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TRANSCRIPT
OF THE PRIME MINISTER SYDNEY E&OE Thank you very much Mr Salter. To my parliamentary colleague Senator Ian Campbell who may I say has carried much of the detailed workload of the Government in the broad area of corporate regulation, and I take this opportunity at this very representative luncheon to record my personal appreciation to you Ian for the tremendous job that you have done on behalf of the Government in that very important area. Ladies and gentlemen, I think it goes without saying that this luncheon and the subject that I will address is fairly topical and it's fairly timely and it has some interesting coincidences. What I intend to say today about corporate governance is said properly in general terms against the background of the economic and political climate in which we in Australia live at present. We do have a strongly performing economy. It's not perfect, it's not without challenge and it's not without its weaknesses. But it is and has performed better than any economy virtually in the developed world. And that is principally the result of about 15 years of successive economic challenges and reforms, coupled with a capacity on the part of the Australian business community to change and adapt and to reach outwards. We wouldn't have achieved our current economic strength without the reforms and the initiatives of Governments, and I say deliberately Governments, because I've never been reluctant to give credit to earlier Governments for some of the things they did in earlier years to improve the competitiveness of the Australian economy. We wouldn't have achieved what we have now without the work of Governments, but equally we wouldn't have achieved what we have now without the contribution and the skill of these men and women of the Australian business community. When I had the privilege in June, an enormous privilege of addressing a joint sitting of the United States Congress, I tried to outline some of the things that Americans and Australians believed in in common. One of the things that I presumed to say, perhaps only in this case on behalf of a majority of Australians as distinct from all Australians - I said that we believed in competitive capitalism as the best way to generate national wealth. That belief lies at the core of the Government's approach to economic management. We think a capitalist society operating in an ethical, competitive fashion is the best way to generate wealth. In fact the experience of the last 20 or 30 years suggests that it's really the only way to continually generate national wealth over any sustained period of time. And the reason that corporate governance is so tremendously important as an issue and the quality of it is so tremendously important is that it is part of the process which has produced and will continue to underpin the success of competitive capitalism. Take away good corporate governance and you take away one of the struts that underpins competitive capitalism. It is like taking away sound macroeconomic management - that is another strut. If you take that away, you also attack and endanger competitive capitalism. Much has been written about corporate governance in recent times and I applaud the contributions that have been made by the two bodies sponsoring this lunch, by the corporate regulators and by others, to addressing it in the Australian environment. And it is proper that all of us do so because none of us, particularly those and I guess that's the overwhelming majority here today, who share my faith in competitive capitalism, none of us should underestimate the depth of public unease in the Australian community at present regarding what our fellow Australians describe as corporate excesses. The unease may be too judgmental. It may in some cases, certainly in a generic application, be unfair. But that it exists, let there be no mistake. It does. And it's the responsibility of all of us together to address that unease in a reflective, active and sensible fashion. The Australian public and indeed our obligations to maintaining the strength of competitive capitalism in Australia,! require us to respond to this issue in a balanced and sensible fashion. They will expect of us a combination of improved self-regulation coupled with appropriate, but not excessive, levels of Government involvement and intervention. We do need to preserve a proper sense of perspective. It is necessary to severely punish wrongdoers. There are laws against fraud and misbehaviour of other kinds and they should be vigorously enforced. But it's also important that we don't overreact. It's also important that we don't impose on ethical but nonetheless robust business operators in our country, a new layer of unproductive and ultimately self-defeating regulation. Now I've already made it clear and I repeat it here today that I don't intend that the national Government of Australia gets swept along in a tide of simply embracing fresh regulation for its own sake. Nothing would be achieved by that. But I do want to put on record respectfully what I see as the expectation of the Australian community to whom I am ultimately accountable - their expectations of Australia's corporate leaders. They expect them to work unceasingly to ensure that good governance practices are met at all times. That those leaders must meet! the highest levels of ethical behaviour, and that those corporate leaders as a matter of routine should continually review their governance practices and let their customers and their shareholders know that they are doing this. In other words, we have the responsibility to respond effectively and if we are to ward off and render unnecessary an excessive level of Government intervention and response, we will see to it that in cooperation, our practices of self-regulation and self-discipline are made effective and are appropriate to the climate and the mood of the times. Much of the debate of course in this country is influenced by what has happened in the United States. That of course is not the only driver of the concern. Some very high profile corporate activities and collapses and failures, which you will understand I will not touch in any kind of detail for the most obvious of legal reasons, have coloured and influenced the attitude of the Australian public. But it's also true that what has happened in the United States, the most dynamic part of worldwide competitive capitalism, has had a big impact on all of us. It's very important once again to get a sense of perspective about the relevance of what has occurred in the United States to what is occurring here in Australia. A lot of it is highly relevant but some of it can be understood in the context of some differences in the corporate governance approach between Australia and the United States. To name but a few, the practice that has been followed in this country, wisely in my view, but maintaining in most cases a fairly strict separation between the office of company chairman and the office of company managing director or chief executive office. A practice that has not been followed to anywhere near the same extent in the United States or on my understanding and reading of what has occurred there that blurring of those responsibilities has been at the heart of many of the problems that have overcome in a high profile way a number of the United States companies. I think it's also fair to say that the super litigious character of American society, an aspect of American life that I think all the Governments of Australia should fight with all their might to keep out of this country as best we can, and I say that in the context of being a fairly unashamed admirer of many aspects of the United States life, particularly the very strong commitment to the competitive spirit. But there are some American practices that we can well and truly do without and the litigious contagion which is lapping at our shores, if I can mix my metaphors, is certainly something out of the United States that we can do without. But the United States does have as you all know, a very rules-based or black letter law approach. I think it's fair to say without too much exaggeration that Australia has more of a principles based approach. Rules excessively written can encourage avoidance, an attitude of 'show me where it says you can't do it', rather than an approach that seeks adherence to certain principles. I think it's also fair to say that one of the other significant differences that could well have been relevant in recent corporate failures in the United States is that we here in Australia have requirements of continuous disclosure, where as the United States has the practice of periodic reporting. And I think in certain critical cases that can mean the difference between more timely disclosure and the concealment of information. That ladies and gentlemen is what I might call an overview of the thinking that I and therefore the Government brings to this issue. It is an important subject on the minds of many Australians and it's just not on the minds of shareholders, it's on the minds of citizens generally. It's not as important as the monthly mortgage bill. It's not as important as the Commonwealth Games. It's not as an important as a number of other things that are really important, but it is very important and more important than what it was a year ago and that's because people think something has gone wrong and I think some people have been getting away with murder in terms of corporate excesses. And I think we've got to agree that some people have been guilty of excesses and my responsibility and yours is to fashion the response that's needed and will be effective, but is a response that doesn't do damage to the essentially healthy and ethical character of corporate behaviour in Australia. The great bulk of company directors and business men and women in this country do behave ethically and correctly and they don't deserve a whole plethora of additional regulation that will only make their businesses less profitable and their life more difficult. But we do need to recognise that a mere ritualistic lip service to reform and change will not be enough. You are aware that the corporate law economic reform program commenced under this Government in 1997 and particularly through the work of Ian Campbell and others it's modernised business regulation and our approach to corporate regulation is focused on a number of key principles including, market freedom, investor protection and disclosure of relevant information. Clear guidance regarding appropriate corporate behaviour and swift enforcement if breaches occur, remain as key elements in insuring that markets function effectively. The Australian Securities and Investment Commission has made a very important contribution to Australia's relatively stable corporate environment. In particular it has taken an aggressive approach to upholding the Corporation's Law. And before accounting problems emerged internationally ASIC embarked on a campaign to target abuse of accounting standards in Australia and in 1999 ASIC effected re-statements of reported accounts in the listed sector to the tune of almost $1.5 billion. And last month ASIC announced a new accounting surveillance project directed to the areas of accounting abuse recently uncovered in the United States. And in recent years it's stepped up its enforcement activities and in the last financial year some 19 offenders were jailed as a consequence of various ASIC investigations. And it's also stepped up its enforcement of disclosures in prospectuses and to the market. I think you're also aware that the pursuit of a single set of high quality accounting standards has been an objective of the Government going back to the first CLERP initiative. And this recognises that uniform accounting standards, which are accepted in major international capital markets will greatly facilitate cross border comparisons by investors, reduce the cost of capital and assist Australian companies wanting to raise capital or list overseas. And in April the Australian Accounting Standards Board agreed that Australia's accounting standards should be harmonised and eventually converge with the International Accounting Standards Board standards. Australia in my view, and I dare say I won't encounter much disagreement at this luncheon, is very well served by a highly skilled and confident accounting profession. However, it is time, and in view of the widespread questioning overseas of the quality of financial disclosure, and also here in some cases, for Australia to review its own regulatory framework in this area. The Ramsay Report, with which you are all very familiar, on the independence of Australian company auditors, made recommendations to the Government designed to ensure the independence of auditors from the companies they audit. Later this month the Government will release a discussion paper or CLERP 9, which will address issues raised in the Ramsay Report together with a number of other issues on financial disclosure. As well as providing a response to the report, the discussion paper will consider a range of issue relating to the quality of audit, including a review of oversight structures for the profession and for auditing standards. Final implementation of reforms in the audit area will of course need to take in to account any relevant recommendations that come out of the HIH Royal Commission and some further developments overseas. It will be our desire to seek as soon as possible the views of the profession and others on the material raised in the discussion paper, so that we can then fairly speedily consider the implementation to the extent that we think appropriate with any changes of the recommendations of the Ramsay Report. It is inevitable in any public discussion, and properly so, of corporate excesses with the issue of executive remuneration should come up. To many in the community, even those who recognise and advocate the essential importance of properly remunerating highly competent company executives, there is nonetheless a view in a community particularly in relation to some spectacular examples of high remuneration despite poor company performances that those practises are seen in many respects the worst possible light by the general community. And in the wake of the collapse of One Tel, the Government announced that it would be amending the corporation's legislation to permit liquidators to reclaim payments made by a company in the lead up to the liquidation. The Corporations Act already contains provisions that commit liquidators to apply to the courts to reverse transactions made by a company whilst it is insolvent within certain time limits. The Government is proposing to exten! d the existing ability of the liquidator to permit them to apply to reclaim unreasonable payments made to the directors in the four years prior to a liquidation, regardless of whether the company is insolvent at the time or not. This proposal would not enable liquidators to apply to reclaim reasonable payments made to directors whist the company is solvent. The issue of executive remuneration is always a difficult one. We do not want to generate an envy society in this country. We do not want a culture which accepts as perfectly normal that people with highly developed entertainment and other skills should be remunerated very lavishly, yet people who do less apparently spectacular but arguably more important work in generating wealth and leading companies in this country are envied what is their proper remuneration. But I think we all know that whenever that approach and whenever the trust involved in that approach is abused and whenever arrangements which amount to no more than plundering the assets of a company are agreed to or entered into, immense damage is done to the willingness of the general community to support the levels of remuneration that are needed to retain and attract the high quality people needed to run the major companies of Australia. Well ladies and gentlemen, I welcome the fact that the leaders of the accounting profession and the securities industry and the representatives of company directors around Australia and indeed the entire business community of this country is addressing itself to this subject. It's a very important issue and if we're sensible and we get the balance right, we can make the changes that are necessary without going overboard. And we really do have so much going for us in this country at the moment. We have an economy, I can assure you as somebody who's recently visited both the United States and Europe as Prime Minister, we have an economy that is highly regarded. People do think this country is turning in a pretty stellar economic performance. We are respected for having been able to embrace change and reform and when you look at how far we have come in areas like industrial relations and taxation and fiscal consolidation, when you recognise that our national debt is 4.6 pe! r cent of GDP, in Japan it's 130 per cent and in the United States it's 45 per cent. And you think of all the change and reform that we have embraced, which as contributed to the economic strength we have at the present time, we would be negligent in the extreme as a community if we didn't take the steps necessary to ensure that our corporate governance provided that strut to the competitive capitalism, which has underpinned our wealth generation that I mentioned at the beginning of my remarks. It will require some changes by the Government, not overly regulatory or prescriptive, but some changes. It will require a willingness of the accounting and legal professions and the securities industries all to play their part. It will require all of us to understand the implications of what is happening overseas for Australia, but also to ignore those aspects of what have occurred in other countries that are due to different practice. We must respond to the concern. If we don't through a measure of self-regulation make changes then far more clumsy and far more inconceived changes and far more costly changes, will end up one way or another in being imposed. But I think we'd be the poorer as a consequence. So at a time we have every reason to be very confident about Australia's economic strength and economic future, we also have a responsibility to respond in the fashion that I have tried to outline generally today to issues of corporate governance. I'm very committed to working with all of you to bring about the changes that are needed. We are not a heavy handed prescriptive Government when it comes to business regulation. But we are a Government that doesn't entertain the naive belief that there's nobody out there in the corporate sector who isn't misbehaving. We do believe some changes are needed. If we can work together to bring them about, that essential strut to our competitive capitalism will remain and the economic strength that Australia now has will be even more available to all of the Australian community. Thank you.
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6 August
2002
