Regulator Follow Up Action
Predictably, this week, ASIC was ordered to pick up the tab for Rich and Silbermann. Not so predictably ASIC got another kick in the teeth with a Victorian Supreme Court Judge delivering a broadside as to the regulator’s handling of its case against former AWB executive Andrew Lindberg. Not surprisingly numerous “we told you so” commentators have come out to advise ASIC that it should change its litigation strategy to avoid mega claims and keep future actions “short and sweet”. James Hardie has been put forward as an example of ASIC successfully taking a more defined approach.
The ATO hit back at those that criticised its handling of its $678 million dollar claim against international private equiteers TPG, explaining in detail, to those that were interested, the difference between revenue and capital gains. Tax practitioners say that the ATO is preparing three separate rulings which are expected to redefine the ATO’s treatment of such deals. These rulings are expected to force fundamental changes to the way private equity, and other international finance transactions are structured.
In other regulator news AUSTRAC continued its strong compliance stance accepting an enforceable undertaking from PayPal Australia after its investigations revealed deficiencies in the systems PayPal had in place to assess and manage its money laundering and terrorism financing risk.
Ripoll Report Falls Flat
The Ripoll report into financial products and services was finally released after months of hearings and came up with 11 key recommendations (http://ow.ly/FoWt). The initial response was a flurry of headlines noting its criticism of ASIC’s handling of Storm and its call for sweeping reforms of the financial planning industry. Once the commentators had a chance to dig a bit deeper the general consensus appears to be that Bernie and his mates have missed a golden opportunity to actually do something to address the basic conflict of interest in the industry, being the fact that most planners are not being rewarded for providing good advice but rather for flogging products with nice trailing commissions. The fact that the report was almost universally welcomed by the financial planning industry should give up some clues as to who are the winners here.
Workplace Relations
Whilst the politicians and the press focus on the ETS / liberal leadership debate, there has been very little comment or analysis around the new Modern Awards and the National Employment Standards which are due to commence on 1 January 2010. Given that these new laws will affect nearly every employer in the country is it remarkable that there hasn’t been at least some government advertising of the changes. A cynic would suggest that the Rudd government doesn’t need to advertise at the moment. It’s ironic that in the background the Fair Work Authority continues to successfully pursue employers who are underpaying workers largely because they didn’t understand their legal obligations under the old award system.
The gender equality debate continued during the week with the traditionally conservative Australian Institute of Company Directors finally coming out and calling for companies to set goals and report annually on policies and progress in increasing gender diversity on boards and at senior management level. Almost simultaneously the Federal Government Agency for Equal Opportunity for Women published the names of 12 companies including Rivers & Tyrrell’s Wines for breaching national Equal Employment Opportunity laws. It seems some directors and senior managers simply don’t get it.
According to the newly formed Rule of Law Association, if Australia keeps making new laws at the current rate, there will be 830 billion pages of tax legislation by the turn of the next century. In the past year alone Federal Parliament passed 9042 pages of new law. If we are going to write all these laws we need to ensure our regulators are up to the task of enforcing them.
To say that it was a bad week for the regulators would be somewhat of an understatement. When laws become so complex that no one appears to understand them power is shifted away from the average person to faceless bureaucrats and those privileged corporate high fliers who happen to have the money to pay lawyers to work out what actually is going on.
ASIC
Highlight of the week was, of course, the Jodee Rich show with ASIC on the wrong end of a $ 15 million cost order. Add to that ASIC’s own $25 million legal bill and that’s just about half of the additional money allocated to ASIC to increase enforcement activities lost on one poorly conceived bet. Ian Verrender in the Sydney Morning Herald summarised things pretty well:
“The case against the One.Tel founders was ill-conceived, poorly conducted and riddled with errors at almost every step. Its arguments to the court were embellished and exaggerated, its evidence and analysis of the company’s financial situation deeply flawed and it failed comprehensively to convince the judge of the fundamental basis of its case – that the defendants misled the board and the market”.
ATO
It doesn’t get much worse than that ……. unless, of course, you’re with the Australian Tax Office. As retail investors are still waiting for the Myer share price to hit the $4.10 float price the ATO boys were left chasing their tails as Texas Pacific Group (TPG) squirreled $1.4 billion in profits out of Australia, via a circuitous route, to … wait for it … Luxembourg. Why the ATO is complaining isn’t clear, given that TPG don’t appear to have broken any laws. Yes that’s right they were just playing by the rules the Howard Government established in 2006. Which ever way you look at it the whole thing is just one big embarrassing mess.
ASX
Whilst we are on embarrassing we can’t leave out our friends at the ASX. Figures published during the week show that of 3077 directors’ interest notices lodged with the Australian Securities Exchange in the three months to September 30, some 250 – about 20 a week – breached ASX listing rules, being late or incomplete. These results follow an ASX report in July 2009 which studied directors’ trading during blackout periods – the time before a company’s half- or full-year results are announced – and found that of 1047 active trades by directors in the three months to the end of March, one third took place during blackout periods. Its basic psychology, if there are no significant consequences, directors will keep on doing the things that the ASX don’t want them to do.
AUSTRAC
Finally it is worth repeating a little snippet from CompliSpace’s interview this week with John Schmidt, the new CEO of Austrac, who compared the obligations of small to medium sized businesses under the AML/CTF Act as being ‘no different, in general terms, to meeting the OHS requirements of your business’. Time will tell, however we suspect that business managers will have a lot more difficulty in understanding the complexities amd vaguaries of the money laundering and terrorist financing risk assessment process, than establishing a workplace safety program. News of the timing of the second tranche of the legislation is due in December.
AUSTRAC Turns Up The Heat On Small Business
Austrac kicked off the week with a press release noting that its remedial actions were up 104%. The regulator issued 1,140 requirements for remedial action and 491 recommendations to address non-compliance last financial year. New CEO John Schmidt followed up with a warning to all reporting entities that Austrac is about to get tough on those that failure to comply with the AML/CTF Act. To enforce his point, on Thursday, Austrac issued a press release advising that it had issued its first remedial direction for non-compliance against a small remittance service provider. Mr Schmidt warned “other small businesses should also note that AUSTRAC’s enforcement activity will extend beyond large, well-known financial institutions”.
ASIC Pursues Former Firepower Boss Tim Johnston
Remember the Austrade backed “fuel pill” that was going to change the world. Firepower must be one of the most audacious frauds in Australia’s corporate history with celebrity investors fleeced of over $100,000,000 as ASIC sat back and did absolutely nothing, despite whistleblowers screaming from the hill tops. Remarkably its mastermind Tim Johnston simply upped and left Australia and has been living in Europe for the past few years apparently untouchable by Australian authorities.
In a move that caused Firepower liquidator Bryan Hughes to remark ”maybe .. he is cocky.. maybe his is incredibly stupid. I really don’t know” Johnston flew back into Australia last week only to have his passport confiscated. This will be a great side show to watch in coming months / years.
Class Action Action
Last week we noted that the Multiplex decision was a nice technical point that wouldn’t affect the long term viability of class actions. These words bore fruit this week when ASIC stepped in and exempted lawyers and litigation funders from having to register as managed investment schemes. It seems however that you just can’t hold a good lawyer down, when it comes to arguing technical points, because as soon as ASIC made its move AWB’s lawyers pick up on the fact the Legal Profession Act (NSW) prevents lawyers from running managed investment schemes and are again challenging the validity of the action not withstanding the ASIC exemption. All good stuff from AWB’s lawyers however, just maybe, if AWB had focused on getting its corporate governance house in order they wouldn’t be in this mess in the first place.
In other class action news:
- Litigation funder IMF announced this week that it expected to achieve a 15% increase in profits and that it is now targeting an “investment portfolio” (that’s class action claim value) of $2 billion by June 30 2011. That’s more than double the annual value of annual Director & Office insurance premiums just on IMF’s books. You don’t have to be Einstein to work out where this is all heading.
- Centro have set up a “special matters committee” just to deal with the ASIC and class action claims the company, its directors and executives are facing. Apparently these claims have been distracting the board from attending to day to day business. Funny that.
- Finally, late last week, the Commonwealth and State Attorney’s General agreed to a federal government review to consider whether or not ASIC should regulate litigation funders.
Commonwealth and States to Review of Director’s Liability Provisions
Federal and State governments have agreed on a set of principles by which all states and territories will audit their legislative provisions that deal with the personal liability of company directors, as the next step towards achieving consistency of laws across Australia. Upon completion of the audit, the next step for all jurisdictions will be to move to amend any laws that do not adhere to the agreed principles.
8 November 2009
IPO Governance Action
Kathmandu announced details of a $440 million float only to be given a scare when reclusive founder Jan Cameron, who had sold out in 2006 for $280 million, announced her apparently well advanced plans to set up a new venture in direct competition. Whilst Kathmandu’s CEO pointed out that Cameron was subject to a restraint, here’s betting that they don’t do anything about it. The restraint only runs until May 2011 and the publicity from any legal action would only play right into the hands of Cameron’s new venture. Smart tactical move some might say.
On a more sedate note this week ASX released its Supervision Report with Chief Supervision Officer, Eric Mayne, warning that the ASX will intensify its surveillance of IPO’s and backdoor listings as the market bounces back. Hidden in the body of the document was the fact that only 123 of 278 matters referred by ASX to ASIC in the last 4 years have been resolved. This might be about to change with the additional money that has been allocated to ASIC to support its enforcement activities.
ASIC Puts IMF Executives In the Firing Line
Nice segway….. last week it was the Astarra Strategic Fund and Centro. This week ASIC have been busy pressing claims against the former executives of IMF (renamed Octaviar). Squarely in the headlights are former CFO David Anderson who is being pursued for a measly $147.5 million and former CEO Michael King. King is being pursued because he allegedly knew of the payment of $103 million in a related party transaction.
Class Action Action
Probably the biggest news this week in class actions was the Multiplex decision that ruled (in a split decision) that litigation funding arrangements comprise managed investment schemes under the Corporations Act 2001 (Cth), which must be registered, unless ASIC excuses it. This throws a spanner in the works of a whole load of class actions including the AWB case which is set down for hearing in Movember.
At the end of the day this is a nice technical point however it won’t affect the long term viability of class actions. It looks like they are here to stay and just to make sure you know it battered investors in Timbercorp launched a class action on Thursday against the company, the Responsible Entity and three directors.
New International Risk Management Standard To Be Published 15 December 2009
During the week we heard, on the grape vine, that the new international risk management standard ISO 31000 will be published in Geneva on 15 December 2009. If you have built your risk program with reference to the current Australian standard AS/NZ 4360 there is really nothing to panic about, as ISO 31000 is based on AS/NZ 4360, which it will replace.
Shareholders Protests Count for Nothing
Finally we put it at the end because week 2 of AGM season was pretty tame. The only real standouts were, Transurban which was saved by unprecedented institutional voting from the floor to finish with a remuneration report that scraped over the line with 52% in favour, and Suncorp whose shareholders vented their frustration at the board following a 40% fall in profits.
Well what a week it has been, angry shareholders, ASIC lawyers working overtime as the litigation funders and class action lawyers continue to feast on corporate carcasses.
Shareholders voice their anger at excessive executive remuneration
AGM season is well underway and the shareholders of EDI Downer and Qantas let their respective boards know in no uncertain terms what they thought about their executive remuneration strategies. In the US, the Obama administration has taken steps to slash executive salaries by up to 90%, in companies such as Citigroup, AIG and GM which were the beneficiaries of government bail-outs.
ASIC shakes off its corporate plod reputation
ASIC lawyers have been very busy. First it issued proceedings in the NSW Supreme Court against the managers of the boutique Astarra Strategic Fund as well as obtaining an urgent interim order forcing the responsible entity of the fund to remove its PDS from its website. Not much information flowing at this stage with ASIC being barred by the Judge from commenting on the case.
Then, in a move several commentators described as “terrifying for directors”, ASIC launched legal action against the entire 2007 board of Centro claiming that their accounts failed to classify more than $2 billion of debt. What’s $2 billion amongst friends?
With these types of strikes ASIC might even start to shake is reputation as “the corporate plod”.
Class action lawyers feast on corporate carcasses of Centro and ABC Learning
We often say to clients that “regulators are the least of your problems” and wasn’t this proved to be the case this week with the administrators of ABC Learning, backed by ligitation funder IMF, lining up former directors of ABC Learning, its auditor Pitcher Partners, as well as Com Bank (alleging a $500,000,000 preference payment).
On the same day Maurice Blackburn, class action lawyers acting for aggrieved Centro shareholders, announced that they are considering a direct claim against auditor’s PWC. PWC are already the subject of a counter claim by Centro.
Also during during the week the liquidators of Babcock & Brown took further steps towards investigating a possible breach of directors’ duties and insolvent trading claims arising from its collapse, as well as a $40 million loan to broking firm Tricom.
Fair Work Ombudsman keeps up the heat
No one can accuse the Fair Work Ombudsman of taking it easy. The FWO’s enforcement activities seem to be heating up in the lead up the transition to the Modern Awards on 1 January 2010. During the week it announced that it had successfully claimed $113,000 back-pay for 32 Casino workers accidentally underpaid since 2006. This followed its announcement that a Ballarat company and director were fined $105,000 for underpaying a young apprentice.
This followed news that unfair dismissal claims had nearly doubled in first 10 weeks of the remedy becoming available to small business employees on 1 July 2009.
National Health & Safety Laws Draft Exposure Released
Finally, if businesses didn’t already have enough on their plates a further draft of the new national health safety laws was released for comment. The new laws are due to commence on 1 Jan 2012.
Every time you hire, induct, train, or performance manage an employee you’re making a substantial investment in your business and building your asset base.
Gen Y’s look at their baby boomer parents and wonder in amazement how they could give loyalty to corporations. After all corporations can’t give loyalty back can they? So Gen Y’s take a different approach. They operate as self contained units building career paths independently of the businesses that they work for. They build social and business networks creating bridges that will provide them with opportunities into the future. They seek new knowledge and skills and will happily work for businesses that provide them (before moving on).
So it shouldn’t come as a surprise that it is forecasted the Gen Y workers will, on average, hold 19 jobs during their lifetime. That’s one every 2-3 years. Think of the implications for traditional HR models. Retention strategies wont work, so employers are going to have to start thinking outside the square.
So what can employers do to mitigate risks associated with Gen Y workers? What opportunities exist for those employers who proactively manage this demographic trend? Well actually its not rocket science.
Start by focusing on recruitment and selection strategies and kill two birds with one stone. If Gen Y’s are leaving one employer they will be looking to join another. By clearly defining the nature of the positions you are looking to fill you will find well qualified candidates to match. Well matched candidates will become productive more quickly.
Provide clearly documented job descriptions with measurable performance outcomes. Gen Y’s like to know what is expected of them (don’t we all) and as an employer you need to establish robust performance management systems to monitor whether or not these outcomes are being achieved. We call this a win-win.
If things don’t go well make sure you have clearly defined counselling, discipline and termination procedures in place and, critically, make sure your managers are trained on how to use them. Managers who aren’t trained to performance manage staff often accept mediocrity for fear of conflict. Mediocrity equals low productivity, which in turn means low profitability and reduced shareholder value.
Finally you will have to change the way you think about exiting employees. Whilst an employer’s natural reaction is often to express disappointment and frustration when a good young employee leaves, bite your tongue and put on a postive face. Don’t burn bridges because you never know where your exiting employees will end up. In a few years you will be glad you adopted this strategy when your “good young employee” is the decision maker at that new client you are pitching to.
CompliSpace provides a comprehensive on-line human resources program that can be quickly tailored to the needs of your business. Our program includes recruitment & selection, induction, performance management and counselling, discipline & termination procedures that can be quickly enabled to mitigate the risks associated with Gen Y workers.
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