DESPITE ONLY being passed in June, the CLERP 9 Act will be amended to resemble the more-prescriptive, US-style corporations law in the event of an Australian Labor Party victory in next month’s federal election.
The ALP and the Federal Government were involved in a heated debate regarding the fabric of the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (CLERP 9), but the government prevailed and many of the ALP’s proposed amendments were omitted from the Bill. Ross Cameron, parliamentary secretary to the Treasurer, called the ALP’s view ‘regulatory overkill’.
According to a spokesperson for Stephen Conroy, shadow minister for corporate governance and financial services, an ALP win will see corporate Australia being forced to re-comply with a new set of laws. The main thrust of the amendments would focus on the banning of company auditors from providing non-audit services to their clients.
“You will have seen throughout the CLERP 9 debate that Labor moved to prohibit the provision of certain non-audit services,” said the spokesperson. “Now, that will be a policy that Labor will implement if in government. There are non-audit services that would potentially compromise the auditor if they are being provided by the auditing company. Certain non-audit services should not be provided. Bookkeeping, financial information systems design, appraisal or evaluation services, actuarial services, audit services and management services.”
That approach mirrors the Sarbanes-Oxley Act and was driven by the desire to eliminate the kind of conflicts of interest that brought down Enron’s auditors, Arthur Andersen. According to one US media report from 2002, Andersen executives considered cutting ties with Enron a year prior to the collapse, but decided that the lucrative earnings from their client outweighed the risks of continuing the association.
Some of Australia’s largest companies, including AMP and Holden, are themselves implementing Sarbanes-Oxley compliance and indeed, any company that wishes to raise capital in the US or become an SEC registrant must do the same.
Observers said that implementing stronger, more prescriptive corporate laws here could penalise smaller listed firms for whom the financial and resource cost would be too onerous. The Australian stock market is structured with a large amount of small players and a more prescriptive approach would create inefficiencies, observers said.
The ALP has also railed against what it terms ‘corporate greed’ and has pledged to curb exorbitant payouts to departing CEOs.
As well, the ALP is keen to increase penalties for serious breaches of the Corporations Act. However, Justice Neville Owen, chairman of the HIH Royal Commission, said increased penalties are unlikely to result in fewer serious breaches.
“I remember during the [HIH] Royal Commission speaking with a well-credentialed and respected Australian company director and chairman, and I asked him whether or not he thought that increasing penalties would have an effect and he just looked at me and said, ‘Anyone who is concerned with penalties would never get a seat on my board’,” Justice Owen said recently.
Stuart Fagg is the Editor of Lawyers Weekly’s sister publication Risk Management.