Magazine article Journal of Banking and Financial Services

Corporate Watchdog: Regulation Is Working: Australian Securities and Investments Commission Chairman David Knott Shares Some Observations on Corporate Governance and Disclosure Issues, as Well as the Financial Services Reform Bill. (Regulation)

Magazine article Journal of Banking and Financial Services

Corporate Watchdog: Regulation Is Working: Australian Securities and Investments Commission Chairman David Knott Shares Some Observations on Corporate Governance and Disclosure Issues, as Well as the Financial Services Reform Bill. (Regulation)

Article excerpt

With so much written and spoken about corporate governance over the past ten years, there was a real danger that the expression had become hackneyed and the concept itself weighed down by process.

It is not so much that we had forgotten the 1980s and the discredit into which our corporate markets then fell. It was more, I think, a growing inclination to question the relevance of the 1980s to our contemporary circumstances.

Indeed, I have sensed in more recent years a degree of frustration and even irritation at continued reference to corporate governance -- the sentiment that it's time to move on to more important things.

There is a risk of converting principles into processes. When that happens, people in commerce are tempted to consign the principle to the legal pigeonhole, no longer viewing it as having front-line economic force. I think we have seen some of that with our approach to corporate governance, just as we have in some areas of disclosure.

The relevancy question also has some force. We are not reliving the 1980s and in my view we will not do so. We do not have the endemic and systemic governance issues which confronted us a decade ago. We do not have the grossly inflated balance sheet asset values which then prevailed; we do not have the "entrepreneurial" presence and structural manipulation which profiled so highly in that decade. We also do not have a climate of high inflation and excessive commercial property values which contributed to the magnitude of the 1980s collapses.

We have done a great deal since that time to address all of these issues. Our institutions and standards of corporate conduct, taken overall, lose nothing in comparison to our peer group of developed countries and are regarded as a benchmark by many of our neighbours.

However, recent events serve to remind us that corporate governance is not just a legal ritual for managing and containing directors' liabilities, but a living economic dynamic which underpins shareholder interests and wealth creation.

Despite our generally good score card, we do have some serious cases which highlight the disastrous business consequences which can flow from poor governance. The collapse of HIH, with its debilitative cascading effect across so many layers of our community; the failures of One.Tel and Harris Scarfe; and, of course, a series of failed new economy floats over the past 12 months: all of these now have to be tested against acceptable standards of corporate governance.

The only good thing I can say is that they each appear to have their individual characteristics and causes -- that they do not reflect a systemic governance decline, despite the unfortunate coincidence of their timing.

These words of comfort are not intended to convey complacency about our markets environment. The best governed of companies can still succumb to competitive and economic forces. Good governance is of itself no assurance of corporate success, any more than corporate failure necessarily implies poor standards of governance.

Throughout the 1990s there has not been a single year in which the number of corporate insolvencies, receiverships and administrations was lower than 6000 -- and only a fraction of these can be attributed to failure of governance in the sense that we are talking about it today.

Businesses fail. They always have and they always will. The limited liability company remains the mainstay of our private enterprise system, a system based on the premise that failure alone is not culpable and that risk is to be acknowledged and shared.

Disclosure and dotcoms

The need to be forward looking -- to assess the future economic environment and plan for its opportunities and risks -- is just as relevant for regulators as it is for business.

When the dotcom sector took off in 1999 it didn't take us long to recognise the potential dangers. …

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