CEO Message: Who Governs the Governors? When Directors Become Dictators

The established conventional wisdom is that organisations like to see competitor organisations in trouble, especially if a product or service failure in the competitor may result in more market share for one’s own offerings. Samsung’s batteries catching fire in their Galaxy G7 phones, did significantly increase sales of Apple’s iPhone. However, sometimes the troubles are of such a magnitude that it could affect all the players in the market. If lithium batteries keep catching fire (as one did recently in an earphone headset being worn on a flight); then the entire industry from phones to laptops running with lithium batteries may face airline travel bans. In such situations, the entire industry must ensure that all competing firms are kept in check, so that the actions of one does not tarnish the image of the others.

Therefore, for this reason, I have decided that I need to comment on the ongoing media spotlight being placed on the CEO and Board of CPA Australia, the largest financial accounting body in Australia. For the last three months, there has been unrelenting criticism in the financial press about the total lack of governance, transparency and ethics in the highest levels of that organisation.

Issues with regards to CPA Australia its governance have been raised in numerous articles in the media, especially in the Australian Financial Review (AFR), about the lack of transparency, excessive marketing to build up the CEO’s own ‘brand’; and exorbitant remuneration for the board at CPA Australia [see related article in this On Target Newsletter by the Editors, titled, “The Lack of Transparency at CPA Australia: A Synopsis of Media Reports”].

Lack of Governance and Transparency

Essentially, the many articles on the issue state that the CEO and the Board have paid themselves millions in fees; and spent further 50 million of members’ subscriptions on promoting the CEO himself – by publishing his book, ‘The Naked CEO’ and sponsoring his TV program, ‘In Conversation with Alex Malley’ – with very little promotion of, or benefit to, CPA itself and its members.

The articles claim that ordinary CPA members have been completely cut out from any participation in the decision making at CPA Australia. Members do not even directly elect its board! Directors (remunerated generously) are appointed by an internal subcommittee also unelected by members – a “reform” overseen by the CEO.

Exorbitant Remuneration of CEO and Board

It now appears that the outcome of all these “reforms” is exorbitant remuneration packages for the CEO and Board; and an extension of their terms of office six to a maximum of nine years (actually to 11 years under a ‘transitional’ arrangement). Interestingly, as per media reports, of 155,000 members paying fees of around $700 each year, around 450 (less than 1%) of them voted for the resolutions to extend directors’ term limits and introduce or increase their pay.

It has been reported in the media that on the very day that Malley became CPA president (October 1, 2007), a constitutional change was effected to increase the CPA president’s salary by a healthy 50 per cent. At the same time, the deputy president began earning a salary for what was previously a volunteer position (i.e. without pay). Other board members get $103,800 to attend seven meetings (11 for those on subcommittees).

Interestingly, the Chartered Accountants ANZ revealed to the media that their CEO Lee White will take home $600,000 in 2017. Media reports have commented that it is worth noting that Mr Lee’s base pay is more than the Chiefs of the Navy, Army and Air Force are individually paid and around that of the remuneration of the Australian Border Force Commissioner!

Apparently, the position of CPA Australia CEO was never advertised. CPA Australia have said that an (unnamed) search organisation interviewed potential candidates for Malley’s CEO job. However, the question still remains as to why the position was never publicly advertised.

AGM Moved to Singapore

The only little voice that the members have, is to turn up at the AGM and protest. As such, a special resolution to be put at the AGM is now being circulated – to cut in half the remuneration of the board. To (most likely) counter this, CPA announced that it was moving its AGM venue to Singapore! The first time in its 100-year history!

To control all this outrage amongst members, CPA Australia, claimed to have sent a 16-page document to all its 155,000 members justifying its heavy spending on an autobiographical book and TV show featuring chief executive Alex Malley. Interestingly, this document appears to have been only sent to some ‘selected’ members; i.e. those who contacted CPA Australia about the media reports; i.e. less than 1% of members.

In fact, I contacted a large population of CMA members who are also CPAs, and no one had received a copy! When some of these CMA-CPAs phoned CPA Australia to get a copy, their name and membership number was recorded, questions were asked (like a Police Report); and then the request was escalated to the Chief Operating Officer of Member Services of CPA Australia. The document (without a title, but starting off with the word ‘Governance’) was emailed to these members, many hours later.

It has now come to light, that the document was not sent to all members, but only to “Friendlies”. In an email from the Chief Operating Officer, Divisional Councillors have been directed that, “In the event that a member approaches you … please direct them to me”. This is exactly what happened when CMA-CPAs phoned CPA Australia to get their copy.

From Directors to Dictators

The so-called ‘Governance document’ put out by CPA Australia was interesting reading – a master-class in passing numerous resolutions to change the articles – so that a select few can “legally” control the professional body; and essentially disenfranchise the 155,000 ordinary CPA members.

In summary, this is how it’s done by CPA Australia:

There are three levels of governance at CPA Australia: Divisional Council; Representative Council and Board.

Ordinary CPAs can get involved in electing a Divisional Council in the state, territory or country where they live. The Divisional Councils then elect a number of their members to the Representative Council; and the Representative Council elects the Board from (in theory) the applications submitted by voting members.

It all sounds good; but there is a ‘Gatekeeper’ committee outside the Representative Council, called the ‘Nomination and Remuneration Committee’ of four directors. This is a powerful committee; which (1) controls both what the CEO and directors (i.e. themselves) are paid, and (2) influences who sits on the board.

Applications submitted by voting members for positions on the board, are “reviewed” by the ‘Nomination and Remuneration Committee’; and a report is produced about the various candidates to the Representative Council. This committee has the power to recommended (or not) applications submitted by voting members to the Representative Council. There are are cases where they have wielded that power, and not recommended applicants who were seen as not aligned to the current causes of the Board.

Therefore, whilst in theory, the Representative Council can decide to disregard the recommendations of the Nomination and Remuneration Committee and elect to the Board any member who has submitted an application; this has not, apparently, happened in practice.

From 2007 to 2015, Richard Petty chaired the CPA’s all-powerful, Remuneration and Nomination Committee. Petty and Malley were colleagues at Macquarie university. In fact, there appears to be a round-robin of Macquarie academics, taking turns holding the key Board positions, in order to control the power. Richard Petty replaced Alex Malley as president. Tyrone Carlin, another ex-Macquarie professor, is the current CPA president.

Members Kept in the Dark

The reality is that most of the 155,000 CPA members simply pay their fees because the Government has given CPAs the legal recognition to perform certain functions in terms of financial reporting and auditing. They do not pay much attention to governance issues, taking for granted (naively) that CPA itself and ASIC will ensure good governance.

However, as one can see, it is remarkable that a professional standards group that lectures others on corporate governance is so plainly short of best practice itself. It appears that a group of ex-academics from Macquarie University and their friends have hijacked CPA Australia, knowing very well that they could keep a majority of members completely in the dark, unaware of how their membership fees are being spent on a favoured few, and the glorification of one.

Narcissistic Leaders

This behaviour reminds me of an excellent article titled “How to Deal with a Narcissistic Leader” (Daskal, 2015). A Narcissistic Leader has:

  • A sense of entitlement and superiority. Narcissists who are focused on their own power are usually extremely insecure.
  • A strong need for attention. Narcissists are clamouring for attention all the time.
  • A single-minded focus. The narcissist’s insecurity and low self-esteem mean they are almost literally incapable of anything but taking. For them, it really is “all about me.
  • A lack of empathy. A narcissistic leader lacks empathy. They have a hard time understanding other points of view, relating to what people are feeling, and communicating meaningfully.
  • Constant criticism of others. A narcissistic leader is impossible to satisfy.
  • High levels of aggression. Many narcissistic leaders have a short fuse that can be ignited quickly, at least some (and maybe all) of the time.
  • An unwillingness to hear feedback. The narcissistic leader is not an open person, and listening to feedback is not on their agenda. They tend to assume that feedback is grounded in either jealousy or just contrariness, and will devalue your opinion even more as a result.

So, how do you deal with such a Narcissistic Leader? The March 2017 issue of On Target has an excellent article on just that. See http://www.cmawebline.org/ontarget/pointers-to-deal-with-a-narcissist-leader/. Basically, the article advises people working in organisations with such leaders to: (1) not get diverted; (2) stop reacting to every statement; (3) say it and mean it; (4) don’t be his/her poodle; (5) don’t be afraid to speak up; and (6) bond for support.

Also, if the ICMA Top management team is showing any signs of narcissistic behaviour, please speak up!

Professor Janek Ratnatunga, CMA, CGBA

CEO, ICMA Australia

The opinions in this article reflect those of the author and not necessarily that of the organisation or its executive.

References:

Daskal, Lolly (2015), “How to Deal with a Narcissistic Leader”, Inc. Jun 1, http://www.inc.com/lolly-daskal/how-to-deal-with-a-narcissistic-leader.html (Downloaded April 2 2017)

Editors, “The Lack of Transparency at CPA Australia: A Synopsis of Media Reports”, On Target, March-April 2017 (and the Media References given in that synopsis).