21 May 2021

I begin by acknowledging the Gagical people who are the traditional custodians of the land on which we meet and pay my respects to their elders past, present and emerging. 
I also acknowledge any first nations Australians who are present here today. 
I thank the CEO of the Stockbrokers and Financial Advisers Judith Fox and Chairman Brian Sheehan for inviting me along to today’s conference. 
I want to talk to you today about a dangerous trend dangerous trend emerging from the Morrison Government. 
It is a trend toward secrecy and against transparency that can be seen across a range of corporate law reforms. 
It is a trend that must be stopped. 
As advocates for the interests of shareholders, your voice needs to be heard on this issue. 
It is important you do so on behalf of your clients, but also because increasing corporate secrecy will damage our economic recovery. 
The stock market’s basic function is to facilitate the raising of capital for new enterprises to be born or existing ones to expand.  
As we look to emerge from the deepest recession in a century, it is more important than ever that this is done efficiently.  
At the Press Club this week, Labor’s Jim Chalmers built on the vision set by Anthony Albaense in his budget reply.  
It outlined a vision for the country that does not leave people behind.  
A vision that harnessed entrepreneurship and innovation.  
A vision that did not avoid or deny the challenges of this century but leant into them.  
We aim to build back better from the pandemic, and an efficient capital market is critical to this.  
And with more than one in every five superannuation dollars invested in Australian shares, all Australians have a key stake in the performance of stock market.  
I recognise that matching investment capital with the best opportunities is not an automatic process. 
It’s so much more than getting one set of numbers to align with another set of numbers.  
These are financial fertilisers that give investors the confidence they need to seed their capital in the most promising ground.  
And that is why the professional standards in your industry matters so much.  
Stockbrokers have been a profession for a very long time, and rightfully proud of it, dating back to the coffee houses of London and Amsterdam. 
The Government’s inflexibility in setting professional standards – in their failure to set up FASEA appropriately and to recognise your industry’s qualifications and experience – has been enormously damaging to the industry. 
Labor has always supported professional standards in the financial services industry. But not like this.  
We want to see strong standards that protect investors – and we know you share that goal. 
In essence, you are the arbiters of a contract between investor and enterprise.  
That contract gives investors the rights of ownership in a company.  
And it obliges directors to respect those rights through the provision of all relevant information about the affairs of the enterprise.  
There is a role for Government in these arrangements too.  
Where you match capital with opportunity, government sets the rules.  
And those rules are critical when the contract between investor and director begins to fray.  
Markets need timely and accurate information if they are to operate efficiently. 
Investors choosing between opportunities must have as complete a picture as possible about the competing options. 
As a matter of basic principal, the rules government sets must be even-handed.  
When the exchange of information about the company’s performance does not live up to the expectation of honesty and transparency and mutual trust begins to erode.  
Picking sides distorts the market.   
Without rules that treat access to company information as an equal right, rational decision-making becomes impossible.   
The efficient allocation of resources tapers and our economy suffers as a result.  
Now, none of this should be controversial if you believe, as our opponents claim they do, in free markets.  
But the Coalition has a long history of backing the interests of certain market participants over an even-handed approach that creates efficient markets.  
Their recent interventions are taking our markets further down this path in a way I believe has to the potential do great damage. 
In the Prime Minister’s re-purposed contract between owner and manager, it’s the directors who rule and the investors who submit.  
The latest rebalancing of interests has been done not through one fell swoop, but through subterranean regulatory creep across a range of smaller initiatives.  
Allow me to list them.  
First, we have the Government’s assault on class action litigants.  
A class action against his government put a spotlight on $1.5bn in unlawful debts on 600,000 vulnerable Australians.  
Described by Federal Court Justice Barnard Murphy “a very sorry chapter in Australian public administration”, there is no way that these financially disadvantaged, tragically wronged plaintiffs would have achieved justice without access to a class action.   
Instead of learning the lesson and improving governance, Scott Morrison has chosen revenge.  
Class action litigants are now the enemy, and that includes investors in public companies.  
De-fanging class actions against the negligence of corporations or governments can only encourage a culture of secrecy and dishonesty. 
It is citizens and shareholders who pay the price. 
It will instil a sense of impunity among Minister and Directors, and distrust among investors citizens.  
The proposal to water down continuous disclosure and misleading and deceptive conduct provisions is another step in this direction.  
As the Australian Shareholders Association chair Allan Goldin has pointed out, ASIC describes the continuous disclosure regime as “a fundamental tenant of our markets.” 
Mr Goldin’s view is simple: “This must not be watered down.” 
Essentially, if these pass, an acceptable defence for directors who breech those obligations will basically be “I didn’t mean to.”  
School pupils know it as “the dog ate my homework” defence.  
The Government’s announcement that it intends to crack down on proxy advisers is a continuation of this dangerous trend.  
While coded in benign language, their apparent plan is to require proxy advisers to let company directors and managers get an early preview of their reports – reports their customers pay tens of thousands of dollars for. 
These reports provide investors with a clearer view of what company directors are planning – and they’re not easy to produce. 
It’s like asking the AFR to give free copies of their paper away the night before they’re printed, or obliging lawyers to break professional privilege and share their confidential advice on a commercial transaction with their counter parties. 
The advisory services say it will destroy their business model.  
This is the Government’s intention.  
The role of proxy advisors, or as they are sometimes referred to “governance consultants”, is not well understood.  
The industry comprises just four players: Ownership Matters, ISS Australia, CGI Glass and the Australian Council of Superannuation Investors.  
Their business model is pretty simple.  
They provide an information service to large institutional investors.  
It’s their job to trawl through the thousands of resolutions put to public company meetings each year, dig through corporate disclosures, and advise their clients which way to vote.  
There’s a couple of reasons why that advice matters.  
It means large investors like super funds, who often allocate capital across scores of investments, are better able to manage the diversity in their portfolios.  
And it means another layer of sophisticated scrutiny is applied to information that passes from the board to investors before votes are taken.  
The effect of that scrutiny is by and large benign.  
One prominent adviser service, Ownership Matters, says in the decade it’s been offering services, more than 17,300 resolutions were put to meetings of companies listed in the ASX 200.  
About 350 of those resolutions failed.   
That’s about 2 percent.  
The most common type of resolution to fail, accounting for almost half of the total, were votes on remuneration.  
Resolutions to appoint directors, by contrast, failed just six times (or less than 0.08 percent of failed resolutions).  
ASIC research from 2018 shows boards themselves have been known to commission proxy advice reports on resolutions.  
The ASIC report suggest negative recommendations are produced for about 13 percent of resolutions.  
That suggests even when a negative report is produced, the investor doesn’t always vote the way they’re advised.  
The obvious question, then, is what problem is the Government actually trying to solve here?  
Where is the evidence of the Government’s contention that proxy advisors have “a high degree of influence in the outcomes of company resolutions”?  
The fact is there is no such evidence because it doesn’t exist.  
I can understand why Directors want to nobble the voices that provide uncomfortable scrutiny of their decisions.  
What I can’t understand is why the Government thinks it is in the public interest to back them.  
How can there a public interest in closing down an industry that provides advice and information to institutional investors on how to vote on decisions at AGMS.  
This is a decision to back the interests of the managers of capital over the owners of capital and it doesn’t make sense.  
It is hard not to draw the conclusion revenge is once again the prime motivator here.  
My colleague Andrew Leigh has done a tremendous job highlighting the unfairness and wastage in the Government’s JobKeeper program.  
Armed with analysis from proxy advisor Ownership Matters he has revealed that in a six month period more than a quarter of a billion dollars of Job Keeper money went to companies … which reported an increase in profits.  
That’s $284m of taxpayers money that went straight to the bottom line of 34 already profitable companies during a time when other businesses were going to the wall.  
It is the tip of a very large Iceberg. 
As we know, a lot of it then went to executive bonuses while other Australians were literally struggling to put food on the table.  
But here’s the kicker – those 34 companies didn’t break the rules.  
Josh Frydenberg designed Job Keeper to allow them to get that money and keep it.  
This is both corporate welfare for healthy companies and an utter repudiation of the Liberals’ claim about what great budget managers they’re supposed to be.  
But in the Morrison bunker, facts are irrelevant and unless you’re with him, you’re against him.  
Well we should all expect better.  
Revenge tantrums are no way to run an economy or nurture an efficient market system.  
A government obsessed with square-ups and driven by paranoia can never put the national interest first because it can’t see beyond its own survival.  
I urge you to send a message to the Government.  
Tell them we have bigger issues to tackle than these petty squabbles.  
Tell them we need our markets humming if we’re going to climb out of this recession … and he’s putting sand in the gears.  
Thank you for your attention.