CARLTON:
Tougher new rules for Australian business today. The idea to put an end to some of the corporate rorts, in fact, the outright crooked boardroom behaviour we have seen occasionally in the past few years, companies like OneTel, HIH and so on, especially HIH. The Treasurer, Peter Costello, announced a lot of this this afternoon. There will be new standards of conduct for company auditors and company directors and new powers for the, well a couple of corporate watchdogs, but especially ASIC, the Australian Securities and Investment Commission. There would be protection for corporate employees who blow the whistle to the authorities and there would be penalties of up to $1 million for some breaches of these new rules. It is fairly complex but the Treasurer joins us on the line from Canberra. Good afternoon.
TREASURER:
Good afternoon Mike.
CARLTON:
Thanks for your time. Some of this is very complex but can you just tell our listeners what you are going to do?
TREASURER:
Well, what this focuses on particularly Mike is the role of the auditor. Coming out of the Enron disaster in the United States where you recall the firm of Arthur Andersen was accused of shredding documents and it actually led to the collapse of Arthur Andersen. A lot of concern about how independent these auditors are and whether they get compromised in their independence. So, we have got a whole raft of proposals to strengthen the oversight of auditors, to require them to be independent, for them to separate out when they are doing non-audit functions...
CARLTON:
Yeah.
TREASURER:
...for the same company, for the proposal for the company's (inaudible) to take stronger disciplinary action in relation to them, and a whole new deal to overlook the way in which auditors are regulated.
CARLTON:
The auditor in fact is supposed to be a watchdog on behalf of the shareholders and others, but this has got very, very blurred over recent years, hasn't it?
TREASURER:
Well, that is right. People say, oh well these accounts must be clean accounts because we have got an auditor to sign off on them. And of course people were signing off on the Enron accounts and we now know that they were, rather than disclosing what was going on to shareholders, Arthur Andersen had been quite compromised by the role that they had played. So, we have got to make sure that the auditors are closely regulated and...
CARLTON:
It's not just Enron in the States though, I mean HIH here too had much the same problem didn't it?
TREASURER:
Yeah, well we have got a Royal Commission going on in relation to HIH at the moment. It has taken evidence from the Directors, but the auditor at HIH was Arthur Andersen and the Royal Commission is just about to get round to examining where the auditors were during all of this. And I have said that when we get the Royal Commission Report, we will make sure that we take into account any recommendations the Royal Commissioner makes in relation to audits so that people can be confident that your auditor is independent, that they are not being overborne by company directors, that they are not hiding conflicts of interest. Because the suspicion is in some of these cases, and I am not talking about HIH here because the Royal Commission is (inaudible)...
CARLTON:
Sure.
TREASURER:
...in some of these cases, that the management has said to them, you want to keep this audit you have got to turn a blind eye, or, if you want to keep consulting work for our company you have got to give us a fair go and people are worried that the auditors' independence have been compromised.
CARLTON:
Yep. It also has happened where people have been auditing a company one day and gone to work for that company the next day.
TREASURER:
Yes, well that is now coming out in some of the evidence that we are seeing, and so we are proposing bans on that so that you can't take employment up with a company who you have been auditing without a large disqualification period. And we are also ensuring that there is a provision to protect the independence for those (inaudible) particular people. So, this is a big revision for auditors. In addition to this, Mike, I should just say we are strengthening the law so that if there is somebody inside a company who believes that the company has flouted the corporations law and they report it to the regulator they can not be retaliated against in their employment.
CARLTON:
So there is protection for whistle blowers?
TREASURER:
Yes, commonly called whistle blowers, and what we say is, yes, you have a duty to report it to the A-S-I-C - ASIC - and we will make sure if you do that you can not be victimised as a consequence.
CARLTON:
Alright, now there is this business of continuous disclosure, which I guess is a technical term, but it basically means that companies have got to let, you know, have got to be frank about what is going on with their financial affairs. You are upping the penalties on that?
TREASURER:
Yes, continuous disclosure says that you have a duty to disclose to the market anything that is material to the share price.
CARLTON:
Yes.
TREASURER:
In the United States they have, sort of, quarterly reporting so every quarter you have got to disclose anything that is material to the share price. We have continuous, that is, as soon as a company becomes aware of something that is material to the share price it has an obligation to inform the market. We are upping the penalty on a corporation that breaches its obligations from $200,000 to $1 million, so a company that does not comply with continuous disclosure is liable for a fine. We are giving a new power to the corporate regulator - ASIC - to do infringement notices, if you like an on the spot fine. If somebody has not disclosed something an on the spot fine. If you don't like it you can go off to the courts and contest it but a process of on the spot fines so that this thing can be done much quicker and continuous (inaudible) can be enforced upon.
CARLTON:
Alan Fels has been talking the other day about they ought to be jailed, jailed for some of these more serious offences, did you think of that?
TREASURER:
Well, this is in a different area. Alan is talking about collusive conduct. This is where companies...
CARLTON:
Yeah, true.
TREASURER:
...get together and collude on prices. At the moment you can get very stiff fines. Alan's recommended that there be a power to jail the executives involved. Now we have got an inquiry going at the moment headed by former High Court Judge, Daryl Dawson, to look at all of this and I will await, he will undoubtedly make recommendations. Alan's put the recommendations...
CARLTON:
Okay.
TREASURER:
...to that inquiry, we will await the outcome.
CARLTON:
Alright, now, but if the HIH, as you said earlier I think, if the HIH Commission comes up with tougher recommendations still, you are open, very open to those?
TREASURER:
Yes, the HIH Royal Commission has taken a little longer than we had hoped originally, but that is fair enough, it is doing a good job. And we now think it will report in February so what I, I have announced the program today of everything we think should be done, we will draw up the legislation, we will be ready to go in February. We will get the Royal Commission Report and if it has got some additional matters we will have time to stick that into the legislation as it is going through the Parliament. Now, I want people to, do you know we have the highest level of share ownership in the world in Australia?
CARLTON:
Do we?
TREASURER:
A larger proportion of Australians own shares than any other country in the world and, you know, people want to be sure that, you can not tell them that they are never going to lose money, I mean share markets go up and share markets go down, but they do want to be sure that we have the best system of regulation in the world to protect them from fraud and non-disclosure and misleading conduct.
CARLTON:
Yep, good to talk to you.
TREASURER:
Great to talk to you Mike.
CARLTON:
Thanks very much.
TREASURER:
Bye.