Major Governance Issue In Australia Hits a Professional Services Institute That Really Should Know Better

Major Governance Issue In Australia Hits a Professional Services Institute That Really Should Know Better

There are 2 major accounting institutes in Australia – Chartered Accountants Australia and New Zealand (CAANZ) – and CPA Australia (Certified Practicing Accountants).

The CPA website states that CPA Australia is one of the world’s largest accounting bodies with a global membership of more than 160,000 members working in 118 countries around the world, with more than 25,000 members working in senior leadership positions. Its members tend to work more in commerce and industry rather than in traditional accounting firms.

CAANZ has around 110,000 members, many of them working in the accounting firms, but has many associated institutes worldwide, such as in the UK with the Institute of Chartered Accountants in England and Wales.  The audits of MNCs tend to bind firms together, mainly through the Big 4 although many second tier firms operate similarly.

Both CAANZ and CPA however would claim to have members operating at the top of organisations as Directors of Finance, CFOs and similar positions – and as CEOs, Chairs and other high profile roles.

Both have also tended to be at the forefront of governance issues of a financial nature but also comment on a range of other governance matters.  And it is something of that nature that has severely damaged the CPAs this year.  A summary of the major events:

Early 2017

  • Various issues built up over time led to CPA members pressurising the CPA Board to disclose the remuneration of its CEO – something that had not been indicated in its accounts.  Australian public companies have been disclosing such figures for many years (driven partly by legislation), and while there appeared to be no legal or statutory reason for the CPA to do so, the nature of the organisation and what it stands for might have suggested it should show and lead by example.

June 2017

  • First, CPA’s chief executive, Alex Malley, was forced to admit exclusively to The Australian Financial Review that he was being paid $1.79 million a year.
  • The long-sought-after disclosure, which followed moves by members to requisition the information under the Corporations Act and extensive coverage of members’ concerns in the Financial Review showed Mr Malley received $1.786 million last year including $1.367 million in fixed pay, a $345,639 bonus, $35,000 in superannuation and $38,561 in other benefits.
  • This is more than three times the pay of Prime Minister Malcolm Turnbull.
  • The $1.79 million pay packet puts Mr Malley just outside the top 100 highest paid ASX-listed CEOs, higher than REA Group’s CEO Tracey Fellows (an $8.5 billion company) and Worley Parson’s CEO Andrew Wood (a $3 billion company).
  • CPA argued that Mr Malley’s pay equated to just over $11 each for its 160,000 members – but the CPA has revenues of just $180million by comparison, and nothing like the responsibility of ASX listed company CEOs.
  • Mr Malley’s pay was also significantly higher than the Tax Institute CEO Noel Rowland’s $432,456 salary, or the Chartered Accountants ANZ’s CEO Lee White’s $600,000 2017 base salary. CPA’s company secretary, Adam Awty, also receives close to $950,000 and chief operating officer Jeff Hughes more than $900,000, according to the disclosures.
  • In late June Mr Malley was sacked – and given an almost $5 million dollar payout – on top of his $1.8 million salary.

Subsequently

  • The chairman of the CPA only since last October, Tyrone Carlin, who is also the University of Sydney’s deputy vice-chancellor, eventually told CPA members that he was stepping down from the CPA board – whose directors received $1.87 million in fees last year.
  • Mr Carlin, who previously twice refused to disclose the salary of key executives at the CPA annual general meeting in Singapore, earned $184,166 as chairman last year and a further $70,000 as chairman of CPA’s new financial advice arm which remains unproven – and which in turn is thought to conflict with the CPA’s need to be independent in terms of advice.
  • “With new directors coming on board and in the spirit of renewal I am taking the opportunity to step down from the board a few months earlier than anticipated,” Mr Carlin said in a statement – handing over to his deputy, Jim Dickson, who received $133,630 from CPA in fees last year.
  • Interestingly CPA board members used to work for free, or for a stipend paid straight to their employer – before the constitution was changed by a series of special resolutions so that members no longer directly elected the board, and directors’ terms could be extended beyond a six-year maximum.

August 2017

  • CPA Australia’s remaining board members faced a grilling before the powerful Australian Parliament’s Senate Economics Committee.
  • Key points:
    • The CPA Australia debacle prompted a senate inquiry to improve corporate governance across all businesses.
    • Issue centres on board transparency with members and shareholders.
    • Despite pressure, CPA was still blocking moves to communicate with disaffected members.
    • Senior CPA staffers faced a barrage of questions from the committee at a hearing in Sydney, as they were called to explain their lack of communication with CPA members during the organisation’s governance crisis.
    • While reform is the long game for the senators, most of the immediate grilling concerned CPA’s governance crisis.
    • CPA members have started leaving the body and/or transferring to the Chartered Accountants.

September 2017

  • An independent review into the deeply troubled CPA Australia headed by a former federal Auditor-General found:
    • The former chief executive was overpaid.
    • It had lost touch with its members and provided questionable value for money for the services it rendered.
    • The Board and executives were overpaid and Alex Malley’s $4.9m severance payment well above what was considered standard.
    • Interactions between staff and members “not always constructive and respectful.”
  • While much of the interim report had elements of “tell us something we don’t know” for anyone following the implosion of the profile-obsessed professional body, it did make recommendations to overhaul corporate governance and practices.
  • “It is fair to say that, over time, the Board and the then CEO lost touch with a large cohort of the membership of CPA Australia,” the review noted.
  • “When under pressure, the board and CPA Australia has commonly defaulted to the minimum standard of disclosure.
  • “This has occurred in response to significant issues raised by members and the media, rather than giving emphasis to transparency and the likely interests of the membership.”

IN WHAT IS NOW CLEARLY IN THE RUNNING FOR CORPORATE AUSTRALIA’S UNDERSTATEMENT OF THE YEAR, THE REVIEW FOUND

 

                              “THE BOARD COULD HAVE HANDLED THINGS BETTER”

 

by Robin Billen – Managing Partner, Horton International Australia

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