When 'Independence' fuels dysfunction

Alex Malley's ears might have been burning again this week if they were not already scorched off by the roasting he has received in relation to his tenure as CEO of CPA Australia. He was the exclusive case study of Peter Swan AO FSSA, Emeritus Professor the Unviersity of NSW Business School, in his address to a joint Women on Boards / Clayton Utz lunch helpfully titled "Cult of the CEO: CPA Australia and how its non-standards helps generate ASX governance dysfunction".
Prof. Swan used his address to outline the history of Alex Malley at CPA and highlight how, in his view, a CEO can effectively blindside a board and create a cult of personality that results in them becoming bigger than the organisation they ostensibly serve. It was a somewhat embarrassing - if otherwise controversial - address. The former because you were constantly asking "how on earth did the board approve ABC..allow XYZ to occur...not rein in their omnipresent CEO?" The latter because Prof Swan used it to continue his lifelong broadside against the existence of the ASX Corporate Governance Council, which he contends is made up of 'notional member-run organisations' which themselves have very poor governance, yet whom set the governance rules for all listed companies.

As governance failures go the CPA Australia case has been pretty spectacular. According to Prof. Swan much of it can be slated back to the fact the CPA board is captured by its CEO as members are denied a meaningful vote. FYI, the voting process at CPA Australia is more akin to that of a political party. Members are elected to divisional and branch councils who are regarded by the board as the 'primary touch point for members'. Divisional councils then put up one person each to a Representative Council which appoints the board. CPA members do not get to vote for the board.

Prof Swan contends that the CGC Code for best practice promote CEO and executive power while ensuring weak oversight. He believes it is time for the reform of CPA Australia and about 20 similar oversight bodies, together with the abolition of the ASX Corporate Governance Council.

"This body has deemed that substantial shareholders do not qualify as meeting the “independence” test with an “if not why not” requirement for the majority of board members. My research shows that these rules prevent incentive alignment between boards and shareholders and thus have a very deleterious effect on firm performance. If substantial shareholders are prevented from working hard on behalf of all shareholders then who will? It is not surprising that Woolworths loses $3 billion + in attempting to compete with Bunnings and BHP’s actions in Brazil with the breaching of the tailings dam kill 19 people and destroy hundreds of kilometers of river-way."

Strong stuff that caused a vigorous discussion and not a little dissent among the 25 Non-Executive-Directors and trustees at the table. Does director and executive independence mean lack of connection to, care about, the company or, as many assert, does it lead to improved oversight, governance and decision making. One to ponder and test at your next board meeting perhaps?
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