Gatekeepers should have picked up Australia Post, ASIC sooner
A government corporation and a regulator are in trouble because systems of oversight did not work, writes corporate governance expert Helen Bird.
- Opinion piece for The Australian Financial Review by Senior Lecturer and Corporate Governance Specialist, Swinburne Law School, Helen Bird
The best way to understand governance issues in any organisation is to follow the money. Two very different government organisations are in the spotlight this week for paying their staff questionable remuneration entitlements. The Australian Securities and Investments Commission for paying a $118,000 tax advice bill for its chairman and a $70,000 rental bill for its deputy chairman. Australia Post, for gifting Cartier watches worth a total of $19,950 to four executives.
Both organisations are the subject of government inquiries. ASIC chairman James Shipton has stood aside; his deputy, Daniel Crennan, QC, has resigned with immediate effect. Australia Post's CEO Christine Holgate has been forced to stand aside pending an inquiry into her organisation.
Christine Holgate gave evidence about the purchase of four Cartier watches, worth $19,950 in total, on Thursday | Alex Ellinghausen
What both organisations have in common is their accountability to government. Both are subject to the Public Governance, Performance and Accountability Act 2013 (PGPA) . Additionally, the governance of Australia Post must align with Commonwealth government oversight rules.
The PGPA imposes private company director-like obligations on officials who work for accountable authorities.
Whilst the Cartier watch affair has bad optics, the ASIC expenses fiasco is worse because it not only calls into question the way in which ASIC is governed but also the way in which the Treasury, to which ASIC answers, managed the circumstances of Shipton and Crennan's appointments.
“I have not used taxpayers’ money. We are a commercial organisation.” This was Holgate's justification for purchasing the Cartier watches, at a Senate hearing. It is an inaccurate statement. In net effect, Australia Post belongs to taxpayers. Holgate is right when she says Australia Post is a commercial organisation, but that does not diminish its accountability to government for the way in which it operates. Strictly speaking, Australia Post’s CEO is accountable to its board, and the board is accountable to its shareholder ministers and to Parliament.
What appears to have happened at Australia Post is a breakdown in the oversight required by section 16 of the PGPA. There is no question that Holgate had authority to spend money on behalf of Australia Post, the issue is as to the circumstances – and, in particular, whether there were any specific controls that applied to handing out watches as gifts to staff.
John Stanhope, Australia Post board chairman during 2018, says he only gave in-principle approval for the gifts to be made, but not the form they would take. The form does matter. If the board had determined that a bonus payment was appropriate, there would be a system in place by which that bonus would have been calculated, approved and overseen, ideally by the board itself.
A gift awarded in place of a bonus takes the benefit out of the remuneration sphere and removes it from the normal governance protocols that apply to remuneration. There may well be other equivalent protocols applying to gifts. The PGPA suggests as much, but there are no details available on Australia Post’s arrangements to judge their appropriateness.
Without further evidence, Stanhope’s descriptions sound too informal and lack a sense of curiosity or unease. Not, perhaps, what you might expect of a government enterprise board more alert to its public governance responsibilities. Though the sums are not large compared with typical bonus payments, the extravagance is unseemly for a government business organisation whose job is to deliver the mail.
The ASIC fiasco is also a remuneration entitlements story, but on a graver scale. Governance scandals inside the very agency called to regulate poor governance in corporations is a poor look and inevitably leads to loss of confidence at a time when ASIC was valiantly trying to resurrect its reputation in the wake of the Hayne royal commission. This seems to explain why Crennan resigned as deputy chairman and ASIC enforcement chieftain.
Secondly, the governance implications of this story penetrate further into the Commonwealth government – their roots can be traced back to Treasury and the circumstances under which Shipton and Crennan were appointed.
The Australian National Audit Office found the payment irregularities during its regular financial audit of ASIC. The circumstances under which the payments were approved and granted are as yet unclear. Just as with Australia Post, the governance issue is the system of controls that were in place at ASIC to deal with expense payments of this kind, how these were monitored, and why they were not disclosed before ANAO’s October 22 notification to the Treasurer.
The circumstances of Shipton’s outstanding tax bill raise a further accountability question for Treasury: specifically, the public servants involved in advising the Treasurer on Shipton’s eligibility for appointment as a senior Commonwealth officer. While assessing Shipton’s application, Treasury should have inquired into his professional and financial background, including whether he had any significant tax liabilities outstanding.
The possibility of such liabilities arising is a reasonably foreseeable risk. This need not have prevented Treasury from appointing him. It could have required the resolution of the tax liability to be a condition of his appointment; or allowed him to be appointed under strict governance controls.
The controls should have required efficient resolution of the late tax issue, supervised by independent Treasury officers, the idea being to separate the duties and powers of the ASIC chairman from a potential conflict of interest affecting his position and his remuneration.
If that had happened, Treasury would have known about the KPMG bills earlier and acted to prevent the costs blowing out to the extent that they did. Shipton would not be in the position in which he now finds himself, and Treasury would not be wasting valuable time during a pandemic fixing up this mess.
The optics have been poor, but the governance of important government institutions and enterprises, including Treasury, has been shown to be poorer. What has let them down is a less-than-stellar approach to remuneration entitlements. Both the Australian public and the public purse are entitled to expect better.
This article was republished with permission from The Australian Financial Review. Read the original article.
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