Grant Chapman (SA, Liberal Party) Share this | Link to this | Hansard source

I present the report of the Parliamentary Joint Statutory Committee on Corporations and Financial Services entitled Better shareholders—better company: shareholder engagement and participation in Australia together with the Hansard record of proceedings and submissions received by the committee.

Ordered that the report be printed.

by leave—I move:

That the Senate take note of the report.

Good corporate governance needs meaningful engagement between shareholders and company boards so that boards can be held to account by the informed decision of shareholders. Effective shareholder engagement is dependent on clear communication and transparent voting. A problem for companies wishing to engage with institutional shareholders is the difficulty of identifying beneficial share owners behind complex ownership arrangements. The committee recommends an amendment to the Corporations Act to allow owners to be more easily traced.

Some companies also seem reluctant to engage with shareholders on sustainability issues, concerned about their continuous disclosure requirements. The committee recommends that the Australian Stock Exchange clarify the scope of the continuous disclosure requirements as they relate to discussing these matters. A major barrier to engagement is incomprehensible company reports. Companies should be encouraged to voluntarily provide easily understandable, short reports for shareholders. This should replace the current mandatory concise report, which is no longer concise and is difficult to understand. The committee recommends that Australian Securities and Investments Commission establish best practice guidelines for company reporting.

The committee has also recommended that ASIC establish best practice guidelines for company annual general meetings, which could be more shareholder-friendly by being held at convenient times, allowing proper opportunity for discussion and using technology to reach a greater audience. Predatory share purchase offers are also detrimental to shareholder engagement, and the committee recommends that access to share registers be restricted to proper purposes. Previously I have raised this issue in relation to Mr David Tweed and his nefarious activities seeking from shareholders the sale of their shares at much less than their market value, so I welcome this particular recommendation from the committee.

The disclosure rules applying to short-selling and margin-lending activities also require improvement. Covered short sales should be required to be disclosed to the market, and institutional investors should disclose their stock-lending policies to members. The uncertainty over when director-shareholder margin loans are of material significance needs to be disclosed to the market, and this should also be clarified. The integrity of voting systems could be improved via electronic proxy voting systems to provide an audit trail and the prohibition of vote-renting and cherry-picking proxy votes. Direct voting would help overcome proxy voting flaws, and the committee recommends that the stock exchange encourage its uptake with an ‘If not, why not?’ provision in its corporate governance principles and recommendations. To assist shareholders in making informed voting decisions, the committee also recommends that shareholders be able to vote on the basis of AGM discussion by postponing voting until after the close of the meeting. The committee also recommends that director-shareholders be prevented from voting on their own remuneration packages.

The tabling of this report fulfils my final task with this committee, which I had the privilege of chairing for nearly 12 years—the life of the Howard government—and which I have continued to serve on as deputy chairman since early this year. I urge the government to take up these recommendations to enhance shareholder engagement, which I believe will become increasingly important in the years ahead. I thank Geoff Dawson, the secretary of the committee, and the committee staff for their work in supporting this particular inquiry.

In the valedictories for departing senators last week Democrat Senator Andrew Murray was kind enough to comment very favourably on the contribution I have made to Corporations Law and financial services regulation as chairman of this committee for so long. I thank him for that encouragement. Equally, Senator Murray has himself been a valued and thoughtful member of this committee through his contributions over the past 12 years and I want to thank him for the first-class work that he has done to enhance its deliberations.

Following the conclusion of my Senate term next Monday, 30 June, I will certainly continue to observe the work of this committee from afar with keen interest. Its work has probably been my key policy interest for these past 12 years and I certainly will not lose the interest that I have developed in that regard. So I wish its continuing members and staff well in their future work as I commend this report to the Senate.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

I initiated this reference to the Parliamentary Joint Statutory Committee on Corporations and Financial Services, but the committee was very pleased to take it up. I want to commence my remarks by thanking the previous chair of the committee for his wholehearted support and members of the previous opposition, the Labor Party, for their support for this inquiry. The essential understanding was that our markets and our corporations have grown so large and have become so complex that we need to find mechanisms which support improvements in accounting standards and governance practices in Corporations Law and market law with a better ability for very large companies to interact and relate to their shareholders.

One of the difficulties we have of course is that shareholders are often represented indirectly; they are either hidden behind nominee companies—and I do not mean that in the sense that they hide but rather that that is the vehicle they invest in—or hidden behind superannuation trust funds and other funds. It is important we recognise that these intermediaries between the ultimate beneficiary owners of the shares and the company themselves need to be given facilities and the ability to engage on behalf of the ultimate beneficiary shareholders and that the mechanisms for engagement should be as modern, as helpful and as technologically up to date as possible.

Essentially, if I were to capture one theme that emerges from the committee’s report Better shareholders—better company: shareholder engagement and participation in Australia, it would be that we do not want too much more black-letter law in this area but we do want much better practice. That is best facilitated through regulatory intervention and the development of a cross-sectoral understanding of how best to advance better engagement, better shareholder engagement and better participation in Australian companies. We had very much in mind a couple of good examples of how well things could be facilitated. The first was the committee’s strong endorsement, after interviewing the Chair of the Panel on Takeovers and Mergers in Great Britain, of the ability of bodies to develop practice which actually facilitated market acquisition and activity. This did not need too much of a change in law—obviously the law had to allow for the takeover panel themselves to be constituted but the actual practice was developed on a flexible basis. The second, and probably more directly relevant, example was the development of corporate governance principles by the ASX, ASIC and selected and representative members of the corporate community. That has been very effective indeed in keeping up to the mark on corporate governance.

We as a committee felt, and the recommendations clearly indicate this, that shareholder engagement was not up to the mark, and there are a number of areas, which Senator Chapman mentioned in his tabling remarks, which need further development. I think this is a particularly useful report not just because I originally motivated it but because I think its directions and its conclusions are intelligent and insightful. I think that if these recommendations were to be accepted then they would considerably improve shareholder engagement, not least of all through the processes for constituting boards that were in the past more effective in general than they are at present. Obviously there are some superb boards at present, but the ones at the other end of the spectrum are pretty ordinary. We in the committee hold to the view that, as far as possible, you want to not just weigh up the evidence but also come to a conclusion which most people are comfortable with, because if you can do that within the committee structure then you can start to anticipate that it can be done in the corporate world because it is not overly contentious.

One of the things which, unfortunately, characterised the Howard government was that its reaction time to the committee’s previous reports and recommendations was often abysmal. It took far too long and in our view did not facilitate the quick and efficient development of new law, new regulation or new or better practice in these areas. I would hope that the new government will take a shine to answering these reports quickly. I am deliberately addressing my remarks—through you, Madam Acting Deputy President—to the members of the Labor Party present. I have seen a huge improvement in how quickly questions are being answered on notice from estimates—a great improvement on previous practice. Let’s extend that improvement to answering committee reports as quickly as is reasonably possible.

Personally, I tend to take a more advanced view on shareholder engagement matters than do most of my colleagues. I think there are considerable opportunities for greater lateral thinking, and people who are acquainted with my arguments on corporate law will recognise that I have supported the idea of a corporate governance board for many years—that is, of course, a small board with a very limited remit, principally in the governance area, which is elected by shareholder and is not shareholding. I have always thought the main board has to remain elected by shareholding and must concentrate on the main job of the company, which is to do well and to advance the interests of the shareholders, but I have long thought that a separate corporate governance board, which a couple of writers think of as a corporate Senate, would be a considerable advance on corporate practice in Australia. And of course it is possible; it is not prohibited in law. You can do it in your own constitutions. So, in my very last speech with respect to corporate law matters, I would encourage the new committee to keep testing the boundaries to make sure we continue to be as proud of Australian companies as we should be.

John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

I would like to take the opportunity on the presentation of this report of the Parliamentary Joint Statutory Committee on Corporations and Financial Services entitled Better shareholders—better company: shareholder engagement and participation in Australia to congratulate Senator Murray for originating this very important reference, focusing on shareholders. It is an appropriate time to recognise 12 years of outstanding service that have been given by the past chairman, Senator Chapman from South Australia. During his time, Senator Chapman raised a range of very significant issues, many of which have been adopted, and he has been recognised in the corporate community as a person promoting high ideals. At a time of such turbulence in the stock markets, as currently, there is always the opportunity of a knee-jerk reaction. To the credit of the committee, they presented a very balanced and objective report, rather than reacted to the particular issues of the moment.

Today company directors indeed face a lot of challenges. Australia, and Australian law and its enforcement, have stood up well in the face of this turmoil. We have not had the degree of volatility or difficulties that overseas countries have experienced. Corporate directors are facing increasing pressures in terms of corporate governance—risk management; changing accounting standards; meeting new international requirements; constant taxation issues; and also keeping an eye on the prospects and activities of a sudden appearance of hedge funds on their share register and the consequences that that can have, particularly when employing short selling. I was particularly pleased, Senator Chapman and Senator Murray, that you addressed this issue of short selling. It is a question of how best to regulate that in a meaningful manner. As you know, short selling in Australia is prohibited; however, I think there are about five or six exemptions under which it can operate, and it is in these areas that we ask the government and the regulator, particularly ASIC, to focus attention. Certainly, if they apply the skills within ASIC together with the expertise within Treasury, I believe we could get a good outcome in order that Australian companies can move forward to give directors the confidence to take manageable risks, whilst ensuring that their companies operate in an appropriate manner to the satisfaction and benefit of shareholders. I thank the Senate.

Question agreed to.