Early Warner

  • Date:01 Dec 2007
  • Type:CompanyDirectorMagazine

Professor Bob Baxt outlines some of the issues concerning directors that the Government will be examining now that the election is over.

When government gets back to business

As readers of this journal will know, shareholders of public companies have the ability today to consider and vote on proposed remuneration packages that a board of directors enters into for the relevant company’s directors and officers. Any vote on the remuneration package is non-binding.

The relevant provision, s250R of the Corporations Act, was enacted in 2004 as a result of agitation by the Australian Shareholders Association and various other groups following the HIH collapse and other similar commercial ‘disasters’. It was a compromise which was agreed to by the Federal Government at a time when there had been considerable debate as to whether shareholders should have a final say on the rewards that were to be paid to company directors. The introduction of the proposal, which amounted to a non-binding vote, was felt to be a sufficient ‘discipline’ that would keep company directors and their advisors ‘on their toes’ in relation to questions about remuneration.

Over the last few weeks, however, there has been increasing agitation by shareholders against ever larger numbers of prominent Australian companies about the salary packages paid to directors. This agitation is surfacing at a time when there has been a call by many well-informed and respected commentators that remuneration for company directors in Australia may well be falling behind international levels. This scenario poses a question that some would regard as quite a difficult one for the new Federal Government formed after the Federal election.

Now that the Australian Labor Party (ALP) has been elected there will be more pressure for a review of directors’ salaries than there was under the Howard Government.

The policies of the ALP in relation to the regulation of corporations and securities markets should generally be welcomed by the business community. It calls for less regulation and the possible integration of the Australian Prudential Regulatory Authority into the Australian Securities and Investments Commission (ASIC), which would reduce the amount of regulation as they currently overlap in their activities. The ALP also is seeking greater scrutiny by ASIC into company failures although, at the same time, it is calling for a reduction in the funding of ASIC – a matter that may be difficult to justify in the current circumstances.

Clearly, there are a number of questions that will face the new Government in this regard. The operation of the Takeovers Panel will depend on what the High Court says in the Alinta case, yet to be decided. The inquiry by the Parliamentary Joint Committee on Corporations and Financial Services into shareholder engagement and participation will no doubt be the subject of some close scrutiny, and there are a number of reports of the Corporations and Markets Advisory Committee (CAMAC) which are yet to be acted upon by the current Government. Furthermore, CAMAC is yet to finalise its report on the Sons of Gwalia case and further inquiry into Longtail Liabilities. Finally, as I note in this month’s Law Reporter (see page 54), the Government will be asked to review the recommendations of the Australian Law Reform Commission on Client Legal Privilege.

Whatever the election result, the times ahead in these areas of corporate regulation and review will be interesting and possibly exciting.

Professor Bob Baxt is a partner at Freehills solicitors and chairman of the AICD Law Committee.