Demonising directors can backfire if it goes too far

Tony Shepherd, left, and Alan Jones are members of the Sydney Cricket & Sports Ground Trust board that NSW Opposition Leader Michael Daley has threatened to sack. Picture: John Feder

The Alan Jones v What’s-His-Name bout on Tuesday morning was terrific clickbait. Now consider the serious side to this barney between the 2GB radio broadcaster and unknown NSW Opposition Leader Michael Daley.

A new blood sport has emerged in Australia: the demonisation of directors.

Labor’s Daley assumed he was on a safe wicket. Attack a pricey piece of infrastructure, the taxpayer-funded rebuilding of Allianz Stadium in Sydney, when the ­people of NSW are fed up with the mess of current unfinished ­projects.

Except that Daley was a dope to enter the radio studio unencumbered by facts about the safety deficiencies of the stadium. The new Labor leader looked more local councillor than a man who could be premier after the March 23 state election.

Daley’s next political punt was to promise, as new premier, to sack the entire board of the Sydney Cricket & Sports Ground Trust that supports the rebuild. A board that includes Jones.

Daley was on a populist roll. He then accused the board of the most disgraceful behaviour — removing fire sprinklers “under the cover of darkness” to justify the new ­stadium.

It was an outrageous, false and defamatory claim. Daley deserves to be sued for defamation.

He was projecting the kind of scandalous tactics of his union mates on to an honourable board. Such as deliberately destroying documents when you have been notified to produce material for the royal commission into trade unions.

But it made headlines. And Daley’s cold calculation speaks to a public baying for director blood.

All things considered, no one really cares about directors. They are no downtrodden cadre. These are the elite of the corporate world, successful, highly paid and usually ensconced on multiple boards. It is terrifically cosy if you are a member of this exclusive club.

Truth be told, lots of directors, men and women, swan around at networking shindigs, more celebrity than director, jumping into all the fashionable causes, from slumming it for a night to support the homeless to controversial social agendas.

Ask these directors to venture a public word on economic matters that affect their company and they duck their heads.

Why wouldn’t we bay for some director blood after the banking royal commission uncovered so many deficient boards at Australia’s biggest banks and finance companies?

Commissioner Ken Hayne took exception to NAB chairman Ken Henry, forcing him to resign. But on the evidence presented to Hayne, and findings in his own report, the commissioner could have touched up more of them, not just those few who failed to prostrate themselves before the commission hearing.

That said, we should beware of falling into a default mode of demonising directors.

There are many good directors running companies and other bodies in Australia. If Daley wants to purge the board of the SCG trust, he will struggle to match the business acumen of the current one that includes Jones, Tony Shepherd, Rod McGeoch, Katie Page, Maurice Newman and John Hartigan.

Remember that while mouthy celebrity directors are all over the press, the smart directors are doing the hard yards. Their work doesn’t make for sexy headlines.

The ill-conceived demonisation of directors goes hand in hand with a push to expand duties owed by directors beyond shareholders to include customers and employees. Look out for the straw man at the heart of this push.

Going back as far as 1883, company law has always given directors a wide discretion, even a duty, to consider stakeholders beyond shareholders when it benefits the company.

A board that ignores the interests of customers and employees is not running a company in the best interests of shareholders.

Those pushing for change will couch their intentions in vague language, but the real objective is to put customers and employees on an equal footing with, or ahead of, shareholders.

That might be fine in Utopia, but it is an utter disaster in the real world. For example, if shareholders and customers are on an equal footing, how does a company price its goods or services? Shareholders want the highest price while customers want the lowest. It is the same if directors have a duty to put employees on an equal footing with shareholders. Employees will want the highest wages, shareholders will want the company to pay the lowest.

The current law allows directors to manage these tensions in a sensible way to run a sustainable business. Tinker with that and those who put their money on the line will find somewhere else to ­invest. And good directors who understand the practical consequences of these other-worldly claims to expand director duties will be the first to vacate boardrooms. That will leave the less skilled, the celebrity directors in charge of the joint.

Remember too, there are lots of people with their own agendas demanding an expanded set of duties for directors. Regulators want to hide their enforcement failings by demanding new laws. Politicians from the never-waste-a-crisis school want to look like they’re doing something, anything, by enacting new laws. Shareholder groups are baying for blood.

The Australian Securities Exchange has just released its new set of overly prescriptive corporate governance principles. Union leaders such as Sally McManus want profit to become a dirty word.

And union lackeys among industry super funds are trying to reconstitute companies as social platforms for change.

In a rush to change directors’ duties, there should be one group that stands up for the core role of directors. New, expanded duties that lead directors down theoretical rabbit holes rather than delineate practical decision-making is the kind of distraction that leads to wrongdoing and mismanagement.

Last week, the Australian Institute of Company Directors claimed it was misreported as supporting an expanded directors’ duty to cover customers. The AICD said it supports the current law. But some are concerned that an upcoming AICD discussion paper will open the gates to those wanting expanded duties. If the AICD intends to lead this debate, it had better make it clearer what it is leading on. And if, as some fear, the AICD is sniffing the wind for direction, let’s blow a gentle breeze of common sense its way.

The AICD’s constitution says its role is to “promote excellence, enterprise and integrity in the ­directors of all corporations”.

It may cause McManus palpitations, but the AICD’s constitution says it exists to “uphold the concept of the corporate entity and the furtherance of the free enterprise system” and to “take an ­interest in legislative, economic and social matters to ensure the preservation of basic commercial freedoms.” Yet, last July the AICD adopted a new “vision” “to strengthen society through world-class governance”. Unfortunately, the AICD vision to “strengthen society” is fodder for those trying to expand the duties of directors. And when expanded duties drive directors to distraction, you can count on more mismanagement of Australian companies. That doesn’t strengthen society.

If the AICD is on the road to politicisation, it deserves the same close examination that the ASX attracted last year. The crazy frolic by the country’s stock exchange saw it draft corporate governance principles that would have been at home at GetUp and the UN.

A backlash led to a humiliating retreat, with the ASX removing any mention of a “social licence to operate”. Though the backdown is welcome news, how social ­engineers managed to get as far as they did is a matter of consternation for those who understood the consequences.

If you are a shareholder, and that is most of us with compulsory superannuation, we should care that directors are being pulled from pillar to post, potentially left unclear about their duties.

Unless the AICD returns to the business of educating directors, and the rest of us, about the core role of directors, directors are entitled to ask: with friends like the AICD, who needs enemies?

These days everyone wants to be a politician, but few people go into politics. The money elsewhere is too good, and who wants the scrutiny of politics?

Well, as the social engineers at the ASX discovered last year, if you start parading as a political activist, expect plenty of scrutiny.