Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Heed Burke on plebiscite

Trisha Jha

28 July 2016 | Ideas@TheCentre

same sex gay marriageFederal Attorney-General finally put to rest doubts about the government’s position on same-sex marriage when he announced that a submission for the mooted plebiscite would go to Cabinet within weeks, with the vote to be held this year or early next year.

Assuming all the parliamentary ducks assemble in a neat little conga line, the future of the Marriage Act 1961 (amended 2004) will be determined by a plebiscite — a ‘people’s vote’.

There are good reasons to question the utility of the plebiscite mechanism, not least of which is the fact that it is a decision steeped in ordinary politics, rather than concerns of policy or philosophy. That future parliaments may seek to cut through thorny issues by leaving the decision to ‘the people’ — and the extent to which this may damage representative democracy — should be acknowledged.

Nevertheless, the more pressing issue is how a plebiscite on this topic would interact with individual politicians’ strongly-held views on the topic. A great deal depends on whether the plebiscite is binding, i.e. with parliamentarians obliged to legislate the outcome.

A non-binding plebiscite would merely be a glorified opinion poll. Those who are already resolved to vote in favour would do so. A handful of parliamentarians have openly said they would put their personal views aside and vote in favour of amendment if the plebiscite was resolved in the affirmative. Other parliamentarians have said they are resolved to vote against if their ‘constituency’ is against it. At this point it becomes fairly obvious: under this scenario, the only people whose positions are shifted are those in the middle. This process cannot be fairly termed a ‘people’s vote’.

A binding plebiscite resolved in the affirmative, on the other hand, would mean parliamentarians voting unanimously to amend the Act. In other words, a properly executed people’s vote would leave no room for conscience.

Edmund Burke opined strongly on the centrality of conscience for parliamentarians, stating “his [a parliamentarian’s] unbiased opinion, his mature judgment, his enlightened conscience, he ought not to sacrifice to you [his constituents], to any man, or to any set of men living.” He went further, saying “he betrays, instead of serving you, if he sacrifices it to your opinion.”

Defenders of enlightened conscience should expect nothing less than a free and open vote from all the members of the parliament.

Poor performance treads company boards

Peter Swan AO

28 July 2016 | Ideas@TheCentre

ASX stock exchange PSA fortnight prior to its abolition by independent senators and the Turnbull Government, the Road Safety Remuneration Tribunal set minimum pay rates for 35,000 owner-drivers, but not for employee-drivers. Hence, for two weeks the regulator threatened the livelihood of all owner-drivers.

By contrast, the Australian Security Exchange’s Corporate Governance Council has functioned since 2002 and continues today, despite arguably inflicting far more damage on thousands of Australian companies, their shareholders and employees.

It has done so by deeming that Australian listed companies should have a majority of what are essentially ‘professional’ directors with no direct links to either management or significant shareholders, making them an ‘independent’ professional class.

These directors typically lack both detailed knowledge of the company’s affairs — such as might be possessed by (say) a former CEO — and significant shareholder alignment, as ‘independent’ directors mostly have insignificant shareholding or ‘skin in the game’.

This attempt to rid boards of directors with significant shareholder alignment not only denies 200 years of research from Adam Smith onwards, but the benefits of this monitoring increase as the stock price becomes more informed of the actions of directors.

Informed institutional traders — observing the actions of boards and executives — are the only really effective monitors of both board directors and the CEO, as their trading actions drive stock price towards its fundamental value; Woolworths’ Masters $3 billion outlay and loss of about $1 billion is a case in point.

In its 14 years of operation the Governance Council, made up unsurprisingly of professional organisations, has never reported any research or evidence in support of its extreme regulatory stance more at home in  a Cuba or North Korea.

It is about time the Governance Council was abolished, like the Road Safety Remuneration Tribunal, before it can do even more damage to Australian society and cherished living standards.

Peter L. Swan AO FASSA is Professor of Finance at the School of Banking and Finance, UNSW Australia Business School, and the author of the paper ‘Mandated Divorce: Company Boards. Independence and Performance’ published in the Winter 2016 edition of the Centre for Independent Studies quarterly, Policy.

Brexit: A Rocky Path to an Uncertain Future

28 July 2016 | Ideas@TheCentre

brexitThe sensationalist post-Brexit news headlines predicting continued losses in global markets have ceased splashing across the covers of major news publications the world over.

The landmark referendum result shock appears to have largely dissipated, while market turbulence has been relatively short-lived.

The UK’s FTSE has gone on to make a strong recovery and add value to a near one year trading high. While a short term rebound is positive for the UK it does not necessarily indicate an end to Brexit-related market volatility.

A caveat placed on the economic success of a Brexit is the UK’s ability to negotiate a series of bilateral free trades agreements (FTAs).

While securing trade networks is crucial, the need to deliver on promises of a reduced regulatory burden is coincidentally paramount to success.

There are a great many concerns regarding the tenacity of the newly sworn-in Secretary of State for International Trade, Dr Liam Fox, to secure a comprehensive FTA with Brussels. This is particularly relevant in light of Angela Merkel’s criticism of Boris Johnson’s “cherry-picking” proposal.

Regardless, it is clear the new Prime Minister’s determination to “make a success” of Brexit echoes throughout the May Ministry.

Prime Minister Turnbull has engaged with the new administration in what has been described as “constructive” discussion on a potential trade agreement. Meanwhile India has embraced the idea of an FTA, with preliminary talks beginning earlier this month.

While the future for the UK remains unclear for now, it is apparent that the economic success or failure of the Brexit rides on the May administration’s ability to negotiate trade deals.

Similarly, a failure to capitalise on their restored sovereignty and roll back the regulatory burden placed on domestic industries will only stifle the UK’s productivity and growth.

Miguel Forjaz is an intern at the Centre for Independent Studies