Corporate democracy

Unpublished letter submitted to The Australian Financial Review

In condemning the Productivity Commission’s 25 per cent two-strike idea as “rule of the minority”, Australia’s most senior business leaders opened a debate on corporate democracy, “Boards slam executive pay reform” (Headline, October 12). It’s a debate worth having. The system our business leaders know and defend is a sham democracy.

Real democracy needs participation. Yet the super industry blocks it, as illustrated by the frustration of small shareholder David Albert in, “Shareholders need backing in board pay” (Letters, 23 October). Every year he and most other small shareholders vote against board pay increases while institutional shareholders, with the controlling votes, vote in favour or abstain. The two-strike rule recognises that David Albert’s votes are more likely to align with the interests of superannuants than the votes of those representing them, the super funds.

The two-strike idea attempts to patch a sham democracy. It’s creative but messy with uncertain effectiveness. The fair democratic solution is to abandon compulsory super or let superannuants exercise the votes on their capital invested in super funds. This idea is rejected by the super industry as too complex and too expensive. Yet it’s neither. With electronic processing and voting the cost and technical hurdle is tiny in comparison with the industry size and payoff.

Real democracy needs competition. In “Time’s up for closed-shop Australian boards” (Friday 23), Peter Wilson, national president of AHRI, calls for competition as the solution to the “national disgrace” of low diversity in Australian boards. Competition is also central to fair pay and management quality. Competition matters most in selecting the CEO.

What is fair competition? In “Why not a fair and transparent contest” (Letters, April 2) I suggested CEOs be selected by shareholders in an open contest and direct voting. Real democratic transparent competition is the best risk manager of the nation’s wealth. Yet this idea that shareholders, not the board, select the CEO is not even on the agenda. Why not? The same shareholders select our national leaders and ordinary board members and are equally capable of selecting a CEO. The non-binding vote is part of a choked democracy with no contest. CEOs on superhuman pay ought to be capable of winning their title in an open contest, assessing and stating their own value upfront — without wasting shareholder funds on remuneration boards and consultants.

Real democracy needs a reliable, cost effective way to harvest and count votes. Direct online voting is the answer to the current expensive paper system with no audit trail that loses votes and allows chairmen to cherry pick proxy votes.

Many of the best managers work for modest pay in the non-profit sector. No one can directly manage more than 12 or so people effectively regardless of company size. Public company CEOs rarely accept personal risk — like the risk of continuing this debate.

Tags: corporate democracy, executive pay reform, executive salaries, public company, shareholder rights