In breaking news this morning, David Murray, chairman of the federal government’s incipient Future Fund, has disclaimed any intention of exercising control over Telstra – even though the Fund is about to become Telstra’s largest shareholder, with about two-thirds of the government’s current 51.8% ownership of the corporation.
In a nutshell, Murray’s comments demonstrate the whole problem of the Future Fund, and of Australia’s broader culture of shareholder irresponsibility.
The biggest problem corporations have is the separation of ownership and control: the fact that the person making the decisions is far removed from the person paying the bills if those decisions go wrong.
That separation is especially acute in government-owned businesses – one reason why privatisation is generally a good thing – but it affects all large corporations to some extent.
We need mechanisms to ensure that directors and executives will serve the shareholders’ interests. But instead people have been bewitched by the idea that corporations somehow have their “own” interests, that can be pursued without reference to the shareholders.
In reality, a corporation just is a particular pattern of obligations among the shareholders. “It” can’t possibly have interests of “its” own independently of them; if management aren’t working for the owners, they’re probably working for themselves. And if the immediate shareholders are just intermediaries – whether government, Future Fund or private investment funds – for the ultimate owners, that only makes the problem worse.
AAP quotes Murray saying that the Future Fund will “act like a normal institutional investor”. But we’ve got too many of those already; institutions that refuse to use the power their shareholding gives them, and therefore allow company managements to stack boards with their own cronies and pursue their own pet projects to the exclusion of the owners’ interests. And while private shareholders or unitholders have the ultimate sanction of selling their shares, the taxpayers won’t be able to sell their share of the Future Fund.
Government control of Telstra is an absurdity. But government ownership without control just means unaccountable management control, and it’s hard to see how that’s any better.