Why corporate Australia should resist the Left’s social engineers

Having successfully colonised other areas of our society, the Left’s long march through institutions now extends into corporate Australia.

There was a time when activists on the Left busied themselves building empires to secure social change in education, public bureaucracies and the media. The Australian Securities Exchange was of little interest to these social engineers. Even if it was, the ASX was a remarkably impermeable bastion of rationality. It was run by people with a deep understanding of legal and commercial principles about the purpose of a corpora­tion, the role of directors and management, and the progress that comes from sensible regulation.

Having successfully colonised other areas of our society, the Left’s long march through institutions now extends into corporate Australia. An army of new activist regulators is steadily, and stealthily, imposing highly contestable social agendas on listed corporations using language that resembles psychobabble.

While you need a doctoral thesis to explain how this happened, suffice to say the ASX Corporate Governance Council appears to have been hijacked by self-appointed activists acting as quasi-legislators to impose social agendas on corporate Australia. Activists such as the Australian Council of Superannuation Investors, a body that spends more time on demanding corporate acquiescence on social issues than on seeking sound governance tailored to a company’s core business.

Inserting deliberately ambiguous words about diversity, social responsibility, a social licence to operate and so on into ASX corporate governance principles provides activists such as ACSI with new and potent weapons to blackmail corporate Australia into following favoured social agendas.

You can trace ACSI’s power to the introduction of compulsory superannuation. Trade union DNA favouring centralised command and control was soon entrenched into union-led industry superannuation funds. As default funds for employees, these industry funds wield enormous power as institutional investors. ACSI provides them with a collective voice at annual general meetings and sits on the ASX Corporate Governance Council, along with other social engineers.

Putting aside the “how” question for another day, what’s happening deserves attention right now because it affects every Australian who owns shares, directly or through superannuation. With no evidence to justify its past, and present, pursuit of imposing ambiguously worded social goals on corporate Australia, the ASX Corporate Governance Council is set to entrench this even further with its fourth edition of the ASX corporate governance principles. Comments on the latest consultation draft are due by Friday. Here’s my submission.

To understand what has gone wrong, go back to the first edition of ASX corporate governance rules in 2003, agreed by the newly formed ASX Corporate Governance Council. These original rules were squarely premised on well-understood and agreed legal and commercial principles. Sadly, since then each new edition of the rules has seen a deterioration of corporate governance as sound legal and commercial principles have given way to social fads and overly prescriptive rules.

Indeed, it’s not a stretch to say that the third edition of ASX corporate governance rules has buggered up corporate governance in this country. The ASX has been more focused on diversity targets and other social issues than sound, individually tailored governance processes within a corporation. That much is clear from the rotten behaviour by our biggest banks, superannuation companies and other listed companies within the broader finance sector uncovered by the royal commission.

Though each new version of the ASX corporate governance rules has successively tightened the noose around directors, the available evidence from, say, AMP and Commonwealth Bank is that governance has gone backwards since the 2003 edition. During that period, AMP and CBA apparently complied magnificently with the ever-increasing torrents of prescription from the ASX and the Australian Prudential Regulation Authority. But to what avail?

Yet, in a triumph of hope over experience, the ASX has not made any effort to review the evidence to support previous versions of its rules. Instead, unencumbered by evidence, the activists on the ASX Corporate Governance Council are tightening the screws with every new edition. What was once just tolerable for corporate Australia has become more oppressive in the draft fourth edition of corporate governance rules, further distracting boards and management from the main game of running a company for its core purpose.

Take principle 3. The present version says listed companies should act ethically and responsibly. Who can object to that? The new draft goes further, requiring a listed entity to act in a “socially responsible manner”. New commentary in principle 3 goes even further, referring to companies respecting “human rights”, providing a “living wage” and not engaging in “aggressive tax minimisation strategies” — all highly contestable concepts more suitable at a UN gabfest than as sound governance for a stock exchange.

There is only one thing clear from these deliberately contestable concepts: they will become weapons for activists to harass, intimidate and blackmail boards at AGMs. That is what they have been designed to do. It’s hard to work out who will be more deliriously happy with the ASX — environmental activists or lawyers.

Recommendation 1.5 is even worse. Listed companies are expected to set measurable objectives for achieving gender diversity, to design, implement and maintain diversity programs, to routinely review and evaluate and disclose progress, to put gender planning into succession plans, and so on. Here, as in so many areas, the principles and recommendations treat directors as infants, told in minuscule detail to adhere to a centrally prescribed formula.

Measure the ASX’s shift in focus away from serious corporate governance this way: rules and commentary on diversity in recommendation 1.5 extend over more than three pages whereas less than half a page is devoted to how a listed company should evaluate board performance or senior executive performance in recommendations 1.6 and 1.7 respectively.

Corporate Australia should be howling down these proposed rules. What is at stake is not just sound corporate governance. This is a philosophical battle between central command-and-control social engineers and the freedom of a company to develop, test and innovate corporate governance processes tailored to its particular business. It’s an age-old contest between grassroots individual rights and collectivist agendas imposed from above.

But we know how this goes. The collectivists seeking to engineer society, be they in education or in the corporate world, name and shame anyone who digresses from the collective orthodoxy as people with bad intentions, opposed to progress and fairness. That’s how a few voices secure silence of the majority to entrench their agendas. Or they blackmail dissidents with threats of even worse oppression — agree to the ASX “if not, why not” rules or the Australian Securities & Investments Commission or the government will impose something even more draconian. Which is tosh. No politician answerable to an electorate would try to turn this kind of psychobabble into law.

New AMP chairman David Murray broke the silence last month. He said the present ASX principles had been ineffective and “the revised principles will go further in limiting the development of knowledge and value in governance models for individual institutions”. And he noted the “comply or explain basis” of the ASX rules had rendered them mandatory in practice because companies took the path of least resistance. “They become de facto regulation by harassment,” Murray said.

Nothing will change unless others challenge the noisy but small number of activists who have been allowed to hijack corporate governance in this country. The corporate dissidents could start by pointing out that there is nothing socially responsible about the dire results of their corporate governance experiment.

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