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Democratising the corporate world

By Ken McKay - posted Tuesday, 22 September 2009


The great corporations which we have grown to speak of rather loosely as trusts are creatures of the State, and the State not only has the right to control them, but it is in duty bound to control them wherever need of such control is shown.

An interesting quote from a speech in 1902, not from a socialist, not from a radical Marxist, but by the then President of the United States of America, Theodore Roosevelt.

A sentiment that has been lost in the western world. Corporations are not naturally occurring bodies, they are created by the state to enable collective capital to be invested in economic ventures beyond the scope of an individual.

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Let us look at the recent events with BrisConnect where proxy votes for a shareholders’ meeting were purchased by a party with a commercial interest in the outcome of the ballot. That this situation was at all possible is an indictment on the lack of corporate democracy in Australia. Where else in our society is it legal to purchase votes.

In Queensland accepting or offering a bribe for a vote in elections can attract a criminal sentence of seven years imprisonment. Why is it that in the corporate world proxy votes for shareholder votes can be brazenly bought and no one seems to care?

What sort of democracy allows genuine investors to potentially have an outcome influenced by another party with potentially conflicting interests?

We need to rid the corporate world of the worst traits of a Tammany Hall system. The idea that progress of shareholders votes can be known by the board before the vote is complete is an anathema to transparent democratic process. The ability of boards to manipulate votes by encouraging institutional investors to vote - if a result is going against the wishes of the controlling elites - is typical of the Tammany Hall system that underpins the corporate world.

The recent conduct of the James Hardie board raises significant questions about how we create a system which leads to higher ethical standards.

When a board is guilty of deliberately misleading conduct why should the individuals on the board be able to continue to hide behind the corporate veil? Maybe if the consequence of deliberate misleading conduct was that board members would individually be liable for the cost of rectifying the damages we may have seen the James Hardie board act in a more responsible manner.

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If the board members of Visy could be held individually responsible for the damages to their customers from their price fixing it may have forced the company to operate within the spirit of the law.

Corporate Australia spends millions of dollars to seek legal advice on how their operations remain technically legal even if the spirit of the law is broken. We need to fundamentally shift the balance, not to deter legitimate risk taking but to deter shady activities.

Our Corporations laws need to expose those individual board members not protect them. Individuals who serve on boards which are guilty of price manipulations and cartel behaviour deserve to face the full cost of civil torts and to be individually responsible. Maybe then we may see some more ethical behaviour.

We need to reform corporate laws so that when a civil prosecution is successful on particular grounds such as price fixing, misleading conduct, or trading while insolvent, that the corporate veil is lifted automatically for board members of corporations.

The current penalties are simply insufficient to deter unethical or illegal behaviour; exposing individual board members to the possibility of complete financial ruin is more likely to ensure ethical behaviour. It is more likely to ensure greater vigilance by board members to ensure the corporations they are responsible for act not only within the technical aspects of the law but the spirit of the law.

We will hear the Melbourne Club and the Business Council of Australia claim that such reforms would deter talented people from accepting positions on boards. This argument is a furphy. If the individuals act with ethics and diligence they will have nothing to fear.

Structurally we need to ensure that the systems of governance promote the long term interests of the corporation. Allowing executive remuneration to be influenced by short term economic outcomes is not healthy. If it is good enough for workers to be subjected to secret ballots before they can withdraw their labour, it is good enough that executive remuneration greater than 15 times the average wage for the corporation be subject to a binding secret ballot of shareholders. A proper secret ballot that does not allow the Tammany Hall ballot stuffing if the result is not going the way of the board is necessary.

All public corporations should have at least two board members elected by the non-executive workforce. Worker participation within corporate Australia is generations behind European and Japanese corporations. We urgently need to bring industrial democracy to corporate Australia.

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About the Author

Ken McKay is a former Queensland Ministerial Policy Adviser now working in the Queensland Union movement. The views expressed in this article are his views and do not represent the views of past or current employers.

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