Merry Christmas to Peter Wilson. When it was suggested that Peter Wilson should be independent of the old board so that we can have a fresh start Peter responded with "That's your issue". Summary of the meeting here: viewtopic.php?f=23&t=594
A good summary of where we are up to by Joe Aston of the AFR, linked to from here: viewtopic.php?f=5&p=4137#p4137
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Special Resolutions for AGM plus governance concern

Discussion about the proposed resolutions to be put to the AGM in May 2018
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Brett Stevenson
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Special Resolutions for AGM plus governance concern

Post by Brett Stevenson » Sun Feb 18, 2018 12:18 pm

Hi members,
(I have also posted this on my blog if that is easier for you to read www.excellere.com.au)
In the following email are four special resolutions for your consideration and action.

Two Special Resolutions for the AGM for you to consider and sign and return if you agree.
On Directors Fees
On limiting Directors tenure to six years (maximum)

Two Draft Special Resolutions for your action and consideration.
On members directly voting for the Board - detailed discussion on why this is the critical resolution as it relates to the governance model we adopt but it requires action by members to motivate the divisional councillors to move quickly on this.
On full disclosure and reporting - to ‘lock in’ fuller disclosure and more meaningful AGM’s into our constitution.

The overall context for these is what sort of governance model do we wish to have at CPA Australia. I discuss this first because it is the central issue.
I shall forward this email to the Board and each State Divisional President. From here it is up to members to get engaged with their divisions.
If you think this email is too long then just delete it and do your own thing.

We have a major governance problem

At heart the real problem for CPA Australia has been a weak governance model. If we don’t fix that then we are snookered.
It is imperative that we do not attribute the core problem to being the poor people who were in leadership. They were poor, as we know only too well, but we have had in place a governance model which has allowed them to flourish and has prevented members from removing them.

It is the governance model which needs fixing.

It is a fact of life that we shall get leaders who are not up to scratch (do not behave with integrity etc, express that however you will), but the important thing is that we have a governance model which minimises or reduces (an impossibility to eliminate completely) their power and risks, and can remove them asap.

We do not have such a governance model now, and I contend that the new governance model being pushed by the Board (effectively the one the Independent Review Panel has recommended) is just our current model with a few bandages applied.

The critical thing required in a governance model for CPA Australia is to enable the members to vote directly for the Board. This is so fundamental the vast majority of public companies (both listed and unlisted) embrace it as their most effective check or safeguard.

A special resolution to allow just 200 members to call a Members Meeting has been lodged with CPA Australia for the AGM and it is a great and necessary check, and I fully support it but it does not deal with the fundamental problem. It is an ‘after the problems occur’ remedy and we all know how much work just a few members (plus a vigilant press) have had to do to identify, expose, and communicate, let alone act on what has now been completely vindicated.

Do we need to have to go through this every time a possible problem occurs that some members have identified and wish to call a meeting? It’s necessary to have but I suggest we also need to establish a strong and robust governance model with the core centrepiece being that members can directly vote for the Board.

We have little time to act

The critical dates are as follows

21st March 2018 Deadline for members to submit special resolutions for the AGM.

1st May 2018 Deadline for board to make changes for consideration at the AGM.

1st May 2018 Deadline for the Notice of AGM to be sent out (listing the business matters including resolutions proposed)

22nd May 2018 AGM in Melbourne

If we want to be able to directly vote for directors then we need to act now because the model proposed does not allow that. One month from now is the deadline for members special resolutions.

Keep in mind that most of the consultation forums are held after or just before this 21st March deadline, so they may be a good time to consult with the board but they will be of little use for you as members to develop special resolutions for consideration at the AGM.
After the deadline - ACT, SA, Qld, TAS, all international forums
Within approx. one week prior to the deadline - NT, WA, NSW
Within approx. two weeks prior to the deadline - VIC

I leave you to consider that, but to me it means we have to take the initiative now if we want to ensure change. Keep in mind that the new Board have been pretty clear and have recommended we adopt the Independent Review Panel recommendations on governance. In other words the weak governance model will prevail unless we as members act now.

An alternative governance model where members are back in control

I have roughly mapped out the basic structure of an alternative model (attached again) with the key features being

Members directly vote for board directors just as they do now for divisional councillors. Members need to be provided with a minimum shortlist of two and maximum of five nominees for each directors position. I suggest each nominee is required to provide a short video as well as their details for all members to view.

The Representative Council (renamed Appointments Council) is no longer needed.

The shortlist of nominees for the directors (in effect the ballot paper for the members to vote on) will be selected by a Nominations Committee comprising 2 directors and four divisional councillors.

No non-members on the board, we want directors who are committed to the profession and the organisation not outsiders (as hard as the Independent Review Panel has tried to ‘sell’ the use of non-members to us). We have had non-member directors for the last ten years and that has proven to be a failed concept for us.

Selection criteria for shortlisted directors will be a revised version of the BHP criteria for their directors:
unquestioned honesty and integrity;
a proven track record in the accounting profession;
time available to undertake the responsibilities;
an ability to apply strategic thought to matters in issue;
a preparedness to question, challenge and critique;
and a willingness to understand and commit to the highest standards of governance of CPA Australia.
Possibly more could be added, and we can argue the toss over semantics but we need to move quickly and we need to challenge this only skills based director selection process that the IRP and new board are pushing
Of course we need skilled directors but we want more than that.

We have had skills based directors (have a look at the matrix in the 2016 annual report p.55, it’s just so beautiful it brings tears to my eyes), and consider what it served up to us.
It becomes a ‘tick the box’ approach which misses the most obvious requirements of a director.
Just think about how this has happened in the past.
We need a director with legal skills (thus I’m sure that’s why they chose Kerry Ryan) or we are an advocacy group so let’s get a politician (possibly why Richard Alston was chosen). All very logical and skills based but ask yourself what was missing.
I think the modified BHP one is a good start, and can be improved over time.
It captures the essence of what we require for directors, and what has been lacking in the past directors. I would even go so far as to suggest that it was many of these criteria which were lacking in the CPA Australia board room (that needs to possibly include the senior management as well I contend)

Council of Presidents be added. It’s a great idea and my only suggestion is that Divisional Presidents be remunerated on the basis of say $3K per 10,000 members or part thereof in their division/branch. Seems like they are being called to do a lot of the heavy lifting of engaging with members and with the board. Seems only fair to me.

I am surprised the Independent Review Panel nor the new board even suggested this. If we can waste literally millions promoting our past CEO then I reckon we can find fifty thousand or so for our Divisional Presidents.

Board composition. Reduce the board to nine. All board directors to be members. No non-members. At least one director must be from Asia.
The latter because I think the objects of CPA Australia need to be revised such that we are primarily focussed on Australia, and that we should be assisting overseas divisions such as Singapore, Malaysia and China to be developing their own self sufficient CPA organisations.
We need to remove these ‘delusions of grandeur’ that are inherent in the vision for CPA Australia to be the ‘worlds best member service organisation'.
That is twaddle and a more realistic vision is to be a great accounting member service organisation serving the profession and the members. Lets get real - these delusions of grandeur are unhelpful.

Board Tenure: Six years absolute. I hardly need to provide reasons as to why.
Often people say but what if we get a good director then my response is that they have six years to do their good service. Let’s not perpetuate this myth and cheap ‘I don’t want to give up the reins’ mentality by saying suitable replacements cannot be found. That is just hubris in an organisation of 160,000 members.
I’d say the same in an organisation of 1,000 I reckon. Delusions of grandeur are not just restricted to organisational visions, it can extend to people also.

Divisions and branches: Add five sector divisions to cover Public Practice, NFP, Government, Industry & Commerce, and Academia. Surely we can organise annual gatherings of members in these sector divisions which cover the type of accounting work we do.
The spread of each sector over a wide geographic area should not be insurmountable logistically in this day and age, and surely CPA Australia which has wasted millions on marketing our CEO can start to think about spending the money on furthering the profession itself.
Each of these sectors face significant accounting challenges, so let’s foster some professional development rather than the neglect of, for example, the Public Practice sector by CPA Australia.

Well that’s the guts of the alternative model I am proposing. Below is a chart similar to the one done in the Independent Review Panel Final Report so you can compare what they proposed with this alternative one.
Not all the t’s are tossed and the i’s dotted on this but we have to move quickly and bear in mind that the Independent Review Panel were paid a heck of a lot of money to come up with their governance review.
It’s zip for me and anyone else acting on these matters.

The critical and most basic (so obvious we perhaps ignore it) question to ask as you think abut the difference between the two governance models is

What say do we as members have in choosing the people who look after (or control) our organisation on our behalf (i.e. the board)?
In the one suggested by the new board we have no say at all. All we do is vote for divisional councillors. After that we are out of the loop.
With the alternative model I am suggesting we are the ones who actually choose the board.

That makes the choice very easy in my opinion.

I attached a chart here (refer my blog for it comparing the boards proposed model with the alternative.

Simplified Visual Guide to Models Proposed

Here is a very simplified visual guide to the two models. These are attached but refer to the blog to see them side by side. The main aim is to get an overall view.
The critical feature is the red lines denoting what voice the membership have in the models. More detailed hand drawn visuals of the current, the Board proposed and alternative models are available here.

Action required on this.

1. Consider it, see what you think.

2. If you agree in broad terms with it, and the idea that members need to vote directly for the board (which really is the critical part of the alternative model) I suggest you contact your Divisional President and/or divisional councillors and/or board members and let them know. Refer this email to them if they want more detail. Speak also to other CPA’s.

As you can see I have made some changes however because of the implications of this alternative model in relation to the whole constitution we will need to have them do the legal drafting.
The only way they will do this is if you as members make a ‘song and dance’ about it to your divisional representatives and board members.
I will also submit this to CPA for their consideration now.
Remember this is not a special resolution we can submit for consideration at the AGM until specific changes are made to the constitution (which to do will require the legal assistance from CPA Australia - we just don’t have the money to do that).

Draft Special Members Resolution on Members directly voting for the Board

See the above section for details and what action is required on this.

Let’s get real here

Any special resolutions that are proposed and submitted by members for the AGM will no doubt be very helpful and good (I have included some myself below as I know others are also) but if we keep the same governance model as before (with a few bandages applied) such that the members do not directly vote for the board we are just tinkering at the edges.

Remember we just need 100 votes to bring a special resolution to the AGM in May HOWEVER the real battle will be to get 75% of the members who vote (be it in person or by proxy) to agree to any resolution. Let’s not be naive to the fact that many proxies will go the Chairman (Peter Wilson) and that the Consultation Forums in March and April will be the boards chance to not only sell their governance model (and critique any special resolutions submitted by members) but also to gain proxy votes.

So, on this ‘resolution’ to change the governance model so members directly vote for the board we need to encourage the divisional councillors to come on board to ‘force’ the new board to adopt it as a legitimate alternative to present to the members at the AGM.

So, just as the friendly sparrows said to Peter Rabbit, can I implore you to exert yourselves and move on this asap. Share with as many CPA members as you know.

Special Resolution attached on Directors Fees

The explanatory memorandum spells out the rationale pretty clearly. I hardly need to ‘pad out’ the sorry tale of how scandalous the remuneration of directors has been. I have laid out below a chart to give you some perspective on this as you consider the resolution.
I have also attached a schedule showing what was actually paid in directors remuneration in 2016, and how they managed to botch up (CPA leadership as well as the auditor) their disclosure to us. Also note the remuneration paid to the directors of the fully owned subsidiary which they ‘Enroned’ out of the calculations. So when you look at the current column in the chart below keep in view that it is considerably understated as to what they actually received.

I have attached the chart.

I appreciate members can have varying views on directors remuneration but I regard the new levels proposed by the new board as still way too high.
The benchmark indicator is the median for entities with a turnover of between $160m and $240m (CPA’s revenue is $180m). Most of those entities have a much higher risk profile than CPA, so possibly lower amounts could be suggested.
But I think these levels are very fair.

Action required on this.

If you agree please sign and return to me asap as we need 100 signatories to lodge with CPA.

Draft Special Resolution on Full Disclosure and Reporting

One of the major difficulties encountered with CPA Australia (being an unlisted public company) is that we are only legally bound to provide minimum disclosure on certain items which publicly listed companies are required to disclose more fully.
CPA Australia has been legally compliant with the Corporations Law and our constitution on this minimum disclosure but in so doing have not been forthcoming not transparent on issues such as remuneration which have effectively been ‘hidden’ from the membership.
Allied with this problem is that our AGM provides us with less influence and power than for listed companies (such as election of directors, and the appointment of the auditor) at their AGM’s.
The IRP have recommended (16) that the board “Disclose individual KMP remuneration to improve transparency to members” however the new board have just committed to “ongoing transparency in remuneration reporting in its annual report” (issues paper at recommendation 16).

Forgive me for being a ‘doubting Thomas’ but that commitment almost comes from the House of Clayton. I suggest we need a commitment that is written into our constitution, and is a little more comprehensive in terms of the AGM and what is required from the Board.

In an effort to be a little more accommodating to CPA Australia I have just included this special resolution in draft form without including remuneration at this stage) as they may be planning to put this into the constitution themselves. So I shall send it through to the NSW Divisional Council (that’s where I reside but others may wish to lodge with their divisions), and to the President for their comment and possible redrafting. I was going to say ‘must’ rather than ‘may’, and ‘each’ rather than ‘any’ at 21(d) but let’s give them the benefit of the doubt for at least two weeks to see their response

If no response by 5th March I will modify accordingly and put it to the members to see if at least 100 agree as a special resolution.

Action required on this.

So members you do not need to act on this one at this stage other than to consider and perhaps communicate your thoughts with your divisional councillors and the board directly. I’m only too happy to take feedback on this also.

Special Resolution to limit directors tenure to six years

I have attached a special resolution limiting directors tenure to six years.
The Independent Review Panel and new board are recommending a nine year tenure. I think this is ignoring one of the key features of the weak governance of the last ten years that resulted in a virtually gerrymandered system.
That feature being the long tenure of directors.
Over 33% of them served greater than six years.
Why the Independent Review Panel failed to speak to this defies me.
Attached is a schedule of the composition of the board from 2007 through to 2016 to provide you with a birds eye view of the problem.

The oft quoted reason to extend directors tenure to beyond six years (such as by the Independent Review Panel and the new board) is that good directors can still contribute well after the six years. I agree, but not as a director of CPA Australia. They will have had six years to do their good service, so move on so we can refresh the board with new talent and thinking. Six years is plenty of time for a good director to ‘weave their magic’.

Action required on this.

If you agree please sign and return to me asap as we need 100 signatories to lodge with CPA.

The Independent Review Panel’s Final Report into CPA Australia

I’m not too sure how many of you had a close look at it. There was lots of good stuff in it, and apart from corroborating many of the things exposed it also provided some helpful recommendations which the board are embracing.

But I believe it also failed in a couple of key areas that are relevant here, and I will very quickly summarise what I believe they are:

1. Its scope was limited to ‘recommendations for improvements’ thus it managed to avoid the most obvious need to make the past leaders accountable for their behaviour and actions. I believe the new board have also failed to do this later critical function (to hold leaders accountable) by ignoring it totally and just focussing on the IRP recommendations, and where the members have ‘kicked them’ along a bit to consider accountability they have been very half-hearted and glad to ignore. Their approach does not pass the pub test.

2. The approach of the IRP was to be soft on the past leaders such that they were even prepared to rewrite history (or perhaps more correctly ignore what actually happened). I suggest all members read pages 44 of Final Report and 38 to 39 of Preliminary Report where they found that “the board were slow to respond to the issues that were raised” (by the members and in the press).

That is just not true.

The board were very quick to respond to emails of 21, 26 & 28 Feb with a memo on 2nd March , and then with a more detailed memo on 16th March to continued emails of 3rd, 5th, 7th, 13th and 15th March. And that is not counting the AFR articles.
The problem was not the speed of their response it was the quality of their response.
In effect they were trying to defend the indefensible. But the IRP for some reason ignored all of this because it wanted to contend that it was a matter of poor ‘issues’ management by the board.
I discussed this in a more detail in my previous email.

3. The approach of the IRP to the deficiencies of members directly voting for the board. I leave members to read page 31 of their Final Report. It really did surprise me that they could list these reasons (many were very ‘light on’) without any counter arguments to the benefits.
I discussed this in more detail in my previous email (read here).
To me this indicated a significant bias toward patching up the old model and aggressively discouraging a model where the members directly voted for the board.

4. The bias toward a skills based only board selection process which encouraged the use of more non-member directors on the board (recommended a minimum not a maximum so more could be added) and the use of an approach which was shown to have failed before. You can look for more discussion of this on my email referred to above.

More could be said of the Independent Review Panel Final Report but these seem most relevant for the moment.

Well that is possibly enough.

Cheers

Brett
Attachments
Board Composition, Remuneration - CPA Australia. Brett Stevenson.pdf
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Simple Comparative on Board Rem.png
Simple Comparative on Board Rem.png (43.02 KiB) Viewed 883 times
IRP Model Simple Visual.png
IRP Model Simple Visual.png (109.68 KiB) Viewed 883 times
Altern Model Simple Visual.png
Altern Model Simple Visual.png (84.08 KiB) Viewed 883 times

Magnet
Posts: 65
Joined: Mon Jun 19, 2017 10:18 am

Re: Special Resolutions for AGM plus governance concern

Post by Magnet » Mon Feb 19, 2018 12:37 pm

Great work Brett,

I will be signing the resolutions!

And I will email my Victoria Divisional council with concerns about the need to fix the governance model and you report.

Also, and this is just a thought, will your resolutions be sent out to members via email? Similar to the "Spillers" group email with the proposed change to enable 200 members to call a meeting of members?

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Brett Stevenson
Posts: 450
Joined: Fri Mar 24, 2017 10:43 am

Re: Special Resolutions for AGM plus governance concern

Post by Brett Stevenson » Mon Feb 19, 2018 1:13 pm

Yep Magnet, I sent it out to the mailing list I have.
I presume The Spillers will be sending to their mailing list.

Good on you for contacting your Victorian Divisional Council re the email and the governance model.
I have just sent it in to CPA per their recent Notice to Members, and also to the NSW Division.

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