The Dumbest Idea In The World – Steve Denning, Forbes is a recent article on the approach to capitalism in the Western world, it touches on America specifically. Below are some comments from my old man, Peter Muldoon, on the parallels to Australia.
Very Interesting article.
My take away – over regulation and interference by governments can sometimes create more problems instead of solving them.
His suggestion is to repeal – the Private Securities Litigation Reform Act & the Regulation FASB 142. I am sure that the intentions of the legislation were honourable and well meaning but the consequences were not well considered.
We have the same problems in Australia. For example:-
The recent Labor Government introduced new corporate legislation the “two strikes rule”
Which means that if 25% or more of shareholders at a Annual General Meeting vote against the annual remuneration report for directors and senior executives of the company two years in a row – then the whole Board of Directors must step down and a new Board is elected.
How a publicly listed company operates without a Board of Directors while this process is in train is yet to worked thru.
Government Regulation introduced in haste with unknown consequences.
The question you might ask is:- why shareholders (25% not even 50%) would reject the independent remuneration report?
The issue is:- under existing Australian govt regulation all Annual Reports must itemise the remuneration packages of all Directors and the top management executives. The report must disclose by executive, by name, base salary, bounuses and conditions, expenses, allowances, share options and share bonus, all performance criteria and all that makes up the executives remuneration package.
Great for shareholder transparancy but not good for the business community at large,
This means that any executive and company director has a readily available database of competitive remuneration packages of executives in like industries and like companies. The nett effect is the continuing ratcheting up of remuneration packages to stay equal to or above their peers.
Corporate advisory and salary packaging firms have developed businesses doing just this, comparing executive A to executive B and recommending new and better payment packages. The two strikes regulation was introduced to limit this escalation of remuneration packages.
So a new piece of Government Regulation is created to compensate for deficiencies in an earlier piece of regulation.
And so it goes, regulation-on-regulation, binding up the resources of executive management in satisfying the government regulatory controls,
instead of getting on with the purpose of the business.
A very good and apt article. I hope the Australian Government takes time to read it.
Thanks
Peter
Thanks Peter, let’s hope the Australian Government does take note.
