hasn’t taken long for a few holes to be poked in the study that Terry
“His Master’s Voice” McCrann relied on to argue that corporate
governance doesn’t matter.

The Australian’s Geoffrey Newman first reported the study on 29 October as you can see here, but it then sunk like a stone until McCrann resurrected it in The Weekend Australian,
knowing full well that his corporate governance deficient boss, Rupert
Murdoch, would read the column whilst in Melbourne visiting his mother.

Business School (at Wollongong University) academic Martin Gold
purported to assess the top 200 firms over the past five years and concluded
that those with bad corporate governance have done decisively better.
There’s only one major flaw – Gold excluded companies which fell out of
the top 200 over that period.

Therefore, the likes of HIH,
One-Tel and Harris Scarfe, all of which had dreadful corporate
governance, were not included in his study. Surely it was relevant that
they went broke and investors lost the lot. Check out the current
composition of the ASX 200 here.
Even dogs that have fallen out of the ASX 200 but remain listed were
excluded, such as Austrim Nylex and Village Roadshow, both of which had
woeful governance and dreadful performance. However, there would be
other drop-outs that had good corporate governance because in this
caper you can find an example to suit every scenario.

It was
also questionable for Gold to include companies that leapt into the top
200 over the past 5 years. This covers the likes of Jubilee Mines,
which has notorious corporate governance but just happened to discover
and develop a nickel deposit near Kalgoorlie and Tasmanian tree-lopper
Gunns Ltd.

The most disappointing aspect of McCrann’s line is
that it serves as a general green light for bad corporate governance.
News Ltd papers were today silent about the outrageous situation with
ABC Learning CEO Eddie Groves and his now partly-owned broking firm
Austock, which is one of the bigger conflicts of interest you will see
these days.

A recent US study by global proxy advisory firm ISS
concluded that the media sector has the worst corporate governance, bar
none. And yet the media is meant to uphold good standards across the
community. Rupert Murdoch’s blatant disregard of good governance
practices also leaves his journalists compromised. Whenever a News Ltd
reporter rips into another company over questionable dealings, they are
open to the rejoinder “what about your dodgy boss?”

The simplest
way to assess corporate governance is to look at it on a country by
country basis and compare it with what an open democracy delivers. The
US, Australia and the UK have three of the most advanced, fast-growing
economies in the developed world and it is no coincidence that they run
transparent corporate systems.

Open democracies deliver vibrant
societies and good corporate governance delivers better economies.
McCrann and Gold are effectively taking the old “some dictatorships are
efficient and perform well” line. Yes, but democracy is all about
limiting the damage a bad dictator could cause. Corporate governance
systems are exactly the same because they protect investors when things
are going bad, acting like an early warning system and providing a
mechanism for change.

Then Treasurer John Howard tolerated bad
corporate governance at FAI Insurance when he ignored the advice of
regulators in the 1970s and didn’t remove its insurance licence. This
early warning mechanism failed and look at the damage that was
eventually inflicted through HIH.

The same applies to virtually
all the notorious entrepreneurial collapses of the 1980s. There were
many signs for many years, but corporate governance was a joke during
the Hawke years. It is treated far more seriously these days, such that
an Alan Bond or a Christopher Skase would struggle to make it big these

Surely McCrann doesn’t want a system that produces another
breed of dodgy entrepreneurs, like those he spent much of the past 20
years attacking.