Poor corporate governance is costing Australian investors billions. Strange that a government that wants to lift investment is ignoring it.
While Attorney-General Christian “Public Bar” Porter tries to use the pandemic and resulting recession as cover for pursuing at least some of the government’s industrial relations agenda, an objective assessment of Australia’s economic and investment challenges might focus a little higher up the social scale than targeting workers’ rights.
The corporate scandal du jour is at Freedom Foods, owned by the Perich family — the Coalition donors of Leppington Triangle fame.
On Monday the company revealed a $590 million write-down of previous years’ results. Chairman Perry Gunner told furious shareholders he was “deeply disappointed” with the revelation. CEO Rory Macleod and CFO Campbell Nicholas have left in recent months as a result. Its shares remain suspended more than a year after the problem was uncovered. The company is broke and will need a bail-out or to enter administration.
What was the company’s board doing while such an extraordinary accounting error — if that’s what it was — was occurring? Gunner said it had relied on management but, he told The Australian Financial Review, “clearly that reliance has failed us”.
Freedom Foods is relatively little known outside its industry but the near $600 million write-down is big-league stuff.
It’s also only the latest failure in corporate governance by Australian directors.
The biggest failure of the year has been Crown, where the board — composed of some the most prominent names in Australian business and former senior public servants — twiddled its thumbs and issued misleading media releases while a series of scandals and disasters erupted, including money laundering and links with organised crime.
Westpac has also lobbed a competitive bid for the worst major board with its “inadequate” performance in relation to Westpac’s 23 million breaches of money-laundering regulations, including allowing sex offenders to pay to access child sex sessions in the Philippines. That was backed up yesterday by the Australian Prudential Regulation Authority’s (APRA) finding of failures on risk management and liquidity.
Another strong contender is Rio Tinto, which destroyed the Jukaan Gorge site and in doing so inflicted catastrophic damage on its own reputation before the CEO and two other executives lost their jobs amid calls for a full cleanout of the board.
In previous years, the performance of the dinosaurs of the AMP board would have also been in the running for the worst board, with its utter mishandling of the promotion of accused sexual harasser Boe Pahari, with the rapid departure of CEO Craig Meller a mere footnote before David Murray and John Fraser bailed out. Remember, they were part of the “new broom” following the revelation of AMP’s disgraceful performance by the Hayne royal commission and the board clean-out that followed that.
That’s just the highlights of this year. They follow the havoc inflicted by the banking royal commission on the boards and top executive ranks of the big banks and IOOF, as well as AMP. And the Commonwealth Bank’s massive money laundering problem.
By one count, “five of the top 12 ASX companies have lost chief executives and board members since 2018 because of failures in culture governance, not poor financial performance”.
Board failings, even on matters of company culture, have very real consequences. Even a medium-sized company like Freedom Foods can end up with half-billion dollar write-downs. Worth well over $5 a share in 2018, AMP’s stock now trades below $2 — a level it hasn’t seen since February. Westpac’s shares rose a solid 12% in booming November, but that was well behind the 20% plus rises in the shares of the Commonwealth, NAB (the big governance offender of 2019) and the ANZ.
Shareholder value is trashed and investors lose confidence in the capacity of boards to do their jobs. Directors and executives spend their time dealing with crises rather than focusing on core business.
For a government with a professed goal of lifting investment, what is it doing to address the recurring pattern of lazy, complacent and downright incompetent boards?
Not much — beyond removing responsible lending laws so banks can return to their predatory ways. For the government, industry super funds being able to advertise is a much bigger problem than the complicity of the boards of AMP, IOOF and the big banks in the rorting of superannuation accounts. Trade unions’ and workers’ capacity to negotiate better wage outcomes is what’s holding the economy and investment back, not boards trashing shareholder wealth.
The problem isn’t with Australian workers, who for years have seen higher productivity siphoned off to business profits, but the dud quality of Australian management and the boards that are paid handsomely to oversee them — or at least they are supposed to.
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Peter Fray
Editor-in-chief of Crikey
