4 March 2003

Interview with Emma Alberici, ABC Business Breakfast


The practice of making large payments to departing and often failed CEOs has prompted calls for tough new corporate governance standards.

The Federal Government wants to make it compulsory for companies to reveal the contents of executive pay contracts.

But business groups say the move is a knee-jerk reaction to a handful of high-profile events.

Parliamentary Secretary to the Treasurer, Senator Ian Campbell, is behind the push for more transparent accounts and he joins me now from Canberra.

Good morning, Senator.


Good morning, Emma.


Tell us, how much is too much to pay an executive?


Well, I don't think any shareholders will mind paying executives if they perform and they build shareholder value and get good results for shareholders.

What's annoying people is large payouts to executives that have abstensibly failed.

What we want to do is ensure that there's good quality disclosure of the contracts that are attracting this attention and that that disclosure takes place up front at the time they're entered into, in real-time, so shareholders can analyse them and know what's going on behind closed doors.


Were you outraged, Senator, by Chris Cuffe's $33 million payout?


Well, I think it's easy to be outraged.

What I'm upset about is that these things are kept secret.

People who own companies, that is the shareholders, "the mums and dads" as they're called, deserve to know what the key executives are being paid.

They're the owners of the company, that is the shareholders.

They have a right to know and the board needs to be accountable to them.

No shareholder will mind if a Chris Cuffe or anybody else gets a large payment if they've added value to their company and that payment reflects that added value.

What they're very upset about is the secrecy, the fact these deals are being done behind closed doors.

We want to open those doors and allow light to shine in on the process.


But how can disclosure of a contract's provisions reflect the eventual payout figure, when it's so often made up of things like options and bonuses, which are virtually impossible to quantify because they're linked to future performance?


Well, if the contracts are exposed at the time they're entered into, the community at large, analysts, financial journalists and most importantly shareholders, can make an assessment about whether that is the best way to remunerate someone.

Is that the best way to maximise performance and reward for the company as a whole?

So I think disclosure is a significant part of the answer, and it will allow a far more informed debate about remuneration practices.


Back to Chris Cuffe, which was the most high-profile one we've seen lately, now knowing and having that out in the open, do you think, in retrospect, had we known that beforehand it would have been different?


I think it's not fair, Emma, to look at individual contracts unless you know the exact details of them all and I don't go into every contract that's been exposed.

I think the bigger issue is -- what do shareholders need to know and what should they know?

In the past, in previous years in the '80s and '90s, these things have been done privately in terms of executives.

We want light to shine on that project.

We want shareholders to know what board members are deciding to do with their money, how they're spending shareholders' money, to allow shareholders to make assessments.

If they don't like what boards are doing they can either sell their shares or vote the board out.

That's how companies should work in a full disclosure, quality disclosure environment, which we've been working on for a significant period of time with the CLERP reforms.


What specifically are you looking for to be disclosed?


We want all of the details of remuneration for all key executives.

Directors are already required to have their remuneration disclosed within the accounts and, in fact, shareholders vote on that in Australia.

So that's a start.

What we now want is for key executives to have the full details of their remuneration disclosed, and for that disclosure to take place --


Who are considered the key executives, do you think?


Well, that will depend.

I mean, for a smaller company, it may well only be one or two individuals, but for large companies, it may well be -- it could be the top dozen or so.

And that's why I think it's not practical to define it.

The stock exchange is expected to come out with a guideline for companies which will give them some clear guidance on that, but key executives are obviously the ones who make the decisions that have a significant effect on the material performance of the business.


Will the stock exchange be given regulatory powers to enforce these rules?


Well, you've got three layers of powers.

You've got the stock exchange's powers to query companies, to de-list them if they're not happy with the responses, which is a significant power.

On top of that, you've got a range of powers that ASIC have for companies that don't comply with disclosure.

You've got civil penalties.

You've got criminal penalties and CLERP 9 -- the Government's latest reform program -- aims to give them -- enhanced finding powers they're called -- to impose fines on companies who don't comply with quality disclosure requirements.


So the ASX will be given the laws to fine or will they be only ASIC's laws?


No, only ASIC can have that and the ASX's normal behaviour is if that they see a breach of disclosure they refer it to ASIC and ASIC take action and we'll be giving them more powers to respond more quickly to these events in future.


We've been talking about CLERP 9 for quite some time Senator, when will it be introduced into Parliament?


Well, as you'd know, Emma, because you and your program have followed it closely, we've released the policy.

We've now held consultation on it and we're expecting the legislation itself to be produced within a few weeks.


Are you also expecting, as a part of that, the separation of the audit and consultancy work of accountants, as we've discussed previously?


Well, that's a crucial measure in CLERP 9, is to ensure that audit is high-quality by being independent and the range of measures in CLERP 9 there, seek -- they, in fact, make it compulsory for companies to explain if they use a consultancy service from an audit form that's listed as one that could put the audit quality at risk, they're required to make an explanation to shareholders as to how they've satisfied themselves that there won't be a risk.

So they have to go through a diligence process.

We believe that in practice most companies will find it easier just to not accept consultancy services.


Thank you very much, Senator.


Thanks, Emma.