Governance and Pay: Ministers and Board Chairmen

With comments from proxy advisers, major institutional investors and shareholder activists questioning Directors’ (particularly Chairmen’s) capacity, to serve on more than three or four Boards for which they will often receive more than $1 million in annual fees, the community should not be aggrieved with the level of reward paid to our Prime Minister, our Premiers or our Ministers.

Irrespective of the quality of their Departmental support, or support from commercial or corporate entities over which they have stewardship, the legislative and regulatory requirements imposed on them, in office, are at the highest level.  Scrutiny is greater than that to which the majority of Board Directors, including Chairmen, are subjected.

A key gap in the governance process which may well be worthy of discussion is the paucity of relevant disclosure whether for those seeking to stand for Parliamentary office, with the obvious potential to assume a Ministerial portfolio or, indeed, leadership of a State or the Nation.

Should there be open disclosure to the electorate (before individuals stand for public office) of their capabilities including their knowledge and experience in the world of government as well as external to government? What guidelines should be published to assist voters assess the relevance of those capabilities to represent their constituents, to serve on Parliamentary Committees or chair Parliamentary Committees, to serve in an outer Ministry role and ultimately on the Board of Australia Inc. or State Inc.?

While the political class may have ideological alignment, the success of the nation in which there are 25 million stakeholders (and many others who have an inter-dependence upon our nation’s enterprise and global engagement) clearly needs the highest leadership standards, particularly in those that aspire to pursue positions in Ministerial portfolios and the Cabinet.

Many of those seeking election to Parliament and Ministerial careers, on the basis of current levels of remuneration, are making significant personal sacrifices, hopefully for the benefit of their constituents and the broader community.

A recent article in the Sydney Morning Herald, referencing data from market research firm IG (which revealed the standing of Australia’s Prime Minister on a global footing as receiving a high level reward) from our perspective raised interesting questions at a time when Board pay and the governance of Directors in Australia’s largest public companies is under scrutiny as is diversity including gender representation.

With the above overlaid with questions related to protocols and practices leading to the appointment of Directors or Board Chairmen, disclosure of Directors’ capabilities and, in particular, the relevance of those capabilities to their stewardship of the company on whose Board they serve with elections looming, Governments are also the subject of scrutiny. Additional questions are also being raised in relation to the number of Boards on which Directors have the capacity to serve, their commitment to those Boards, their competence in that context but more related to effectiveness and thoroughness of engagement.

Without question, the Prime Minister leads the most substantial enterprise in this country, chairing the Cabinet of the Federal Government.  Ministers lead portfolios which are generally both engaged in commercial endeavours and the provision of services to every citizen, including those living overseas.

State Governments, substantially with the benefit of appropriations from the Commonwealth, are similarly structured with the Chair being their Premier and their Ministers being the Board of State Inc. which, like the Commonwealth, is unbundled into core portfolios of scale and significance with energy and infrastructure, together with health and education, being front and centre.

Should we be concerned with remuneration levels from $350,000 to $600,000 payable to Ministers who under legislation in the majority of instances are accountable to the Parliament and ultimately to the largest group of nominal shareholders being 25 million Australian citizens?

Have press comments flagged the follies of benchmarking the appropriateness of Ministerial remuneration with that of a margin over a Backbencher. Should there be full disclosure of Ministers’ capabilities, aptitudes, commitment and level of engagement outside their core role as an electorate representative? Should there be transparent disclosure of each portfolio’s complexity and the capabilities essential to have oversight of that portfolio and the capabilities possessed by those serving in the highest, most complex and stakeholder sensitive enterprises where hundreds of billions of the nation’s resources are deployed? A key Commonwealth Government Minister’s management and governance oversight exceeds that of most ASX top company’s Chairman.

Having had some engagement in understanding and commenting on the role of a Member of Parliament, as distinct from a Minister of a designated portfolio, there appears to be broad acceptance, based upon market standards and the demands of those positions whether at State or Federal level, that current levels of remuneration are reasonable.

The role of a Member of Parliament, which is also a core role of a Minister in government, is complex, often unpredictable with appointments subject to an ideological (not necessarily capability) foundation for endorsement.  Notwithstanding that, the obligations of a community’s representative in a Parliament are common and universal with variability influenced by the scale of the electorate, in geographic terms, the industries conducted within the electorate and the prospects for economic growth, the nature of the population in the broadest demographic sense which clearly require variable support across electorates.

The role of a Minister, and as a consequence potential remuneration, is different and the demands (variable across portfolios in terms of time commitment) complexity of issues under consideration, impact on Australian citizens and businesses within Australia and those engaged in the import and export sector, are highly varied.

While I believe there is significant comparability between the role of a Board Chairman and that of a Minister, it may well be, having regard to commonality of scale and organisation complexity, that recent disclosures in relation to the corporate sector highlight the necessity for different levels of engagement, and the criticality of fulltime executive leadership having the relevant capabilities and commitment to the welfare of their key stakeholders, the shareholder, has led in some instances to sub-optimal outcomes.

Should appointees to the leading governance bodies in the country be subject to the same scrutiny, whether a listed public company or a Ministers’ portfolio, with similar transparent disclosure in relation to incumbent capabilities and availability to meet the role’s commitments?

It is my judgement, given the level of remuneration in corporate Australia, that despite the overlay of the issues raised at the beginning of this article being of continuing importance, in order for Boards to secure the most capable, committed and available talent to provide the level of stewardship essential in meeting the governance requirements in the interests of shareholders, there is further analysis required in relation to:

  • The size of Boards,
  • The diversity of capabilities and demographic attributes,
  • The capacity for commitment of Board members, and,
  • The alignment between those with stewardship of a company’s governance and success and the reward of the executive team.

Further questions which have arisen as a result of the Royal Commission would be whether indeed Boards require a small independent staff, forensically monitoring the implementation of Board approved plans and strategies, compliance with governance protocols and regulatory controls which might reflect some of the attributes of a Minister’s staff.

  • Would such an initiative increase Director visibility of corporate activity and reduce their dependence on access to the C-Suite?
  • Do issues raised flag a requirement for greater involvement and time commitment of Directors?
  • Are these issues only relevant to the ASX 100 or ASX 200?
  • What are shareholder expectations and what is their willingness to pay for improved governance and forensic oversight?

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