BUSINESS COUNCIL OF AUSTRALIA

BUSINESS COUNCIL OF AUSTRALIA Submission to the Department of Treasury on the Draft Guidelines for Release of Price-Sensitive Decisions by Australian Government Departments and Agencies 17 May 2004

FOREWORD The Business Council of Australia is an association of chief executives of leading Australian corporations. It was established in 1983 to provide a forum for Australian business leaders to contribute directly to public policy debates to build a better and more prosperous Australian society. A list of companies comprising the Business Council is given below. The key role of the Business Council is to formulate and promote the views of Australian business. The Business Council is committed to achieving the changes required to improve Australia s competitiveness and to establish a strong and growing economy as the basis for a prosperous and fair society that meets the aspirations of the whole Australian community. The Business Council has a particular responsibility to apply Australia s business experience and understanding to successfully resolving the challenges now facing Australia. In a global environment, Australia s future depends on achieving world class performance and competitiveness. On the basis of sound research and analysis, the Business Council seeks to play a key role with government, interest groups and the broader community to achieve performance and world class competitiveness. With this in mind, the Business Council of Australia makes the following submission to the Treasury. Business Council of Australia Members ABB Australia ABN AMRO Accenture ACI Packaging Alcoa World Alumina Australia Allens Arthur Robinson Alumina Amcor AMP ANZ Banking Group Australia Post Australian Gas Light Company Australian Stock Exchange AWB Bendigo Bank Group BHP Billiton Blake Dawson Waldron BlueScope Steel BOC Boeing Australia Boral BP Australasia Brambles Industries British American Tobacco Australasia Caltex Australia Citigroup Coca Cola Amatil Coles Myer Commonwealth Bank of Australia Corrs Chambers Westgarth Credit Suisse First Boston CSC Australia CSR David Jones Deloitte Touche Tohmatsu Deutsche Bank AG Duke Energy International Asia Pacific DuPont Australia and New Zealand EDS ENERGEX Energy Australia Ernst & Young Australia Exxon Mobil Australia Foster's Group Freehills Goldman Sachs J B Were Hanson Australia Holden IBM Australia/New Zealand ING Australia Insurance Australia Group James Hardie Industries NV JP Morgan KPMG Kraft Foods Leighton Holdings Lend Lease Macquarie Bank Mallesons Stephen Jaques Mayne Group MBF Australia McDonald's Australia Microsoft Australia Minter Ellison Mitsui & Co (Australia) National Australia Bank Group OneSteel Orica Origin Energy P & O Australia PaperlinX Perpetual Trustees Australia PricewaterhouseCoopers Publishing & Broadcasting Qantas Airways Rio Tinto Australia Santos Shell Australia Sims Group Singtel Optus Smorgon Steel Group St. George Bank Stockland Suncorp Metway Telecom New Zealand Telstra Corporation The Boston Consulting Group The Communication Group Toyota Motor Corporation Australia UBS Australia and New Zealand Visy Industries Wesfarmers Westpac Banking Corporation WMC Resources Woodside Energy Woolworths Zinifex

INTRODUCTION The Business Council of Australia welcomes the opportunity to make a submission to the Treasury on the draft Guidelines for Release of Price-Sensitive Decisions by Australian Government Departments and Agencies. The Business Council supports the principle of continuous disclosure to ensure the market is properly informed when potentially price sensitive decisions have been made. The Council also recognises that there was an obvious deficiency in the Pan Pharmaceuticals and Therapeutic Goods Administration case. The Council believes, however, that this can be effectively corrected, without the need for extensive guidelines as proposed by the Treasury. The Business Council has serious concerns with the draft Guidelines. In particular, the Business Council believes the guidelines as currently drafted are confused and are likely to create the wrong impression, both in the minds of business and government authorities. The Business Council is particularly concerned that the guidelines extend the obligation to disclose price sensitive information from companies to government agencies, as is apparent even in the title of the guidelines. The Business Council strongly opposes any suggestion that government agencies should have a separate responsibility to disclose unilaterally to the market information which might be price sensitive. Apart from any other consideration, government agencies in general do not have the expertise to determine what information is likely to be price sensitive. BACKGROUND Under Australian Stock Exchange (ASX) Listing Rule 3.1., listed entities are required to disclose immediately to the ASX any information that, if generally available, could reasonably be expected to have a material impact on the price or value of the entity s securities; that is, if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the securities. The Listing Rule requirement is backed up by the Corporations Act 2001, which makes breaches of the Listing Rule requirements an offence. The Corporate Law Economic Reform Program (Audit Reform & Corporate Disclosure) Bill (CLERP 9) currently before Parliament extends the continuous disclosure obligations to individual officers of the listed entity and increases the punitive actions available to the Australian Securities and Investments Commission (ASIC) for alleged breaches of the disclosure requirements. The Business Council has expressed its opposition to a number of CLERP 9 reforms in this area in an earlier submission to the Treasury 1. PROBLEMS WITH GUIDELINES The Business Council has a number of serious concerns with the draft guidelines. In particular: 1 BCA Submission to Treasury on the CLERP 9 Bill, 12 November 2003. 2

1. the guidelines go way beyond anything necessary to address any perceived problem 2. the guidelines would extend the current continuous disclosure obligations to government agencies 3. there is no indication of how the government would safeguard against premature, inappropriate or incorrect disclosure by a government agency or compensate or redress companies and their shareholders affected by such disclosure. IS THERE A PROBLEM? The stated objective of the guidelines is to ensure listed entities are fulfilling their continuous disclosure obligations. The BCA considers that there are sufficiently strong sanctions (through ASX Listing Rules and Corporations Act) to address any non-compliance by a company. The guidelines and supporting documents do not set out the problem that the guidelines are seeking to resolve, beyond the single and well known example of Pan Pharmaceuticals and the Therapeutic Goods Administration (TGA). There appears to be no suggestion of wide spread breaches of the continuous disclosure requirements by companies that would warrant government wide guidelines, with their associated problems (discussed below). In relation to Pan Pharmaceuticals, if the company was in breach of its continuous disclosure obligations, then it should be prosecuted under the law. Without evidence of a problem, the Business Council cannot support the proposed solution. EXTENSION OF DISCLOSURE OBLIGATIONS The continuous disclosure regime is in place to ensure the market is properly informed about information that affects the price of company securities and to prevent individuals gaining price sensitive information that is not generally available. It is important to note that, while the ASX and ASIC can take action for breaches of the continuous disclosure requirements, the obligation to disclose price sensitive information rests with the listed entity. Under the current law, ASIC is not able to compel a company to release information, unless it is able to convince a court that the company is in breach of its obligations. In contrast, the guidelines as currently drafted would extend the continuous disclosure obligation to government agencies, requiring them, in addition to the company, to make judgments about the market sensitivity of decisions and to release that information to the market. The title of the guidelines, Guidelines for Release of Price-Sensitive Decisions by Australian Government Departments and Agencies, makes it clear that this is the intention. Government agencies do not, however, have the expertise to determine whether a decision they have made is likely to be price sensitive. These are complex, subjective decisions that frequently require expert advice. As a result of this lack of expertise, agencies will, most likely, adopt an overly-cautious approach and release details of all decisions to the market. Not only will this lead to an excess of unnecessary disclosures, it will also result in the market becoming misinformed, rather than better informed, through premature or inaccurate disclosures. 3

For example, the Australian Tax Office (ATO) advises companies of the ATO s determinations in tax matters. This initial determination is undoubtedly a decision as it gives rise to an enforceable tax liability. As a result, to ensure compliance with the guidelines, the ATO may release this information to the market. The company, however, may believe the ATO s determination is manifestly incorrect and following further discussion with the company, the determination may be substantially changed. In the meantime, however, the market has been misinformed about the company s tax liability and the consequences that flow from that liability. While the draft guidelines state that government agencies are not required to release information about any decision that the listed entity itself would not be obliged to disclose, if it were aware of it 2, there is nothing to suggest that government agencies in general are capable of drawing this distinction. On the contrary, the guidelines acknowledge that it will be difficult for agencies and departments to form a view as to what decisions are price-sensitive 3. There are, therefore, inherent dangers in extending the disclosure obligation to government agencies. The obligation to disclosure should remain with the company, which has the expertise to make a correct judgement about what information needs to be disclosed and when. If the company fails to fulfil its obligations, it can be prosecuted in court. The guidelines are even less necessary if the proposal in the CLERP 9 Bill to allow ASIC to issue infringement notices is adopted. The guidelines refer in a number of places to the disclosure of decisions that companies may not be aware of 4. The Business Council can see absolutely no circumstances where a decision that is price sensitive to a company should be disclosed to the market before the company is made aware of the decision. Similarly, the guidelines state that it may not always be the case that a company is advised of a potentially price sensitive decision before the market more generally is advised 5. Again, if a decision is price sensitive to a particular company, that company should be informed of the decision in advance of any general announcement. That company then has obligations to advise the market. Clearly this would not apply to, for example, major changes in government policy or programs, however, these decisions are announced publicly any way, without the need for these guidelines. RECOMPENSE FOR INCORRECT DISCLOSURE The potential for excessive, premature or inaccurate disclosure raises the real prospect of companies and their shareholders being adversely affected by the actions of government agencies. In those cases, companies and their shareholders should have a reasonable expectation that the government would compensate the company for consequent losses. Where premature or incorrect disclosure by a government agency has an adverse effect on a company s share price or results in the collapse of a major commercial transaction, the level of compensation necessary to remedy the loss would be considerable. 2 Guidelines for Release of Price-Sensitive Decisions by Australian Government Departments and Agencies, p 2. 3 Id. 4 For example, Guidelines p 1. 5 Guidelines, p 4. 4

Under the current guidelines, there appears to be no expectation that companies adversely affected by incorrect government disclosure will be compensated. This is totally inappropriate. CONCLUSION In conclusion, a case for the introduction of such guidelines has not been made out. The extension of continuous disclosure requirements to government agencies is unwarranted and agencies do not have the expertise nor the experience to make judgements about what decisions will be price sensitive. This will result in excessive disclosure and a market that is less, rather then better, informed.. 5