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Additional Contribution by Senator Cooney
THE
COMMUNITY'S NEED FOR GOOD LAW
Good
law is made when Parliament or the court respond truly to an issue which
confronts the Community.
Parliament
has before it the Corporate Law Economic Reform Program Bill 1998 and must
decide whether that legislation is a proper response to the current issues to
do with companies.
The
Parliamentary Joint Committee on Corporation and Securities is now reporting on
that Bill and in particular on four specific matters, namely:
- directors
duties and corporate governance.
- takeovers
- undraising
- accounting
standards
RESERVATIONS ABOUT THE BILL
I have
reservations about the overall tenor of the Bill and about specific provisions
in it.
DEFICIENCIES IN THE OBJECTIVES
OF THE BILL
The
main report in paragraph 6.1 quotes the stated objectives of the Corporate Law
Economic Program which gives rise to the Bill. Those objectives stress the
need for “economic outcomes including increased employment”. They highlight
the aim of “encouraging businesses large and small to create wealth, prosperity
and jobs”. They seek to enhance “market efficiency and integrity and investor
confidence.” In paragraph 6.2 the main report “concludes that this Bill will
make a significant contribution to achieving these objectives.”
In my
view the Corporate Law Economic Reform Program and the consequent Bill give
insufficient emphasis to fundamental matters other than monetary accumulation
and financial gain.
They do
not place enough weight on the obligation those who are in control of companies
have to act ethically, on the want investors at risk have for adequate
protection, and on the need to have in place a proper regime to regulate
companies particularly where there is a risk that the corporate sense of
decency may wan.
ETHICS AND REGULATION
To a
marked degree the well being of the Community is determined by the way
companies conduct themselves. High ethics or strict regulation or both are
necessary to ensure good corporate behaviour.
BRITAIN AND THE UNITED STATES
Britain
places great emphasis on ethics as a means of achieving proper conduct by
companies. The United States of America gives more weight to regulation in
achieving that end.
Accordingly
the Panel on Takeovers and Mergers in England has worked successfully for over
thirty years as a non-statutory body unequipped with legal sanctions (see
paragraphs 3.52 to 3.59 inclusive of the main report). In the United States
the Securities and Exchange Commission holds and exercises rigorous powers over
companies.
NEED FOR CLEAR UNDERSTANDING
All
this must be clearly understood by Parliament as it debates the Corporate Law
Economic Reform Program Bill 1998. Whether it enacts legislation to establish
the Corporations and Securities Panel and with what powers it equips that body
are questions it must resolve with a true appreciation of how things work both
here and overseas.
COMPANIES AND THE COMMUNITY
The way
companies conduct themselves affects the Community in general and some sections
of it in particular. Corporate law should develop and change on that basis.
INVESTMENTS GOVERNMENT AND THE
VULNERABLE
During
the nineties Government has been central in persuading Australians to invest
now to produce funds for their retirement. It has suggested that within the
foreseeable future consolidated revenue will be unable to meet the cost of the
old age pensions which then became payable under the present social security
system.
Already
there is an increasing number of retired people who are not on social security
who seek to maximise their income but are inexperienced in making investments.
Akin to these people are those who receive a substantial sum of money on being
made redundant and invest it in companies.
Accordingly
a variety of influences including the Government are guiding people in large
and rapidly growing numbers towards investing in companies and in
superannuation even though they have scant knowledge of the corporate world and
limited ability to participate in it.
More
and more Australians are becoming shareholders. Government in large part is
responsible. The privatisation of the Commonwealth Bank and of a third of
Telstra is evidence of this. Companies themselves consistently seek capital
from investors.
There
are a large number of people who while not holding shares in companies are
members of superannuation funds which invest huge sums in the corporate sector.
NEED TO PROTECT THE VULNERABLE
Given
all this it is essential that company law give adequate protection to those
with an inherent vulnerability to the vicissitudes of the corporate sector.
This is particularly so in the case of people who are vulnerable and are
encouraged by Government to participate in it as a means of securing their
future.
Laws
determining what the responsibility of directors is to be, the way companies
are to raise funds, the process by which mergers and takeovers are to happen
are of vital importance to such people.
SPECIFIC ISSUES
Paragraph
2.11 concludes with the words: “[T]he business judgement rule and statutory
derivative action.... will serve to clarify and add certainty to this area of the
Law “. The statement is probably overoptimistic. It is likely that the Courts
will need to set some precedents in respect of the relevant amendments before they
became fully clarified and certain.
The
main report endorses the nature and powers with which the Corporations and
Securities Panel is to be endowed. It “strongly supports” the objective of
making the Panel, rather than the courts or the Administrative Appeals Tribunal
(AAT) the primary forum for resolving takeover matters.” I do not give the
same endorsement to the Panel as does the main report in paragraphs 3.49, 3.51
and 3.52. The Panel is unlikely to have the success the British model has had if
Australian corporate life is less ethical than the English one.
The
main report considers the issue of compulsory acquisition of shares in
paragraphs 3.56 to 3.74 inclusive. It takes into account the interests of
minority shareholders but in my view does not give enough weight to them.
THE COURTS
I
consider the courts should not be limited in the way proposed by sections 661E
and 664F of the Bill (see paragraph 3.62 of the main report). It will take
time to establish the effectiveness of the Panel and it is premature to endorse
it with the enthusiasm expressed in paragraph 3.63 of the main report.
The
courts have been crucial to the development of good corporate law and their
ability to do so should not be curtailed.
SENATOR BARNEY COONEY
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