Some members are excited for retirement, while others approach it with a “real sense of shame and fear”. Funds are going to have to figure out how to cater to both groups or risk failing them all.
If there’s one lesson for investors from the past five years, it’s that chopping and changing their strategy – even in the face of massive market turmoil – doesn’t always pay.
Australia has a way to go to punish corporate wrong doing
By Patrick Liddy*
Whistleblowers are in the news again, following the annual Sydney and Melbourne conferences of the industry association IMCA last week. This year the conferences featured Jeff Morris, the Commonwealth Bank financial advisor who alerted the world to fraudulent bevaviour at the bank, and Adele Ferguson, the Fairfax Media investigative journalist who went public with the story.
While the CBA planner scandal was mainly in the area of ASIC’s governance and which painted a very poor picture of the regulator’s competence, we have also had, recently, the ACCC (Australian Competition and Consumer Commission) talking about the Visy case as the very pinnacle of their efforts in corporate policing and retribution.
While most other overseas regulators fined their trouble-making companies billions of dollars, in the Visy case the ACCC managed to get a mere $36 million in fines from the company. Such was the effectiveness of this rebuke to Visy that both a sitting and former Prime Minister played glowing tribute to Dick Pratt, the Visy founder, at his funeral.
On the bright side, this was wonderfully symmetrical, coming as it did from both sides on politics.
Our culture and legal system has some way to go before we catch up with the American and European way of punishing corporate wrong doing and supporting whistleblowers.
Although, if the recent conference organised by lawyers Maurice Blackburn is anything to go by, we are trying. Every Australian has a vested interest in ensuring proper corporate behaviour.
The Australian regulators would like to do a lot more. Alas, in this period of fiscal constraint they are limited in resourcing and, therefore, the penalties and protection they may attempt to apply. They are seeking help from the market.
The ACCC recently said: “The ACCC recognises that private enforcement can be a significant complement to public enforcement in building compliance and deterring anti-competitive conduct. Effective deterrence occurs where sanctions, having regard to the likelihood of detection and conviction, outweigh the gains associated with a contravention.
“The threat of increased ‘sanctions’ in the form of damages payouts resulting from private litigation can play a vital role in a firm’s consideration of the costs and benefits of engaging in anti-competitive conduct.”
Put simply, the regulators are encouraging the market to intercede. They wish wholesale funds to engage in shareholder and class actions to modify and improve corporate behaviours.
The major not-for-profit funds are again taking the lead over their for-profit brethren, with some of the biggest names being active in this area.
One fund at the forefront of this development is Cbus. Cbus has more than 720,000 members, 89,000 participating employers and about $27 billion under management. Neatly, it invests back into the building and construction industry through its property development company, Cbus Property.
This is a virtuous circle of investment and one that actually helps members earn an income through their working life as well as in retirement. Not many funds do this.
Michael Guilday, the general manager, investments and legal, says that Cbus’s goal is to “create value by improving the retirement incomes of their members.” He views class and shareholder actions as an area in which funds have a fiduciary responsibility to members.
“[This is] no different from our overriding mindset, to maximise the retirement incomes of members. Class and shareholder actions are areas that are creating value, not just financially, but also in keeping corporates accountable and by promoting overall good corporate conduct,” he says.
Members do, indeed, appreciate both value and transparency. By providing these, Cbus is looking to drive change throughout market for the good of its members. Although should be reason enough, Cbus, as the ACCC appreciates, uses the ‘invisible hand of capitalism’ to try to right corporate wrong doing.
Australia has an interesting history, our roots very much being of criminal character. Our regulators are using the weapons at their disposal to bring change to corporate behaviour. However, we are still behind much of the world in this endeavour and judging by the comments made by the ACCC we are not doing enough.
*Patrick Liddy is the principal of MSI Group, a funds management consulting firm.
