September 26, 2006 | Graham

Telstra goes imperial.

Exactly who does the Telstra board think it is accountable to? Corporate theory says that boards are responsible to the equity holders. They are certainly in theory appointed by them, even if shareholder apathy more often than not confers re-election by delivering proxies to the Chairman. So why is the Telstra board recommending against Geoffrey Cousins, the nominee for director of its majority shareholder, the Federal Government?
You can question whether Cousins is the right person, but it’s bizarre that the board is recommending against his appointment. The shareholder obviously has concerns about the board, and is well within its rights in appointing someone to do something about what it perceives as a problem. One indication of board incompetence is going against the major shareholder publicly like this. Another is not knowing of the major shareholder’s intentions in the first place.
Can you imagine the Newscorp board recommending against the nominee of its major (not majority) shareholder, Rupert Murdoch, or anyone even questioning his right to make a nomination and see that person elected? Who does the board think it is running the company for?
A problem in corporate Australia is the spread of a management aristocracy who reap equity rewards for merely putting in the hours. This is partly a reflection of the fact that substantial shareholders are these days more likely to be superannuation funds than individuals, and superannuation funds are run by managers and don’t have any entites, apart from trustee companies, again run by managers, with anything like an equity holder’s interest. So we have managers managing managers, and if things go wrong, the worst loss anyone is exposed to is perhaps a decelerated career path.
As a result shareholders are less inclined than ever to question boards, leaving them to run, virtually unhindered, as personal fiefdoms, someone else’s property. While the federal government may share many of the attributes of superannuation funds, at least in this case it is taking a genuine interest in corporate governance. It’s move to appoint a director, against the wishes of its board, is to be welcomed.

Posted by Graham at 9:17 am | Comments (4) |
Filed under: Australian Politics


  1. The problem is that the Gov. is not a superannuation fund; they are the democratically elected party whose allegiance is to the people of Australia.
    Unfortunately everything seems to be a corporate issue; corporate style management is the order of the day when it comes to the way major National institutions are handled like this communications body.
    It seems John Howard wants to have his cake and eat it too, when it comes to regulating Telstra as an independent commercial company. Howard’s main political footing is deregulating companies in order to generate free market growth, (official Liberal policy?  ) and yet there is a need to maintain government representation (Please insert corporate management jargon here) as the major shareholder of the company.
    In the mean time while the Gov still has 51% of shares Howard can appoint long time golf buddy Cousins as the Telstra head man, What could possibly go wrong? Telstra has to accept the Gov. appointed board member.
    Wait…don’t they?
    It’s about time someone like Trujillo had some common sense and told the Australian public the truth, back when he exposed the lies of the Lib Gov. When they claimed Telstra rural services were in great shape, he showed that they were far from it. The Liberals did well to cover that up, and water down the debates, they are great at that.
    Good on Sol for making a small but justified stand against the profit restricting government regulations.
    The Howard Government has found themselves in an inevitable situation.
    You either want to help shape Telstra into a National communication service, whose primary goal is to cater for rural and regional Australia? Or you don’t?
    Howard made up his mind about that a long time ago; he wants nothing more than to cut it off. Telstra know this and don’t want to be part of this political spin doctoring anymore.
    Stop wasting tax payers money on outrageous salaries for the all these ‘mates’ you keep appointing to head the company, you already know what direction it’s going to take.
    Do what you do best and sell it already

    Comment by Julia — September 27, 2006 @ 11:34 am

  2. Is it just me or does anyone else believe it is “third world” for a democratically elected liberal government to be regulating the composition of an ASX 100 Australian company board? What message does that send overseas investors about investment risk when a sovereign meddles like this? You’d expect China to try something on like this, but Australia? Get over the technical arguments about shareholder rights Graham; this is flawed policy.

    Comment by Michael — September 27, 2006 @ 2:26 pm

  3. I already asked questions about governance at Telstra (see It is an extraordinary position when it goes to the next stage and the CEO is seen to question the right of the person holding 51% of the shares to nominate someone for the Board.

    Comment by David Havyatt — September 27, 2006 @ 5:26 pm

  4. I hope no one purchases the Telstra 3 float,it will be the same as throwing money out the window.The elected Liberal government spend taxpayers money like there’s no tommorow,they’ve had years to fix the rural services & done nothing.If the government already owns 51% that means the people own Telstra.Mr Howard has a nerve trying to sell the people what they already own.The obscene amount payed to the CEO should have gone into rural services.Sol did nothing but loose money for investors, so what was he paid for.If that’s called performance Mr Howard’s in trouble.

    Comment by Anne — October 3, 2006 @ 3:21 pm

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