Critics of the corporate regulator ASIC have long held the view that it needs to take on more big fish. For instance, how on earth did listed companies branded Babcock & Brown blow up more than $10 billion for investors and lenders after the global financial crisis without a single ASIC charge being laid, either civil or criminal?
However, tackling the big boys doesn’t mean you should pick the wrong case — which is exactly what ASIC did when it wasted tens of millions of dollars in a six year battle from 2006 and 2012, taking on Fortescue Metals and Andrew Forrest over their allegedly super-bullish Australian Securities Exchange (ASX) announcements about Chinese contracts in 2004-5.
The subsequent campaign Fortescue ran against ASIC set the regulator back years in terms of government credibility and funding. And it was indeed once bitten twice shy in terms of cases brought after the GFC.
So where does ASIC sit after Justice Beach’s 400 page judgment on Friday, which largely exonerated rich-lister Harold Mitchell from charges that he breached his Tennis Australia director duties by favouring Seven Network when it came to renewing the television rights contract in 2013?
The judgment is a racy read which clearly spells out that Mitchell is a man not to be trifled with. And in keeping with this picture, Mitchell came out swinging against ASIC after the judgment was released, telling The Australian Financial Review yesterday that ASIC was “totally naive in understanding the commercial world”.
Similarly, Bruce McWilliam, the Seven Network commercial director who had extensive — and at times inappropriate — dealings with Mitchell throughout the rights renewal process, also got on the front foot on Sunday, posing for a photograph at his home for the AFR and telling the paper that ASIC’s action comprised of “tearing off at the behest of some board dissidents whose own evidence was discredited”.
Interestingly, the PR representative used by Harold in his post-judgment media dealings was Tim Allerton, the long time Kerry Stokes fixer, and the AFR journalist that he and McWilliam chose to speak to was Aaron Patrick, who took the strongest pro-Seven line of any reporter during Seven’s battle with Amber Harrison (the disgruntled former executive assistant and lover of Seven’s chief executive Tim Worner).
With a final cost to taxpayers of more than $15 million, it would be easy to conclude the four-year battle with Harold Mitchell was one of ASIC’s biggest mistakes, up there with the Fortescue folly.
However, there was also a strong public benefit. The judgment does provide fascinating insights into how business is done and the murky world of negotiating television rights.
Unlike with the Fortescue matter, ASIC had multiple former Tennis Australia directors co-operating against Mitchell and the evidence certainly paints a picture of Mitchell playing a very aggressive game to secure a new contract for Seven without an open tender, something which is not generally regarded as good corporate practice.
This is also the second major case where Justice Beach, who is believed to be under consideration for appointment to the High Court, has effectively said “technically guilty but no real harm done so no meaningful penalty to apply”.
The first was a class action brought against Myer where the judge concluded the company had breached the ASX’s continuous disclosure rules, but the market was already aware of this so no meaningful loss was incurred. The class action funders and lawyers missed out on a pay day and the parties ended up walking away with each paying their own costs.
Similarly, Mitchell was found to have breached his directors duties on just three of the 44 instances alleged by ASIC, and Justice Beach indicated he will cop a small fine and be free to remain on boards — such as Crown Resorts.
What happened here is that the board split on personality grounds, partly driven by personal ambition.
The judgement reveals just how toxic the environment was, with votes of no confidence led by Harold’s supporters forcing some of the dissident directors off the board. No wonder they went to ASIC alleging conflicts of interest against Harold, as he demonstrated what was clearly a very strong bias in favour of renewing with Seven and not taking the rights to market.
After a four-year process, ASIC doesn’t have much to show for their endeavours (although Friday’s media statement was pretty bullish) and will probably end up paying for much of Harold’s costs, which will likely be in the order of $2-3 million.
However, Justice Beach’s judgment, which took eight months to write, is a cracker which reveals important information about how business is done.
As a general rule, big contracts should go to tender and when any decision is made not to do that, boards should ensure that all of the directors and decision-makers are completely independent of the counter-party.
Mitchell was way too close to the Seven-Stokes camp as he drove the contract renewal process, and it would be nice if both he and Bruce McWilliam acknowledged that they would do things very differently if they had their time again.
Instead, they appear to be embarking on a regrettable campaign to discredit ASIC which, faced with director whistleblowers making strong allegations, did the right thing investigating the actions of this particular big fish.