Transcript of 2011 Stephen Murray-Smith Lecture by Stephen Mayne
[Over a black and white photo of a stately building that features stairs leading to a row of columns, black and white text appears in a red box: State Library of Victoria. Governance, transparency and power: how does Australia rate? The 2011 Stephen Murray-Smith memorial lecture. By Stephen Mayne. This image appears on a screen hanging above a stage in a large hall. On the stage, John Cain stands at a podium facing the audience.
John Cain: Well, good evening to you all, and a warm welcome. I’m John Cain. I’m president of the Library Board of Victoria. It is my great pleasure to welcome this large audience to the State Library of Victoria tonight on the occasion of the Stephen Murray-Smith Memorial Lecture. I suppose you will see this as an interesting and thought-provoking presentation. It will be, I’m sure.
But before we begin, I would just like to acknowledge that we are on the traditional lands of the Kulin nation and pay my respects to their elders and elders of other communities who may be here tonight.
A few words about Stephen Murray-Smith. Most of you know of his record of achievement in this city and this state. I say ‘nation’ – he’s one of the nation’s great intellectuals in any view. John McLaren, a former editor of the journal Overland, which Stephen founded, wrote this, and I quote, ‘It’s difficult, with a man of as many parts as Stephen Murray-Smith, to identify his most important legacy. For his friends and students, it is probably the memory of the man himself, of his magisterial authority, polymathic knowledge, unswerving principle, compassion, generosity and conviviality. These qualities change the world by changing uncounted lives. But after the deaths of those who knew him, his tangible legacy will be found in the word hoard he has left in his published works, in the papers of those who received his letters and his own papers.’ End of quote.
Stephen died in 1988, leaving behind a vast collection of personal papers and other records, and the Library was able to acquire those in 1990, and they now form an important part of our Australian manuscripts collection. In memory of Stephen and his substantial legacy, the Library presents the annual Stephen Murray-Smith lecture. It’s become a great feature of the Library’s calendar, one of our most popular and eagerly anticipated events. This is the twentieth.
We were discussing it a moment ago. It’s the twentieth year of these lectures. In that time, we’ve been privileged to hear a range of distinguished speakers. And I’ll just mention a few – Janet Holmes à Court, Malcolm Fraser, Geoffrey Blainey, Anne Summers, Tom Griffiths, Julian Burnside and Martin Flanagan. An eclectic but highly commendable range of speakers.
Tonight, Stephen Mayne is in the chair ... on the podium, I perhaps should say. Walkley Award-winning journalist, who spent almost ten years working for major Australian newspapers before launching crikey.com in the year 2000. Crikey very quickly became Australia’s best-known independent internet magazine. And after five years at the helm, Stephen sold Crikey in 2005. He went on to create his own corporate governance internet magazine, maynereport.com. He’s never short of an opinion and appears widely in the media as an independent commentator. The adjective ‘independent’ shouldn’t be forgotten. Indeed, in the past 11 years, he’s appeared on the ABC radio more than 1000 times. He also continues to make regular contributions to Crikey. I think you can say confidently that Stephen is Australia’s best-known shareholder activist. There may be others. He’s ... he’s run for 40 public company boards and asked questions at almost 400 annual general meetings. He’s not stopping. Next week, he’s off to Los Angeles for the annual meeting of News Limited.
John: No surprise? In May this year, he was elected to the board of the Australian Shareholders’ Association. They were very lucky to get him, I reckon. Stephen has also contested seven political elections and in 2008, he was elected to the Manningham City Council. After spending 18 months as media adviser for the Kennett Government, he defended during that time, or sometime after, four defamation writs ...
John: ... appearing on Four Corners as a whistleblower. He’s well placed to reflect on transparency in governance across the Australian media – that’s what he’s gonna do for you tonight – across business, political landscape, which is, of course, the subject of this lecture tonight. So you’ve got a treat in store. I think it’s fair to say that Stephen has a gift and a passion for making public information that he believes is in the public interest, even when doing so may put him in the sights of some very powerful people. And also some not-so-powerful. And I think many of those would prefer that he just go away. I don’t think there’s any person in this country – and I say this advisedly – who understands the worlds of both business and the media, who’s fearless in his analysis of both and a telling critic when required, and thirdly, having no hesitation in saying what needs to be said in direct and unambiguous language. And he’ll take on the big names and the big battalions if necessary. If any of you doubt that, look at Crikey this week – Tuesday last – for further proof of that. Some of you have probably seen it already. So, look, really, he owes nothing to either business or the tortured world of the media and we should all be grateful to him for that.
It’s good to have somebody like Stephen. He provides, he probes, he pokes the uncomfortable questions. And ultimately, his actions are, I think, best summed up by saying that they’re very democratic. If we are to accept the adage that knowledge is power, Stephen’s made a point of giving power to the people. Please join me in welcoming Stephen Mayne.
[Stephen Mayne steps from the audience to the podium and shakes John Cain’s hand. As John leaves the stage, Stephen adjusts the two microphones on the podium.]
Stephen Mayne: Cheers. Thank you. Well, thanks very much for that, John. I can certainly attest to the fact that a lot of people do wish I would go away. Alan Jones once said, quote, ‘People like Stephen Mayne don’t deserve a place in society,’ and I thought that was a bit rough. And Kerry Packer once said, ‘Do you deliberately set out to be offensive or is it just natural?’ And my favourite from Eddie McGuire was, ‘I wouldn’t cross the road to give him a backhander or a writ.’
So, um, thank you very much for this invitation. I must say it is a great honour to be invited to give the twentieth Stephen Murray-Smith lecture. At the age of 42, I suspect I’m the youngest person to deliver this lecture. Indeed, when Stephen Murray-Smith died in 1988, I was in my first year at Melbourne University, having just been signed up by Sophie Mirabella to join the Young Liberals.
Stephen: Still, as Stephen Murray-Smith’s own journey demonstrates, we all take interesting pathways through life. I went from being a Jeff Kennett spin doctor in 1994, criticising John Cain, to running against the Liberals in his seat of Burwood in 1999. I also went from staying with Andrew Bolt in Hong Kong in his apartment for five nights during the 1997 handover to China and having him at our wedding cocktails in 2000 to having him storm the ABC studios in 2005 when I was filling in for Jon Faine to declare, quote, that, 'the ABC is disgraced by your presence'. My crime was that I criticised Andrew, heaven forbid.
I’ve read, watched and listened to a number of the past Stephen Murray-Smith lectures given by the likes of Burnside, Anne Summers, Richard Flanagan, Gareth Evans and Geoffrey Blainey. And indeed, over the past weeks, I’ve had a number of conversations with Anne Summers directly, who delivered last year’s lecture, as Andrew Bolt launched one of his bullying fits in response to her 6700-word profile of him in the Monthly. He wanted the magazine pulped, despite supposedly being a strong advocate of free speech. Julian Burnside delivered the 2002 lecture, and he’s always been one of my favourite people since he generously acted pro bono in the defamation action and contempt of court action brought by shock-jock Steve Price against me in 2001, when we lost our house. Burnside and I were also on opposite sides of an interesting debate at the Sydney Opera House ten days ago entitled 'The media have no morals'. It was fun joining up with Bob Brown to take it to the Murdoch press and people like Andrew Bolt. If Stephen Murray-Smith was alive today, I trust he would be fully engaged as the world’s most powerful family, the Murdochs, go through their biggest crisis in 20 years.
There’s an interesting comparison with Rupert Murdoch in that Overland was launched byStephen Murray-Smith in 1954, just one year after Rupert had inherited a controlling stake in the Adelaide News after the sudden death of his father in October 1952. Ironically, News Limited was first listed on the Adelaide stock exchange in 1922, the year that Stephen was born. If Stephen were alive today, he would be 89, just eight years older than Rupert Murdoch.
Amid all his literary achievements, for Stephen to continuously edit Overland for 34 years until his sudden death at the age of 66 was a remarkable achievement. I was struck by the opening description of Overland on its website, that it is, quote, ‘the most radical of Australia’s long-standing literary and cultural magazines’ and ‘has a tradition of publishing dissenting articles with a political and a cultural focus.’ Whilst only celebrating its 12th birthday next February, such a raison d’être would be a very apt description for Crikey, although Crikey is less culturally focused and more into opinion, news commentary and journalism. Having gone from a net asset position of about 300,000 to no assets and credit card debts which peaked at $65,000 after the first two years of running Crikey, I certainly sympathise with the scrounging and struggling Stephen Murray-Smith had to put up with for many years whilst editing Overland.
However, in the game of radical publishing, the goal is not profit. It’s maximising the diversity of opinion and voices. And the goal is simply surviving. Few have survived as long as Overland. I often say that Crikey’s most important asset in its early years was that little black book of contributors who often remained anonymous for fear of repercussions for what they were saying. When looking through the 'who’s who' of contributors to Overland, it is clear that Stephen Murray-Smith gave voice to many courtesy of one of the best black books ever assembled in Australia. His contributors included people such as Peter Carey, Patrick White, Stuart Macintyre, Germaine Greer, David Williamson, Judith Wright, Frank Moorhouse, Manning Clark, Humphrey McQueen and Frank Hardy, just to name a few. Managing all of them, including having them in his home to stay on a regular basis, must’ve been quite a challenge.
The Overland mission, and again, I quote, is as follows, 'to give a voice to the experiences that are excluded from the mainstream media and publishing outlets. The magazine has been part of an ongoing attempt to document lesser-known stories and histories, to dissect media hysteria and dishonesty, debunk the populist hype of politicians, give a voice to those whose stories are otherwise marginalised, misrepresented or ignored, and point public debate in alternative directions'. I must say, I love every one of those words.
So to tonight’s topic. Let’s explore some alternative views that you maybe won’t read in the mainstream press about how Australia rates when it comes to governance, transparency and power. After raging against the corporate, media and political machines for the past 12 years, I’ve distilled my advocacy and journalism down to the pursuit of the following four elements to help sustain successful societies and institutions.
The first is great leadership. Any organisation, ranging from BHP Billiton to the Federal Government or your local kindergarten committee, needs good leadership – inspiring, honest and capable leaders making decisions, allocating capital, appointing people and effectively communicating all of this to the various stakeholders. It’s absolutely right to say that a fish rots from the head. Getting the right people into the right leadership positions is absolutely pivotal.
The second is what I call system design. You always need a sensibly designed system which encourages those operating within it to pursue optimum outcomes that are in the public interest. The global financial crisis was an example of poor system design. There was not enough transparency about where the risks and liabilities resided and too many of the financial players were motivated by short-term bonuses which drove them up the risk curve, gambling with other people’s money. In the end, the leverage was unsustainable and we had bailouts which have only served to trigger a subsequent credit crisis for the global government borrowing system. Similarly, after the Italian monarchy was abolished in 1946, they created a system which saw 28 governments serve over the next 46 years. Not a good system. You need some political stability in any democratic society.
The third key element is the public supply of relevant, factual and timely information about the performance and operation of leaders and the systems within which they operate. Winston Churchill once famously said that, quote, ‘Democracy is the worst form of government except all the others that have been tried'. However, democracy only flourishes with a vibrant, high-quality media and plenty of mandated disclosure about political and institutional performance. More on that later.
The fourth and final element is the ability to make changes to both the leaders and the system design based on the quality, factual, accurate information available. The best example of that is a non-violent change of government, something which hasn’t been easy to achieve in many places around the world. Within all of this, you need to understand the human condition, that humans seek positive relationships, that humans instinctively are motivated to promote and protect the interests of their families and friends. This can often mitigate against merit. Within this framework, you must always remember that politics is the art of the achievable. It is often a negotiated outcome. And one of the most important issues to manage is the fallout amongst people who perceive they’ve lost out in a negotiation. Now, if these people perceive a system of entitlement or patronage rather than merit and public good, then the fallout and the loss of public confidence can be devaskating ... can be devastating. As Paul Keating once said, quote, 'Always back self-interest. It’s the only horse with an honest jockey'.
Whilst it wasn’t an Australian quote that made it into one of ... that made it into Stephen Murray-Smith’s much-admired 1984 book on Australian quotations, one of the quotes I most agree with is that ‘Power corrupts and absolute power corrupts absolutely.’ This was an essay topic set by my Year 12 English literature teacher, Sandy Curnow, in a discussion about Honoré de Balzac’s Eugénie Grandet. Ever since reading this 1833 novel about the damage caused by money, power, greed and self-interest, I’ve been a passionate supporter of distributing power, of holding it to account, of systematically building mechanisms that encourage the passing and sharing of power on a regular basis. It therefore should come as no surprise that I strongly support America’s eight-year tenure limit on presidents. I also oppose life tenure for US Supreme Court judges. The US constitution says these judges shall, quote, ‘hold their offices during good behaviour,’ unquote. But who determines that? Whilst life tenure guarantees independence from executive government, it ignores the human reality that few people surrender power voluntarily and many people stay in power whilst in decline. The ten US Supreme Court judges who’ve retired since 1970 have averaged 25 years on the court each. Surely a 20-year tenure limit and an age limit like Victoria’s 70 wouldn’t hurt.
The fact remains that once you’ve attained power, few people ever happily give it up. Since my wife, Paula Piccinini, was elected to the RACV board in 2006 – I was a little bit involved in that campaign – five of her male colleagues have retired after more than 100 years of collective service. None were happy about going, but they all hit the compulsory retirement age of 72. These directors delivered plenty, but their forced departure was still a good thing for the renewal of an important institution which is now Australia’s largest remaining mutual.
One reason why China is less vulnerable to an Arab Spring-style revolution is that it turns over its leadership every five years, reducing the risk of a damaging power struggle, nepotism, self-indulgence, corruption and complacency which often creeps in with long-term dictators. The prospect of Vladimir Putin having more than 20 years in power by switching from president to prime minister and back to president again is not a good sign for Russia. The two-term presidential limit was meant to stop this. Consider the tenures of the following dictators. Hosni Mubarak in Egypt – 30 years. Muammar Gaddafi in Libya – the same 42 years that I’ve lived, 1969 until 2011. Robert Mugabe – elected in 1980 at the age of 56. Still around now and clearly mad at 87. Kim Il-sung – 46 years until 1994 in North Korea, and we’ve had his mad son ever since. Lee Kuan Yew – prime minister of Singapore from 1959 until 1990 and minister mentor in many ... in more recent years and still largely in control of Singapore through his children although he’s now 88.
And then, of course, there’s Rupert Murdoch, who dominates the Australian discussion in the media scene in Australia. At 80, he’s the oldest CEO of a top-100 global company. And after 58 years as the CEO of News Corp, he’s the longest-serving CEO of any major institution or company anywhere in the world. His father, Sir Keith Murdoch, started out as the Malvern reporter for the Age in 1903, living in the church manse there in the Trinity Presbyterian on Riversdale Road in Camberwell. I once lived in Murdoch Street, Camberwell, myself, ironically. Um ... uh, and, uh, Sir Keith spent 49 years pursuing what was an incredible career, rising to the leadership of the Herald and Weekly Times, acting as the government censor during the war, the famous scoops on the failed Gallipoli campaign – you know, an amazing media career no matter how you measure it.
I’d like you to consider the following two statements by Rupert Murdoch during his two and a half hours of testimony before the British parliamentary committee in July. First he said this, quote, ‘I do believe that investigative journalism, particularly competitive, does lead to a more transparent and open society, inconvenient though that may be to many people. And I think we are a better society because of it. I think we, as in Britain, we are probably a more open society than even the United States.’ And then, incredibly, 30 seconds later, he said the following, quote, ‘When the Daily Telegraph bought a series of stolen documents of all the expenses of British MPs, it caused a huge outcry, one which I feel has not been properly addressed. I think there is an answer to it and we ought to look at the most open and clear society in the world, which is Singapore, where every minister gets at least 1 million a year and the prime minister a lot more. And there is no temptation and it is the cleanest society you would find anywhere.’
Those two statements are of course completely contradictory because Singapore does not have a free press. The Lee family in Singapore have clearly been the most effective and honest dictators in the modern world. But they are the rare exception to the rule that long-term governments and dictatorships decay and become corrupt over time. Nothing gives me more pleasure than taking it to the rich and powerful, and there is no more powerful family in the world than the Murdochs. It was Rupert, more than any other media mogul in history, who pioneered the business strategy of parlaying political power into commercial gain. And that’s why you happily run loss-making newspapers, because you can bully governments into concessions and other favours that make it a good investment. He’s done this by ruthlessly and pragmatically backing different political leaders and governments in exchange for a relatively unfettered ability to expand and dominate the media marketplace in a most unhealthy way.
Ever since the making of Fox News with the election of George W Bush in 2001 six years after it was launched, Rupert has been the most powerful influence over public debate in the English-speaking world. The power was most brutally used, and in my opinion abused – and it was probably the peak moment of Rupert’s power – through the universal support given to the 2003 Iraq invasion by his media outlets in Australia, the UK and the US, the three countries which initially comprised the coalition of the willing and where News Corp is the most powerful media voice. Rupert has never been held to account for this colossal overreach. George Bush is gone. José María Aznar, the president of Spain, who joined in, he was voted out and was immediately put onto the News Corp board. Tony Blair was defeated. John Howard was defeated, although Rupert paid him a very generous advance for his memoir. But Rupert himself has never actually been held to account when all of the political leaders who backed that disastrous strategy, which I notice Robert Manne in his Quarterly Essay, 'Bad news', estimated had led to the death of more than 250,000 people. So the sad thing about Rupert is that when it comes to governance, transparency and power – tonight’s topic – he rates very poorly.
I will be going to LA next Friday for my 12th AGM encounter with Rupert at Fox Studios. We have to turn up at a parking lot to get on a company bus to get there, so it’ll be interesting to see how it plays out. As usual, I’ll be telling Rupert that he runs a gerrymander that would make Sir Joh Bjelke-Petersen blush.
Stephen: Seventy per cent of the News Corp shares on issue don’t get a vote. Let’s have democracy in Iraq, but not at News Corp. When I ran for the News Corp board in 2002, Rupert completely censored the platform. So it was the only one of my 40 tilts where shareholders weren’t even told how old I was or that I had a degree. That was free speech for you, Rupert-style. So when Rupert does colossally stuff up, it’s hard to do anything about it because whilst the Murdoch family only own 13 per cent of News Corp, this gerrymander gives them about 40 per cent of the vote and the ability to dominate appointments to the supine board, where power ultimately resides. Rupert really should’ve retired in 2006, when he turned 75. It’s been all downhill since then. One billion lost on MySpace, three billion lost on Dow Jones. And now suddenly News Corp has gone from being the most valuable media company in the world in 2007 to being $20 billion behind Disney. And then, of course, there’s phone hacking. With a compliant board and Rupert entrenched as executive chairman, there simply hasn’t been a mechanism available to impose regime change on a control freak who does have dictatorial tendencies and an unfortunate tendency to hire, promote and support rogues, which is something he has done around the world.
Representing the Australian Shareholders’ Association, I had lunch two weeks ago with Sir Rod Eddington and Peter Barnes, the two Australian-based independent directors of News Corp. Whilst I can’t reveal what they said, my comments can be openly discussed. And I really enjoyed talking truth to their power for two hours at the Kenzan Japanese restaurant just opposite the old Herald Sun building. At one point, I said, quote, ‘Guys, it must be hard holding the most powerful family in the world to account, representing us non-Murdoch shareholders. But are you up for the job of regime change?’. I’m not confident. When a majority of the independent shareholders vote to remove the Murdochs from the News Corp board next Friday, which they will, it will be very interesting to see how the independent directors react.
In terms of system design, Australia has done quite well with its corporate governance system. The establishment of ASIC in 1991, when the state handed over their various corporate affairs regulatory powers, created a sensible national system. This followed the earlier merger of various state-based stock exchanges in the late 1980s and the early adoption of full electronic trading systems. When Rupert Murdoch took News Corp’s domicile from Adelaide to Delaware in 2004, he embraced a jurisdiction with some of the most unfriendly rules for protecting shareholders. And the Americans still have state-based corporate affairs which games the system because you can attract head offices by offering, you know, to ... noone can ever sack you from the board, poison pills and things like that.
Now, as the world’s most unsuccessful candidate in contested elections for public company boards, I can vouch for the fact that the Australian system does promote competition and democratic challenge. Any one of you could run for the board of the ANZ, Westpac or NAB at their forthcoming AGMs in December. You just need a single shareholder to send a fax to the company secretary and your platform will be distributed to hundreds of thousands of shareholders. Come and see me afterwards if you’d like to give it a go.
Stephen: Compared to the 50 signatures required to run in a federal seat in Australia as an independent, it’s actually too easy to run for public company boards in Australia, which explains why I’ve run 40 times and had more than $400 billion worth of stock voted against me.
Stephen: When pressing for change on a particular issue, I would rather put up a resolution for debate at the AGM. But to do this, you need 100 wet signatures from shareholders or 5 per cent of the stock. It’s too hard. Whilst the Americans have a terrible system where you can’t actually vote to remove directors – you can only withhold your vote – it is also very difficult to stand for office in America, and you have to pay for your own campaign when running for an American corporate board, unlike the postal voting system paid for by the companies in Australia. But the Americans, at least, do make it remarkably easy to put up resolutions, and this is done hundreds of times every year, compared with the probably 20 times in the whole last 30 years when it’s happened with Australian public companies. Indeed, I owned the necessary US$2000 worth of News Corp shares continuously for 12 months and was able to trigger a vote on whether News Corp should abandon its voting gerrymander at the 2007 AGM in New York. This was supported by $5 billion worth of stock, or 60 per cent of the independents, and was a very good example of a system that facilitates small players making a meaningful contribution to the reform agenda. Australia should follow suit and make it a lot easier to put up resolutions at public company AGMs, to further empower the shareholders.
Whilst Paul Keating deserves much credit for creating Australia’s $1.3 trillion pool of compulsory superannuation, there are some flaws in this highly and uniquely paternalistic system. The big banks have been allowed to dominate funds management in Australia like in no other country. And there’s a fundamental conflict of interest in having the same financial conglomerates allocating debt and equity capital throughout the economy. This was best demonstrated when Centro collapsed and the Commonwealth Bank was simultaneously the largest shareholder, with 7%, and the second-largest lender, with a $1.2 billion exposure. And in work-out situations, debt and equity is always in conflict, competing for rankings.
In Australia we’ve created this incredibly ... incredible system of financial conglomerates who dominate on both sides of the equation. Knowing that the world’s fourth-biggest pool of super is waiting for them has also encouraged big-spending Australians to triple their collective household mortgages to more than $1 trillion over the past 15 years. Have we really saved anything on a net basis? The big four banks love churning this financial merry-go-round, and with their market power, Australians suffer from the world’s most expensive banking system, which delivers pre-tax profits of $25 billion a year. And we are the only country in the world where four of our five most valuable companies are banks. Do you really want $250 billion of equity value tied up in banks, which are simply meant to be servicing the rest of the economy, not dominating and taking over so much of the stock market? Similarly, we do have a huge amount of super, but no single super fund that rates in the top 100 in the world. The industry is sub-scale, and the directors of these super funds are largely union officials and employer group representatives who often don’t have the necessary skills to invest billions of dollars to maximise retirement savings or to prosecute strong and effective corporate governance campaigns. This system with the big banks and the relatively mute industry funds also partly explains why your average Australian public company director is re-elected with 95% of the vote in favour, despite lots of very average performance over the years. The big banks don’t want to upset the companies they provide banking services to, so they don’t vote against the directors of these client companies.
Shareholders in Australia have all the tools necessary at their disposal, but rarely use them. We constantly have large fields contesting political elections in Australia, so why am I the only alternative candidate who ever runs for major public company boards? I was motivated to get into the shareholder activism space because Australia didn’t have a culture of shareholder pressure, yet we had created this system where everyone was exposed to the share market because 60 per cent of all superannuation funds, compulsorily set aside by the government, go into equity investments. There was a ‘don’t rock the boat’ approach to corporate elections, and the directors club became self-selecting and self-perpetuating, usually comprising old, white blokes, or the so-called pale, male and stale brigade.
Stephen: Two of these chaps, David Crawford and Don Argus, launched a public attack this week on the so-called proxy advisors who tell institutional shareholders how to vote their stock at AGMs. Given the lack of capacity and the conflicts of fund managers and superannuation trustees, one of the best developments in corporate Australia over the past five years has been the emergence of these American-owned independent proxy governance advisors. These advisors give professional cover to big shareholders to vote against the pay deals and directors when the pressure comes on from the companies or the directors concerned, such as Mr Argus and Mr Crawford.
Rather than spending yesterday working on this speech, I instead spent half the day attacking the records of Don Argus and David Crawford, and was delighted a critique of Crawford’s record was the lead letter in the Australian Financial Review today. Exercising power often requires having a good relationship with the media so you can megaphone your message to a wider audience. Given I’m largely banned in the Murdoch press for daring to criticise their proprietor, I’ve very much had to rely on more than a thousand appearances on the ABC, online vehicles such as Crikey, plus the Fairfax press, to get the message out there and to try and create and build that culture of shareholder pressure.
Another very important development in our system of corporate governance was Peter Costello’s reforms in 2003 to introduce a non-binding vote on the remuneration report. Only the British had done this earlier, and now the Americans in the last year or two have followed suit. This really did change what was happening, and the so-called ‘two strikes rule’ will now go even further. And right now we’re in the middle of another important public debate about excessive pay, which has got way ahead of performance.
I’d like to talk a little bit about Australia’s federal political system now. In terms of the design of our political system, you need to understand that some of the outcomes have been driven by our sometimes dysfunctional federal structure. Australia has the biggest second tier of government in the world. We also have the most powerful upper house of a federal government in the Senate. The states are very powerful and dominant because they run the cities, they operate the hospitals and the schools and they employ the police forces, they control all the planning. Indeed, until Kevin Rudd came along, Australia was the only country in the world where the federal government didn’t spend a dollar on urban public transport, yet we’re the most urbanised country in the world, with 75 per cent of the population living in the state capitals on the coastline. Managing the infrastructure around that is largely a state government responsibility. Whilst we do have arguably the smallest federal government in the world in terms of service delivery, they have an almighty and disproportionate taxing power in the country with the most lopsided federal funding system of any country in the world. The states only actually raise about 35 per cent of what they need, which largely explains why state debt is now more than 150 billion and rising at about $25 billion a year at the top of our biggest boom we’ve ever seen.
The system also causes perverse outcomes. Look no further than the pokies. Issuing gaming licences is one of the few things cash-strapped state governments can do. As a result, we’re the biggest gamblers in the world. I note this is something that you didn’t do, John – introduce the pokies or let any casino contracts. But how can the world’s biggest gambling nation – we lose about 20 billion a year on the punt – also have the toughest anti-smoking regime in the world? It’s because the state and federal government pick up the tab for smoking-related illnesses, through the hospital system and Medicare. The system design gives them an incentive to minimise the damage from smoking, unlike with gambling, where it’s individual families and employers and churches who often have to ... and councils who have to clean up the mess.
The same thing happens with road accidents, through the Transport Accident Commission, the TAC. Because the state is the monopoly insurer in Victoria, they’ve introduced the world’s most officious road safety traffic infringement regime, and it’s spent hundreds of millions of dollars on education. This has given Victoria the safest roads in the world and allowed successive Victorian governments since 1992 to deliver the lowest insurance premiums and the highest no-fault, for-life benefits whilst also ripping out $8 billion of monopoly profits to prop up the state budget through dividends, without ever injecting a dollar of capital. The TAC is my favourite system design of all in terms of the amazing benefits that have been derived from the fact that the private insurers walked away in the 1980s and the government stepped in, created a monopoly and then worked out, ‘We can save ourselves a pile and we can help the community remain safe'.
I’d like to talk about the local government system. As an elected councillor at Manningham since late 2008, I’ve actually been very impressed with the system of local government in Victoria, with the possible exception of the quality of some of the elected councillors.
Stephen: I agree with Lindsay Tanner that the Kennett reforms, which demolished ... which abolished democracy for three years and reduced 210 councils down to 78, was, quote, ‘brutal but right’. It achieved important efficiencies in scale, but when democracy returned it retained a sense of local democracy that you don’t get with a mega council like Brisbane or Auckland. The Kennett government wasn’t big on transparency, but both Steve Bracks and John Brumby subsequently introduced important governance reforms for local government which other sectors, in my view, should follow. Every debate and major decision we make in local government is made in public at a public cabinet meeting, in effect. Imagine how the federal or state governments would go making much more than 90% of the important cabinet decisions in public. This system also empowers the professional officers, because if we want to do something silly and political, such as John Howard spending $10 billion on water on one and a half pages of advice from Treasury, you actually have to publicly vote against an officer recommendation, and the community can see that you are ignoring professional advice. This is most important with planning, where the VCAT model, in my opinion, has reduced corruption substantially. There’s no point paying me with a brown paper bag. The regulation of land use and land value is the key corruption risk for councils, and having a state-run planning scheme with professional decision-makers at VCAT improves the consistency and the transparency of the system.
But the biggest risk of corruption is developers making donations to the state government which prompt the minister to call in projects for approvals. This has happened all too often, particularly in NSW. But Manningham have taken some important additional steps to try and improve transparency. The audio of all council meetings are now online, and we disclose the overall budgets and claims for councillor expenses. Under new state legislation, the agenda and those attending all committee meetings must now be disclosed at each monthly council meeting. This is a very good thing. After we’ve written up the value of Manningham’s land holdings by $500 million over the past four years, I’m also now pushing that we disclose a breakdown of our major land and buildings on our website. We’ve also recently started publishing our complete VCAT record on our home page, something no other Victorian council does.
I very much subscribe to the philosophy that information is power, that sunlight is the best disinfectant. And the most interesting piece I’ve read about the British phone-hacking scandal was by an American freelance journalist, Heather Brooke, who wrote the following in the Guardian on July 10, discussing what she called, quote, ‘the secretive system of information patronage’. Quote, ‘I was amazed, having been a reporter in the US, to discover that all the public records we used routinely to conduct basic verification and investigation were off-limits in the UK. Records such as criminal convictions, arrest logs, full court documents and land ownership documents were either illegal or very difficult and expensive to obtain. Even the detailed financial accounts of public bodies were unavailable. When I tried to investigate parliamentary expenses, all the records I’d normally access in the US were secret. A five-year legal battle to access official information was ultimately ineffective, as Parliament tried to retrospectively change the law so that the FOI Act didn’t apply. At that point, someone on the inside sold the full database to the Daily Telegraph. This puts journalists wanting to do serious public interest investigations legitimately at a severe disadvantage. The fact is all information is vulnerable to release. It is simply a matter of the resources someone wants to devote to obtaining it. In Britain, information is not equally accessible to all. Rather, its release depends on one’s wealth, power or privilege. Only the richest and most powerful media organisations have a shot at access, and they, in turn, only want to expend their resources on investigations they believe will guarantee a story and a big audience. Thus the focus is on sex, scandal and celebrity.’
By comparison, Australia does pretty well in this regard, and the British MPs’ expenses scandal was surely a lesson to everyone in democracies all over the world that disclosure reduces the likelihood of bad behaviour through rorting and the development of an entitlement culture. You would never lodge a claim for the cleaning of your moat if you knew this would pop straight upon a parliamentary website pretty quickly and you’d then have to explain yourself on Q&A or Lateline.
Stephen: Whilst we all debate the challenges faced by the business model of quality journalism with the migration of classified advertising to the internet, I very much prefer a solution which revolves around mandated internet disclosure as being the best antidote, as opposed to philanthropic journalism or government-funded journalism. Rather than having 300 investigative journalists trying to discover what everyone is paid, if you mandate disclosure of what everyone is paid, you can save on that effort and actually focus your mind on the analysis. Journalism these days should be about easily sifting and sorting through an avalanche of regular online disclosures and providing context to these facts. For instance, it’s wonderful that every ASX announcement since 1998 from almost 300 listed entities is still on the ASX website and always will be. With a couple of clicks I can see my personal favourite, which was from HIH Insurance on May 31, 2000, when it announced it would be suing the Australian’s business commentator, Mark Westfield, and concluded with the following ASX announcement – quote, ‘As a final comment on this matter, the company notes that Mr Westfield has made mistakes before, not only in relation to HIH. In convicting Mr Westfield of contempt of court in 1998, Justice Gillard noted that Mr Westfield’s work was not only factually incorrect, but also that his conduct was nasty and spiteful and unnecessary and grossly careless.’ Mr Westfield deservedly won the Walkley Award in 2001 for his reporting which helped bring down HIH Insurance in the biggest insurance collapse in Australian history.
Speaking of disclosure, I was reading the Library Board of Victoria annual report last night and saw that it receives about $81 million a year from the government and has total assets of $932 million after a $130 million asset write-up as at June 30 this year. Visitors through the door are up 35% in five years, and I also noted that the board works pro bono. John Cain is not paid. And congratulations to John for getting a 12-month extension out of Ted Baillieu in May this year. It was all in the 2010–11 annual report, which has already been tabled in Parliament and is online – good, prompt, relevant disclosure from an important public institution.
The biggest single gap in Australia when it comes to the disclosure of information relates to political donations and campaign finance. Why do political parties get until February 1 each year to announce who donated, seven months after the end of the financial year? And, more importantly, why are there no meaningful disclosures of profit and loss statements, or, most importantly, balance sheets? When I was the president of my local kinder, I had to supply the Brumby Government, or the Bracks Government as it was then, with the annual balance sheet of the Yarra Valley preschool, showing we had net assets of 45,000. Yet nowhere does any registered political party in Australia have to release their audited financial statements or their balance sheet. So this next claim is total guesswork, but I reckon the ALP and its affiliated unions would be the richest political movement in the democratic world, with net assets of somewhere between $500 million and $1 billion. We do know that CFMEU alone has net assets of more than $100 million. I did manage to work out that the Victorian Liberal Party has shares worth about $60 million, but this was only because they voluntarily disclosed individual dividend payments when they didn’t need to. Surely we should just have a rule that says that those that run governments all over Australia must reveal the basic financial strength and operations and assets of their political parties. It’s an unbelievable oversight and it’s the weakest disclosure system of any serious democracy in the world. Just a couple of brief comments on the concentration of corporate power. Australia does have the most concentrated system of duopolies and oligopolies, I would argue, in the world. We’ve already mentioned the big four banks and the way they run a cartel. Then you’ve got the strongest and richest grocery duopoly in the world, where Woolworths has the biggest profit margins of any retailer and Coles and Woolies have 80 per cent of the market, making it very, very tough for anyone who’s trying to supply them. You’ve got the likes of Telstra, Qantas, Westfield, Foster’s and Leighton, who have close to majority market shares in many of the markets that they operate in. Whilst the Trade Practices Act is the most litigated piece of legislation on the federal books and one of the best things the Whitlam Government did, it lacks one key tool – the power of forced divestiture of assets when there is evidence of abuse of market power. In my view, this should apply to many companies, starting potentially with News Limited and its unprecedented 70% market share in newspapers. The US and the UK both have this power and have much more competitive economies as a result.
Another interesting feature of the power balances in Australia is our level of foreign ownership by international companies. I’ve come up with a list of 300 foreign companies who turn over more than $200 million a year in the Australian market. There’s only about 80 Australian companies that I can find that turn over more than $200 million a year offshore, whether from exports or from foreign-owned operations. There are some great success stories like Computershare and CSL and Billabong and QBE and Cochlear and Westfield and News Corp. But they’re actually not a very large number when you compare the way the international companies have come into Australia. And with ownership comes power, and we saw what I think was the most remarkable shake ... the most remarkable showdown between corporate interests and a democracy that we’ve seen in the modern era. And this was the unique global struggle between the government of this country with the most valuable dowry of natural assets in the world, which in the resources sector are probably about 80 per cent foreign-owned, and I’d estimate that the total net value at the top of this boom of our resource assets in Australia exceeds $1 trillion now. No other country in the world has more than $1 trillion of natural resource assets and advantages, and no other country with such a dowry has such a high level of foreign ownership of those assets. But faced with a struggle between the largely foreign-owned mining interests, teamed up with a New York-based powerful newspaper proprietor, teamed up with the Opposition, actually managed to substantially roll and dilute what was going to be a substantial clawback, if you like, of windfall gains of the sale of Australian-owned, state-owned assets that can only be sold once.
And there’s been a lot of resource nationalism going on all over the world. It wasn’t an unusual thing for Australia to try, and even if this system was introduced, it still would have left many super profits to those privileged and lucky owners of these resources, who have seen 400, 500 and 600 per cent increases in prices over the last few years. But faced with this showdown, the spending of $30–40 million in advertising campaigns, it was a very interesting victory of global capital against a democratically elected government attempting to claw back some value.
And it is interesting that Rio Tinto was the only company in the world which is based somewhere else – ie it’s based in London, it’s only 15 per cent Australian-owned ... And it alone owns more than $100 billion worth of assets in Australia. No other country in the world has ... You know, you don’t have the Saudi Arabians having ExxonMobil owning $100 billion worth of assets. So quite a unique situation in Australia to have this dowry and to have this level of foreign ownership and to have that showdown last year. I personally thought it was a sad day for democracy when much of that value wasn’t clawed back, and it is quite disappointing that at the top of the biggest boom ever, Australia is still running big deficits at the federal and state level and is running current account deficits and has a massive infrastructure backlog, when this would have been a very comfortable and sensible way to plug that infrastructure gap, particularly for the state governments.
In conclusion, just a couple of final comments. We also have the most stable political party system in the world, I would argue. You know, is there any sign of a non-Labor or Liberal or LNP government emerging any time soon? Have you ever seen a country which has such party discipline, such voting discipline, where crossing the floor is considered to be such an unhealthy thing? I do think that one of our big challenges in Australia is the huge level of concentration of media power. I’ve mentioned, obviously, the Murdoch press before, but since Steve Fielding delivered that key vote in 2004, there has been some substantial consolidation of the media sector where a large number of independent players, from Austereo to Rural Press to WA News, have disappeared from the scene as consolidation has taken off. Now, my final comment is that when you look at our politicians or our business leaders, do bring yourself back to those questions about leadership, system design, good information and what changes should be made. I find it’s a very good, level-headed way to assess the operation of those who do hold power, and to try and constructively describe what you think may be sensible changes to the system.
For instance, in local government, I’m planning on making myself incredibly popular at the next council elections, next October, by publishing a list of the 100 best councillors in Victoria and another list of the ‘perhaps it’s pipe and slippers time, time to go’ list. I may get a defamation writ from all of them. But under our system, where you don’t have opposing parties, where you don’t have political parties involved, you often get a lot of dunderheads who get elected by saying stuff and there’s no independent body which is out there saying, ‘terrible’, ‘nutter’, ‘watch out’. And so I think there’s a role for someone to self-appoint and come in and fill that information vacuum. And I’m doing the same thing with public company directors, where every time I meet a public company director, I say, ‘Who’s the best director you’ve ever worked with and why?’.
And I’m trying to build a list – I’ve got my list of the 100 best female directors and the 100 best male directors – because there’s not great transparency. You can’t see inside the boardroom to see who’s good and who’s bad, whereas you watch the AFL footy and everything’s on the field. It’s very transparent. You can assess exactly who’s performing, you can agree that person should have been delisted. But just looking at the 500 blokes and the 80 women who make up the top 600 directors in the country, very difficult to get a fix on who’s good and who’s bad. So I’ve decided that the way to do it is to meet as many as possible and to get peer reviews by inside players, so you can be informed as to who you try and hound out of the club and who you try and promote to work on other boards.
I have to admit that the publication which most inspired me with Crikey was Private Eye in the UK, a fortnightly print magazine, a combination of satire and comedy and very, very hard, tough commentary and news. And Private Eye is celebrating its 50th birthday at the moment. And the Private Eye editor of the past 25 years, Ian Hislop, perfectly describes my own experience when he said, quote, ‘I still read all of the papers on the train each day and am absolutely incandescent with rage by the time I arrive at the office'.
Stephen: So to everyone out there, I encourage you to maintain your rage. Stephen Murray-Smith certainly maintained the rage for 34 years, a remarkable period, editing Overland, while simultaneously pursuing a range of literary and travel adventures during his remarkable and memorable life. So thank you very much to the State Library and to the Murray-Smith family for this invitation. I’m very honoured to have been invited to reflect on some of these issues. And, John, I’ll let you be the judge on any questions. But thank you very much for listening tonight.
[The screen fades to black. On a white screen, the logos for the State Library of Victoria and the State Government, Victoria appear side by side.]