Australian Corporate Governance Wrap February 2010
ASIC Gears Up For a Big Year Ahead
Whilst the mainstream media continues to slam ASIC, claiming that delay and prevarication are endemic in the regulator’s culture http://ow.ly/19J9D , ASIC must be hoping that its successful appeal in the AWB case http://ow.ly/18XoB will signal a change of fortune in the year ahead.
2010 is shaping up to be a huge year for ASIC as it gears up to commence regulation of the new National Consumer Credit regime (registrations start from 1 April 2010) and to take over from ASX as share market supervisor. This month it was also thrown a curve ball by the Productivity Commission which has recommended that it regulate the $43 Billion not for profit sector http://ow.ly/16uu4. Whether ASIC will have the resources to fulfil its new role as Super Regulator remains uncertain.
At the beginning of February, ASIC announced that in the last quarter of 2009 it prosecuted 89 company officers for 148 contraventions of the Corporations Act http://ow.ly/13JAu. Great to see that the regulator is being proactive, although we couldn’t help noticing that the average fine is only about $500, which leaves us questioning if these slaps on the wrists will actually deter bad corporate behaviour.
At this rate ASIC will need to secure 27,600 prosecutions to cover the $13.8 milion in legal costs it has agreed to pay Jodee Rich and Mark Silverman. Maybe the Federal Government should not have dropped the $5m penalty that it was proposing for market misconduct offences http://ow.ly/15NPL, the money could have come in handy.
There is no doubt however that ASIC continues to tackle offenders. February’s hit list included:
- Moody’s analyst charged with 10 counts of insider trading http://ow.ly/17ZuP
- Declarations for market manipulation and false trading against former CEO of ASX listed entity Select Vaccines http://ow.ly/17r1C
- Mortgage Finance Australia director jailed for 2 years. http://ow.ly/15jBD
- Declarations in civil penalty proceedings against former director of ASX listed entity Citrofresh http://ow.ly/14PE1
The fallout from the Global Financial Crisis (GFC) continues with the Commonwealth Bank agreeing to pay Storm investors about $200m http://ow.ly/1auTU. The ANZ is likely to follow with its own offer http://ow.ly/1aWdm . The cynic in us can’t help but think that this is a very small price to pay for such a clear risk management failure. A few extra basis points and both banks will have that money back in a blink.
Local councils are also looking to recoup some of their losses with 12 country councils bringing actions against superannuation adviser Local Government Financial Services (LGFS), for misleading and deceptive conduct and breach of fiduciary duty http://ow.ly/1bH08. LGFS is preparing cross-claims against ABN AMRO, who concocted the products, and Standard & Poor’s (S&P), the ratings agency that gave them an AAA rating. In the ultimate irony S&P have placed LGFS on “CreditWatch Negative” based on concerns over the councils’ legal claims. Looks like lawyers will be the winners in this one.
At least in the US the bankers don’t seem to be too fazed by the ongoing effects of the GFC with Wall Street bonuses up 17% to over $US20 billion in 2009. Yes folks 2009 was the bail out year!! http://ow.ly/1av02
Class Action Action
A big winner in February was Sydney barrister Ross Goodridge who won his case against Macquarie Bank and Leveraged Equities claiming that his shares had been unconscionably sold after a margin call. Macquarie Bank and Leveraged Equities must now spend about $3m buying back Goodridge’s share portfolio. Although they claim Goodridge’s claim stands alone, litigation funder IMF quickly hung out its advertising board saying that anyone who had securities sold by Leveraged Equities that were the subject of a Macquarie margin loan may have a claim. Watch this space.
Fair Work Act Still A Mystery To Many
The impact of the new system of Modern Awards and the National Employment Standards seems to have dawned on most employers as they returned to work after the summer break.
As expected there were very loud complaints from the retail sector, nurses and airline staff, about how “unfair” the new system of “fair work” turned out to be. From our experience many small and medium sized enterprises are still in the dark as to what they need to do to comply. Those that have actually identified the Modern Awards that apply to them have been left utterly confused in their attempts to classify individual workers and work out appropriate pay arrangements.
Unfortunately the “stick your head in the sand” approach is unlikely to reap benefits as statistics indicate that unfair dismissal claims soared in the first 6 months since the Fair Work Act was introduced on 1 July 2009 http://ow.ly/16dqo. To make matters worse, most plaintiff lawyers are just starting to get their heads around the potential of the new “adverse action” claims available to employees and contractors under the new legislation.
In very simple terms the balance of power has swung back to workers. Employers who continue to fail to meet their obligations are likely to be in for a very tough 2010.
Bullying Claims on the Rise
It is estimated that 2.5 million Australians experience some form of bullying over the course of their working lives with “stress” claims alone translating into direct costs to employers of about $10 billion a year due to absenteeism and loss of productivity http://ow.ly/15d5u . This figure does not include hidden costs associated with increased turnover of staff and recruitment and retraining costs, the costs of management dealing with internal complaints, and intangible costs associated with poor corporate culture and staff morale.
February saw some very high profile cases involving bullying including:
- A Sydney barmaid who was awarded $500,000 in damages after she was subject to a campaign of workplace harassment at Peakhurst Bowling Club in Sydney.
- St Kilda Football Club’s Andrew Lovett launching a $2m damages claim for bullying and breach of contract. http://ow.ly/18QGl
- The prosecution of 4 men for relentless bullying resulting in the suicide of Brodie Panlock, a waitress at Cafe Vamp in Melbourne http://ow.ly/14T54. Between them the men and the business were fined $335,000.
The latter case caused Victoria WorkSafe to launch a crackdown on workplace bullies involving snap inspections of 40,000 Victorian businesses http://ow.ly/16ExB.
Landmark OHS Ruling Provides Relief for Directors
Businesses, directors and officers will find it easier to defend OHS prosecutions after a landmark High Court decision, Kirk V WorkCover NSW, overruled controversial elements of NSW laws that forced employers to prove they were not to blame for workplace accidents.
The case changes the test for how liability is determined under the absolute duty of care and will allow employers to rely on the quality of their systems to assist them in successfully defending any prosecutions. It goes without saying that it will not help employers who have failed to implement appropriate OHS systems.
Fraud on the Rise
Finally there were two interesting fraud surveys released during February 2010.
PWC’s 2009 Global Economic Crime Survey found that 40% of Australian organisations reported at least one incident of fraud in 2009. This compares to a global average of 24%. Believe it or not this is actually good news for Australian companies because it reflects the fact that Australian companies are detecting and therefore preventing fraud http://ow.ly/1cC7u.
Accounting rivals BDO also released a fraud survey of 272 not-for-profit organisations and came up with the alarming statistic that whilst 15% had suffered fraud, only 43% reported it to the police because they feared adverse publicity and loss of donations. To make matters worse 36% of employees who committed the fraud did not lose their jobs once the fraud was discovered.
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