CHAIR—I welcome representatives from the Australian Institute of Company Directors. Mr Evans, have you appeared before committees before and are you aware of the normal cautions and information associated with the conduct of these hearings?

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Mr Evans—Yes, I have.

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CHAIR—Would you like to make an opening statement?

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Mr Evans—Yes, thank you. Let me say first of all that I think one of the strengths of our democracy is that people like us do have opportunities to speak directly to their parliamentary representatives and that is a very good thing. A message first of all for the directors of Australia about private equity is to be ready to make sure you know what to do in the event of an approach. The private equity wave has increased the need for rigour and discipline and has put some people under great stress. In this situation, the board of a company must show leadership. It is appropriate that they be well prepared and know what to do. We produced a guide for directors in a situation of change of control and it is quite similar in its contents to a guide produced by the Takeovers Panel. It is slightly differently expressed but it says much the same sorts of things.


Senator JOYCE—I apologise for being slightly late. I am going to ask a question that you might think is parochial, but it is a question a lot of people have in the pit of their stomach when they think about private equity. In the advent of private equity, what are your views on the access of the Australian public to own a portion or a part of the assets of their nation and their connection to it, and their feelings of disconnection when we see something that is a iconic basically be taken out of the realm of where they can own part of that organisation? I am thinking of Qantas, obviously.

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CHAIR—Is that a personal question or a question to the organisation?

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Senator JOYCE—I am trying to reflect on an obvious aspiration that Australian people have, and I expect that they would expect us to reflect on this through this committee in the questions that we ask.

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CHAIR—Not all Australians.

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Mr Evans—I think it is a bit beyond the scope of what our members, who are directors of companies, concern themselves with. They act in the interests of shareholders and they may be domestic or they may be foreign. I do not know how greatly different it is from an unfettered market of listed public companies. These sorts of issues do happen, but I do not have any particular observation to make about it beyond that.

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Senator JOYCE—Fair enough. On the issue of conflicts of interest and management lockouts, does your organisation foresee or believe that there are, envisaged within the public, question marks on the structure of fees that are associated with private equity buyouts, especially when the deciding party is the party that formerly had the duty of stewardship for the best value for the shareholder?

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Mr Evans—There are two separate issues there. One is the issue of the level of fees, which Senator Stephens was inquiring about a minute ago, and the other is that of the conflicting interests of the various different parties. I think I should deal with the latter one mostly. This has been brought into sharp relief by the wave of large deals that has come up in recent months. One of these things can arise very suddenly. It may be that a company has had many possible deals going on that it has been considering that are perfectly legitimate ones, and this just seems like another deal. But, if it involves the interests of executives or officers of the company or of directors, they have to be set aside from the consideration of whether it is recommended to the shareholders or not. They must be; I do not think there is any question about that. A board—and this can be very difficult to do sometimes because of the close relationships between the people and the collegial working of a board—has to find a way to form a committee of disinterested members of the board who are not party to whatever the deal is that is being proposed and control the process. You cannot have people who have a personal interest. It would be contrary to provisions of the Corporations Act, but it would also be completely wrong in ethical terms. Our strongest advice to our members is: watch for these situations and, as soon as one seems to be appearing, the board must seize control in the interests of the shareholders and must act in their interests.

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Senator JOYCE—In determining that disinterest, do you allow a balanced discussion that includes dissent to prevail and say that the shareholders can be a party to the musings of and the issues that are before the board?

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Mr Evans—Within a board, there is usually lots of dissent, and there should be constructive dissent if they are acting in the interests of the company. That is their duty: to act in the best interests of the company. But, in doing so, people bring many different points of view. That is why you have a board and not just one individual. Constructive dissent within a board is highly desirable, as long as you do not break the rules of it still being a collegial body.

As for bringing the shareholders into it, there are really only two mechanisms for that. One is through the stock market itself, where shareholders will decide whether or not they will sell their shares, and the board will normally make a recommendation, whether it recommends that an offer be accepted or recommends that they do not sell because they can get a better offer or it is undervalued. The second is when there is a scheme of arrangement, which is sometimes proposed in these things—Alinta is an example. That has to be put to a general meeting and voted upon by the shareholders.

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Senator JOYCE—That presupposes that the market has perfect knowledge, which obviously, on a private equity deal, would be somewhat circumvented, especially if people are looking towards their future.

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Mr Evans—When the directors controlling the situation are acting in the best interests of the company, they would normally need to seek competing bids. The case of Alinta is interesting. The independent members of that board seized control of the situation and conducted a kind of auction, and they had competitive bids for the company—I think that is a proper course of action—to get the best value for their shareholders.

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Senator JOYCE—Does your organisation agree with the role of APRA, in that they are an instrument that takes into account the national interest in the ownership of banks?

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Mr Evans—I think that comes under the bank shareholdings act. I do not really want to comment on that. I do not have any view on it one way or the other.

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Senator JOYCE—Does your organisation—and the answer to this is probably no, but I just want to get it on the record—have any views whatsoever on any sections of the economy that are of national interest?

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CHAIR—With the greatest respect, Senator Joyce, I think—

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Senator JOYCE—They might or they might not.

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CHAIR—that is a very difficult question.

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Mr Evans—Let me try to answer it, if I may. Actually, we think that what the directors of companies do in governing the companies of Australia is very much in