out.

LAWS:

Yep. But at the moment they have no say, absolutely no say, and it's all over bar the shouting.

CAMPBELL:

Well that's exactly right. These deals were obviously entered into many years ago, they are entirely unrelated to what the community expects at the moment, the Government believes that they are inappropriate, the Government's very committed to having a marketplace that works, where investors feel confident to invest their hard-earned savings, see a reward from those and obviously see executives rewarded where they perform. But we don't want executives rewarded for bad performance.

LAWS:

Well that's what's happening, and that's what seems to be happening constantly. There are a couple of exceptions, bear in mind, but I mean in the case of AMP it's just disastrous and it's the poor old shareholders who are paying the money out and these fellows don't even have to front the shareholders at the AGM because they leave now.

CAMPBELL:

They have gone and closed the door. I think the one upside to the AMP situation is that under Andrew Mohl's leadership - and I wish him well in his job at resurrecting AMP - is that he's got all this out on the table so that's actually a good sign and he's obviously trying to move the organisation into a new phase of its history and let's hope it's a successful one because if AMP is successful it'll be good for Australia.

LAWS:

Oh I'm sure it will. But these people who are being paid huge sums of money because of their failure, so there's no arguing, that's the point. Shouldn't they have to attend the AGM to explain their actions and to justify their payouts before they can bank the cheque?

CAMPBELL:

I think there'd be a hint of retrospectivity in that, I mean the thing is that these are deals that were done a long time ago. My own strong view is that these deals should be exposed at the time they're entered into. It's effectively, I mean it's what people would call 'sit down' money and it's 'turning up' money, it's not money that's based on performance. It's basically you know, "we'll pay you $350,000 a year and we'll give you one point something when you leave". But there's no link to any sort of performance, it's just a pay for turning up or sitting down. And I don't think any of your listeners, and certainly those of them who own AMP shares, would think that's acceptable.

LAWS:

There should be a rider in it, "we'll pay you $350 grand a year and we'll give you a million a year, or 4 million when you leave, providing that the profits have not decreased.

CAMPBELL:

Provided that certain targets are met, that the shareholders know what those targets are, and that the targets are related to improving the value of the company.

LAWS:

But I think that blokes like Paul Batchelor and others who get these sizeable payouts should be made to front up at the AGM, and should be grilled by the shareholders and put through a bit of fire because they deserve it.

CAMPBELL:

I think that's right. The trouble is, once someone's left they don't have a relationship with you anymore. I know in the paper this morning that Mr Batchelor and AMP may be heading to court, so I guess that's AMP playing their side on behalf of the shareholders, but I don't think we want to get into the details of a particular bloke. I think the principle that stands, and will stand the test of time, is that these deals should be revealed to the shareholders - and revealed to the whole world, quite frankly - at the time they're entered into so that the grilling can take place at the annual general meeting when the ink's not even dry.

LAWS:

Yes. The share price, if it slumps by 10 per cent, then why not slash their payouts by 10 per cent as well, or something like that?

CAMPBELL:

Well, there's a strong argument not to link people's remuneration directly to the share price because then you get the Enron situation where they use all sorts of devious accounting to actually boost the share price. What you probably want is a basket of different targets - sales targets, turnover targets, maybe the share price -a range of different targets which link the executive and the directors' pay to something that will give the shareholders value. [INAUDIBLE] short-termism which was part of the problem with companies like HIH and Enron.

LAWS:

Yep. Anyway, the Treasury is sensitive to all this obviously, otherwise you wouldn't be talking to me about it.

CAMPBELL:

Well, we've got a new policy that's out for discussion at the moment which is designed to enhance corporate disclosure and can I say the Australian Stock Exchange, under the leadership of Maurice Newman and Richard Humphry based in Sydney have developed a body called the Corporate Governance Council. They have developed what I would call as the best practice corporate governing guidelines that I've seen in the world, and they will become mandatory for all companies in Australia within a few weeks, so that's a great and welcome move forward for Australia.

LAWS:

OK. But do you do find it as abhorrent as I do, and obviously the shareholders do?

CAMPBELL:

Well I find it most abhorrent, and what I want to build, and what John Howard and Peter Costello want to build, is a marketplace where your listeners can feel very secure in investing in Australian companies and knowing that the information they receive about those companies is accurate. That's what we want to build and that's why we're doing these reforms.

LAWS:

Yeah, because people would feel, in light of all this, and the publicity it's got - and obviously it's entitled to get that publicity because it's of such importance to the public - people are going to be very reticent to invest in these sorts of organisations.

CAMPBELL:

That's exactly right, and that's the point we're trying to overcome. We'd like your listeners, and the public at large, to know that they can invest in the Australian stock market and in managed funds and superannuation. I mean, the value of the shares isn't always going to go up, they're going to go up and they're going to go down, depending on world circumstances, depending on markets - and what your listeners want to know is that when they read an account, or they read an annual report, or they read a report in the paper, that the information they're getting's accurate. They want to know that the directors are doing their job, that they're focusing on the job, that the executives of the company are working their butts off to improve shareholder value, and that they're getting remunerated appropriately and not getting paid for poor performance.

LAWS:

OK. Thank you Ian very very much. It's been very enlightening and I've enjoyed talking to you.

CAMPBELL:

My pleasure, John.

LAWS:

Thank you. Assistant Treasurer [sic], Ian Campbell.