NEWS RELEASE
December 12, 2002
Executive fat cats bleed anorexic corporations dry
UniSA visiting professor's call for a corporate governance re-think
As the South Australian government grapples with the prospect of a $140
million bill to bail out the US-owner of much of Flinders Osbourne
Trading, a UniSA visiting professor says Australia needs to take a good
look at the regulations governing our corporations.
A leading crisis management researcher, Professor Alexander Kouzmin – in
Adelaide this week as part of his role as a UniSA Adjunct Professor – says
it's time business and government took to heart the lessons to be learnt
from failing privatization and partnership initiatives and the
mismanagement and subsequent collapse of companies such as Enron and HIH.
Professor Kouzmin gave a talk entitled After Enron this week to a
group of senior government and corporate figures, drawing upon his and his
co-authors' recent research into reform in corporate board structures and
practices, comparative disparities in burgeoning directors' remuneration
packages, impending crises in pension fund management and the governance
issues for avoiding the termination of failing privatized enterprises.
He says that hostile terminations of low-risk, high-yield and mismanaged
public/private partnerships loom large on public policy and corporate
governance horizons and in literature dealing with managerial and
corporate failure.
He says Australia
corporations have tended to follow a US-style of "lean and mean"
management, where in a quest to deliver maximum, short-term returns to
shareholders, costs and capacity are cut wherever possible – except, of
course, when it comes to senior executive compensation.
"In this environment, we are seeing more and more 'anorexic’ companies -
big corporations that become economic shells vulnerable to financial
collapse or demonstrate an inability to adapt as a result of short term
and remuneration-driven mismanagement," Professor Kouzmin says.
According to Professor Kouzmin, remuneration committees need urgent
restructuring to avoid failure in benchmarking appropriate salary packages
and in avoiding a retreat to a "buddy/crony system", where CEO and senior
executive packages continue to rise irrespective of the corporation's
financial performance.
“In the UK, for example, we are seeing an increasing number of extreme
cases of value destruction being rewarded in ways provoking considerable
discontent among stakeholders and the public.”
Professor Kouzmin says that although the Australian corporate sector is
subject to more regulation than the US, the regulatory regimes in place
need continuous review to be effective.
“An era after Enron reminds us about the extent to which regulatory
measures, especially in the US, had been systematically rolled back over
the last 20 years under the rhetoric of free markets.
“A re-regulating ‘smart state’ is an agenda requiring public debate in
light of recent business practices and failing privatized enterprises.
"There's a lack of accountability and transparency, with consensus
emerging about splitting the role of the Chairman of the board and the CEO,
reviewing the practice of mixing auditing with consulting and the urgency
of addressing the training needs and specific portfolio responsibilities
of non-executive directors.”
To avoid more
corporate collapses, Professor Kouzmin says corporations need to move from
current thinking where shareholders interests are paramount, to a more
balanced decision-making process which considers all stakeholders,
including the community relying on goods and services supplied by the
company.
In association with UniSA, Professor Kouzmin is planning to undertake
further research examining how corporations are managed in Australia
compared to corporate practice around the globe.
Background on Professor Alexander Kouzmin
An
Adjunct Professor at UniSA’s School of
Accounting
and Information Systems, Alexander Kouzmin, an Australian, is one of the
world’s most prolific management researchers, having published eight books
and more than 200 research papers in more than 65 leading international,
refereed journals. Currently the Chair in Organizational Behaviour at the
UKs Cranfield School of Management, this year he chaired the international
panel that conducted the programme evaluation of the International
Nuclear Information System (INIS) within the International Atomic Energy
Agency (IAEA) in Vienna. Amongst a long list of academic, government and
private sector appointments, he has been a consultant to the Commonwealth
Audit Office on oil spills (1 994) and sat on the board of directors of
the Snowy Mountains Engineering Corporation (1985-1991).
Media contacts:
Professor Alexander Kouzmin ph: 0011 44 790 005 0946
Charlotte Knottenbelt, Media Officer, UniSA ph: (08) 8302 0578/0439 807
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