Our society is losing sight of the significance and requirements of “good governance”. Governance refers to the system by which our key organisations are managed, most importantly elected governments and corporations. It clearly identifies who are the decision-makers and how they are held accountable.
The Morrison government deliberately played down the significance of governance, seeking to dodge its responsibilities and avoid accountability for its actions – this contributed to a further loss of trust in government. Its political appointments to various boards completely ignored the importance of such authorities to the effective governance of these organisations. The previous government was just intent on paying off mates and donors, sometimes simply to give their political allies a lucrative future beyond politics. These appointments gained momentum as the election approached and the vibe around a possible Coalition loss intensified.
Prime Minister Anthony Albanese promises to restore a focus on good, policy-driven governance. In recent months, political and media attention has been drawn to government appointments to the Administrative Appeals Tribunal and to the boards of Australia Post, the Reserve Bank and the ABC, and after reports from the royal commissions into banking and aged and disability care.
The ABC has been subjected to a sustained barrage from the Murdoch media, both its print and TV journalists, who are seemingly obsessed on behalf of their employer with forcing the government’s hand to further cut the public broadcaster’s funding.
The Hayne banking royal commission identified a culture of greed whereby banks gave priority to maximising shareholder value at the expense of the interests of their clients, employees and the broader Australian community. For example, it was demonstrated that a bank would often extend a mortgage despite knowing that the home buyer couldn’t afford to borrow so much, and then convince them of the need for various insurances of the loan, the house and so on – all of which could be handled by the bank’s insurance company. The bank might then offer to manage the borrower’s superannuation and other wealth, finding as many ways as possible to “clip the ticket” on the same transaction. It’s certainly not in the borrower’s interest, nor in our national interest, to build a debt bomb that could explode in the future.
Clearly, a board sets the culture of the organisation and has to manage a variety of stakeholder interests. A bank must consider those of their clients and employees as well as shareholders, and respect their social licence to operate in the interests of the broader community.
Our governments often ignore the essence of good corporate governance in making board appointments. The composition of boards is important, to achieve the correct balance of skills and experience of members, relevant to the purpose of the organisation. It is also important that both the government and its appointee see the role’s objective as delivering the highest standards. They should see the need to act independently of government, and certainly not as a mechanism for political influence.
The fundamental duties of boards are to set the culture of the organisation, to agree on its basic objectives and strategies, to appoint the management and sign off on the business plan to achieve those objectives, and then to hold management to account. In these terms, I suggest that the most important decision that a board ever makes is to appoint the chief executive in a way that ensures accountability in relation to their key performance indicators and remuneration.
Applying this thinking to major public institutions such as Australia Post, the Reserve Bank and the ABC can raise some politically difficult decisions for the boards and for the government of the day. Consider the recent debacle with Australia Post and the unjustified treatment of chief executive Christine Holgate by Scott Morrison – a clear example of governance failure by the board. Its role was not to succumb to Morrison’s personal wishes but to make an independent assessment of the chief executive’s performance in carrying out the board’s strategy in respect of staff bonuses.
Similarly with the ABC, the board needs to ensure that management is meeting the legal requirements of its charter, rather than succumbing to government and other pressures, or running its own political agenda. The ABC has been subjected to a sustained barrage from the Murdoch media, both its print and TV journalists, who are seemingly obsessed on behalf of their employer with forcing the government’s hand to further cut the public broadcaster’s funding, or even maybe to privatise it. They attempt to expose bias in contravention of the ABC’s charter.
If there ever were a case of the pot calling the kettle black this would be it, given the extraordinary campaign the Murdoch media ran in support of the Morrison government and the unsubstantiated attacks on the Labor leader in the last election campaign.
More recently there has been a focus on the Morrison government’s appointments to the AAT, many rushed through in the lead up to the election. Mike Seccombe has written a strong piece in this paper arguing that the stacking of such appointments radically affects the decision-making outcomes of the AAT, such that the Albanese government may wish to dissolve the tribunal.
As for the Reserve Bank, the board should be holding the governor to account for the way he has managed monetary policy under their direction. A case in point would be his many misleading statements that interest rates would probably not rise until 2024.
In the broader business community, this could be considered “false and misleading conduct”, for which there are significant penalties.
Were these statements board approved?
In recent times crucial questions have been raised about the duty of care of governments and their institutions. Alarmingly, the Morrison government actually went to court to argue it didn’t have any such thing, opposing members of our younger generation who invoked this duty in relation to fossil fuel projects, to assert the government’s responsibilities with respect to the climate, its policy intentions and the impact on their future. One of my favourite cartoons depicts a father sitting on barren ground with a circle of children around a small fire, saying to them, “Yes, the planet got destroyed, but for a beautiful moment in time we created a lot of value for shareholders”.
This should be on the tombstones of the fossil fuel companies when we have finally transitioned to a low-carbon world.
Climate change has also posed an important challenge to many private-sector boards. A little over a decade ago I launched and chaired the Asset Owners Disclosure Project, which surveyed, rated and ranked the global top 500 asset owners on their understanding and acceptance of the risks of climate change on their holdings. They were the world’s largest pension and superannuation funds and sovereign wealth funds, whose aggregate shareholdings dominate most of the stock markets of the world. Our argument was that their directors and trustees carried a fiduciary responsibility to the members of these funds, meaning, for example, that a super fund must manage its members’ allocations so as to maximise value over their working life. The focus was on the asset owners’ willingness to understand and disclose the risks that they were running in holding climate-sensitive investments. This provided a base for the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures and the world is fast moving to compulsory disclosures of climate risks – probably applying more broadly than just to financial institutions.
In a world where governments are dicking around deciding how to respond effectively to the climate challenge, we believed the transition may ultimately be driven by investment behaviour. Global banks and investors have begun to make it clear that they don’t want to fund future coal projects and coal-fired power projects. Similarly, the major insurers have expressed an intention not to insure such power projects.
These trends, along with solar and wind now being much cheaper sources of power, are accelerating the transition to renewables. The Australian Securities and Investments Commission (ASIC), the country’s corporate regulator, has a significant role to play in assessing the governance of boards, but its performance has been criticised extensively, including in the banking royal commission of 2019. The Senate Standing Committees on Economics has formally reviewed ASIC on a couple of occasions – in 2013, and the more recent inquiry into its handling of the Sterling Income Trust – but we have seen little reform and are still waiting for a formal government response to the recommendations of the royal commission. Calls are increasing for another parliamentary inquiry, this time focusing on ASIC’s handling of complaints.
The standards of governance in our political system serve as something of a role model for a multiplicity of boards throughout civil society, especially schools and charities. If people on these community boards see that it really is a mates’ game, to be manipulated at will, then we are giving terrible instruction to our kids: “How to get ahead, the Barilaro way.”
This article was first published in the print edition of The Saturday Paper on
August 13, 2022 as “Board games”.
A free press is one you pay for. Now is the time to subscribe.