Power, Influence and Crown

By Dr Ann-Maree Moodie

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Good governance demands an appropriate separation between those charged with managing a listed entity and those responsible for overseeing its managers.

– ASX Principles, Ed 4, 2020.

In her “scorching” report to the NSW Independent Liquor and Gaming Authority (ILGA) regarding ASX-listed Crown Resorts Limited (Crown), former NSW Supreme Court judge, the Honourable Patricia Bergin, SC delivered a rare insight into how independence and influence is exercised when a major shareholder is represented on the Board.

February was a tumultuous month for the $6.9 billion James Packer-backed, listed hotel and casino operator since the report was delivered. Crown, which has operations in Melbourne, Sydney and Perth, was found unfit to use its casino licence for its commanding casino, hotel and entertainment complex located on Barangaroo on Sydney’s foreshore.

The tabling of the Bergin Inquiry report in the NSW Parliament on February 16 this year prompted a number of key players to resign quickly: CEO Ken Barton, who prior to his CEO appointment held the position of CFO for close to a decade, along with non-executive directors Andrew Demetriou and Harold Mitchell, and general counsel and company secretary, Mary Manos.

Michael Johnston and Guy Jalland, who represented Mr Packer’s private company Consolidated Press Holdings (CPH) as nominee directors, stepped down; a debate as to whether a third nominee director, John Poynton, is now considered to be independent, continues.

Another significant announcement was that long-time Board member, former Liberal MP The Hon Helen Coonan, was elevated from non-executive director to executive chairman. Crown reported a half-year net loss of $120.9 million and scrapped a second dividend payment in succession. Inquiries in the company’s operations in Victoria and Western Australia have also been announced.

The key findings of the Inquiry were that Crown had facilitated money laundering; it had disregarded the welfare of its China-based staff, some of whom were arrested in 2016, and; it had partnered with junket operators linked to organised crime, The Australian Financial Review reported.

Commissioner Bergin devoted a long chapter in her 751-page report to governance at Crown, meticulously detailing examples of what constitutes a contemporary definition of “best practice governance” from domestic and international regulators, professional bodies and academic research. She found Crown fell well short.

It is considered best practice for Australian listed company boards to comprise an independent chairman and a majority of independent directors. However, large investors can hold Board seats, either directly in the case of Rupert Murdoch, (News Corp), Gerry Harvey, (Harvey Norman Holdings) and Marcus Blackmore (who resigned from the Blackmores Board in 2020 after 47 years’ membership) or via nominee directors, (directors who represent a shareholder, a creditor or an interest group), such as the three directors who represented James Packer’s 36% interest in Crown.

The Corporations Act 2001, to which listed companies must comply, expressly states that directors’ duties are first and foremost to the company, regardless as to whether they occupy an executive, non-executive or nominee role. Ms Bergin’s comment that “James Packer’s influence over Crown’s operations via ‘remote manoeuvring’ must end” is therefore pointed.

“Nominee directors should act in the best interest of the company to which they are appointed and not in the interests of the nominator,” says the Australian Institute of Company Directors. “Nominee directors should be aware of the conflicts of interest they have towards the company, and the loyalties they hold toward their nominators.”

Noted Bergin: “….it is obvious that the real power was exercised by Mr Packer both by reason of his personality and also the somewhat supine attitude adopted by Crown’s operatives.” One imagines that the word, “supine”, was deliberately chosen.

The elevation of Coonan to executive chairman is out-of-step with independence expectations, but it is necessary until Crown appoints a new CEO. The departure of Manos means that the role of general counsel and company secretary will be split, which is also good governance practice.

“Having a majority of independent directors makes it harder for any individuals or small group of individuals to dominate the board’s decision-making, and maximises the likelihood that the decisions of the board will reflect the best interests of the entity as a whole, and not be biased towards the interests of management or any other person or group to whom a non-independent director may be associated,” says the Australian Corporate Governance Council’s Corporate Governance Principles and Recommendations, (fourth edition).

But the governance failures at Crown were broader and deeper as Bergin detailed in a report that she herself described as holding a “scorching light” to Crown: “There is no doubt that the lines of reporting were blurred; risks were not properly identified; identified risks were not properly notified; conflicts or potential conflicts were not recognised; the corporate needs of Crown were not given precedence over the corporate needs or desires of CPH.”

Commissioner Bergin wrote that Crown had taken “positive steps in recognition and clear admission of the deep-seated problems” which has been exposed during the 60 public hearing days of the Inquiry. “These positive steps were necessary and should have been implemented prior to the establishment of this Inquiry,” Bergin continued. “Late though they are, the (IGLA) should see them as welcome developments.”

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Author

Dr Ann-Maree Moodie is the Managing Director of Sydney-based international board advisory firm, Governance Australia & Asia. Her PhD research investigated “independence and conformity in boardroom decision-making”.

She can be contacted on: [email protected]