A string of corporate heavyweights have strongly backed a stand by new AMP chairman David Murray to ignore the ASX corporate governance principles he warns are creating a distraction and focus his board on bigger strategic issues, so that his chief executive can run the company.
Mr Murray told The Australian Financial Review on Tuesday that he would “not be guided by the ASX corporate governance principles where they either weaken accountability or distract the company to less important issues”, claiming the guidelines had “contributed to what happened to AMP and others in the financial sector” and had made boards meddle too far into management issues through the proliferation of sub-committees.
Former Business Council of Australia president and Energy Australia chairman Graham Bradley said he disagreed that the ASX corporate governance guidelines had been ineffective and maintained that governance standards had significantly lifted over the last decade.
But he was concerned that some regulators increasingly view them as laws that need to be followed.
“I do share his concern that some regulators have seen them as more mandatory than they were intended to be.They were intended to give us a flexible approach and avoid a highly prescriptive, black-letter law approach,” Mr Bradley said.
Mr Bradley also agreed that directors may be starting to over-reach and delve into management issues of companies too much because of various sub-committees they were on, with required comprehensive interaction with other key executives just below the chief executive.
“I also share the concern with David Murray that directors may be starting to manage companies too much and get into the weeds of management too much,” he said.
Tony Shepherd, another former Business Council president and chairman of global infrastructure fund Macquarie Specialised Management, also backed Mr Murray on boards delving too far into management.
“The modern trend in board governance is undermining the fundamental principle that the role of management is to manage all of the operations of the company and the board’s role, on behalf of shareholders whom they are elected to represent, is one of oversight, ensuring compliance with all relevant laws, and company policy and strategy,” Mr Shepherd said.
“Part-time directors cannot be held responsible for a company’s day-to-day operations and the often hundreds of millions of transactions every year. Once a board meddles in management the lines of responsibility become blurred. At the end of the day the most important decision of the board is the appointment of the CEO.”
Elizabeth Proust, the chairman of the Australian Institute of Company Directors, pushed back against Mr Murray, saying saying board committees played an important role in governance.
“If boards are to respond to the low level of trust in our institutions they need to ensure they have adequate oversight of the companies they oversee. Board committees play an important role in this governance framework,” Ms Proust said.
“Of course, the board is ultimately responsible and cannot delegate its accountability to committees. Effective committee structures support good governance processes.”
But Ms Proust also said the AICD had concerns about the level of prescription in the proposed update to the ASX Corporate Governance Principles and the use of subjective terms such as “social licence to operate”, but generally supported the principles.
“The ‘if not, why not’ framework which allows listed entities to choose the governance arrangements that work best for them is an important part of this framework,” Ms Proust said. “If not, why not” refers to where companies are not compelled to follow governance guidelines, but are expected to explain why they have chosen not to.
The ASX Corporate Governance Council resisted reacting to Mr Murray’s critique. But the council’s chairman, Elizabeth Johnstone, said she expected “robust discussion” as the council considered submissions on a proposed fourth update of the principles.
“While council won’t comment on individual viewpoints, it emphasises that the flexibility of the ‘if not, why not’ approach allows companies to adopt the governance practices that best meet their needs and explain to the market how these differ from the recommendations. This helps investors make informed decisions. The governance practices a company chooses to adopt is fundamentally a matter for its board,” the council statement said.
Paul Little, who is now the chairman of the privately owned Little Group which has extensive interests in property development and tourism after he bowed out from public company life following more than two decades running transport giant Toll Group, said his group could move faster as a private firm and had three directors on its private company board with experience in ASX companies.
“We have the benefit of public company experience and additionally an ability for the board to move quickly and efficiently without getting bogged down with too much red tape,” Mr Little said on Wednesday.
He said the regulations for ASX companies gave extra comfort to all of the various shareholders about the way those businesses were operating.
“The regulatory environment that public companies must embrace is essential in giving comfort to all shareholders that the business is being appropriately managed,” Mr Little said.
Diane Smith-Gander, a director of Wesfarmers and AGL Energy and a past president of Chief Executive Women, said she took a lot of comfort from the broad “if not, why not” approach and said it took a lot of courage for a board to challenge a chief executive on certain issues. “It does take a lot of fearlessness for a board to stand up and say if not, why not,” Ms Smith-Gander said.
But she also said it was important for people to listen carefully whenever a person of the stature of David Murray spoke up about an issue.
Harvey Norman executive chairman Gerry Harvey and former ASX chairman Maurice Newman spoke out most stridently in support of Mr Murray’s stand against accepted corporate governance orthodoxy.
Right strategic moves
Mr Harvey said he fully agreed with Mr Murray, and that excessive corporate governance principles and a box-ticking approach were taking the focus away from the main game of running businesses well, and making the right strategic moves.
“I’m 100 per cent behind him,” Mr Harvey told the Financial Review.
Mr Newman said: “I applaud David Murray because at last someone has taken a stand on this.”
Mr Harvey, who runs the $4 billion retailer Harvey Norman, warned that the swing to onerous corporate governance principles and a raft of board subcommittees had caused boardrooms and executives to become bogged down and distracted.
“It’s non-productive. It’s so soul-destroying,” Mr Harvey said. He said his wife Katie Page, who is the chief executive of Harvey Norman, often came home frustrated at the amount of time spent on corporate governance that took her away from running the business.
Mr Harvey, who himself has come under heavy fire from corporate governance experts, said companies needed to be freed from the more onerous side of excessive red tape, so they could concentrate on growing their operations.
“Instead of that we’re constantly being harassed, and by harassed I mean all the legalities and things that we have to do every day and takes us away from the main game,” Mr Harvey said. “It annoys me enormously.”
Momentum for intrusion
Mr Harvey said political correctness in boardrooms had gone too far and Mr Murray had neatly summed up what had been plaguing Australian corporates.
“I’m likely to explode, tell them they are being dickheads and that the legislation is stupid,” Mr Harvey said of his likely next encounter with an over-zealous regulator.
Mr Newman, a former chairman of the ASX, said he applauded Mr Murray’s stand which he said a lot of people would agree with, but few would speak up about. He said while poor behaviour by banks should be punished, excessive corporate governance rules and an intrusion into boardrooms had gone too far.
“This corporate governance thing has been creeping and now it is starting to gallop. This drift has become a strong momentum for intrusion into boardrooms and a change in the relationship between boards and the chief executive,” Mr Newman said.
“Companies should be focused on keeping your costs down and your customers happy.”