Power elites need their wings clipped

And what of the social associations?

HIH director George Sturesteps had known HIH boss Ray Williams for more than 30 years. They’d also known fellow company director Michael Payne since the late 1960s. And there’s no doubt that these associations were part-and-parcel of the sublime existences enjoyed by these individuals. Royal Commission evidence showed that Sturesteps was handsomely rewarded for three decades of service and friendship. He and his wife enjoyed around-the-world air travel, platinum Amex cards and owning a couple of company apartments in San Francisco.

To boot, we hear evidence that HIH’s lawyers did not provide any opinion on the legality or probity of the decision by Ray Williams to invest $10 million of HIH money into a trust controlled by Rodney Adler – another HIH director – and which money was used to buy shares in Adler Corporation, despite knowing of the circumstances and transactions. The reason? They weren’t asked to!

And Adler’s relationship and dealing with old school friend, the Monaco-based financier Paul Brown, have come under some scrutiny.

The HIH story is one of power elites, in C. Wright Mills’ terms. The intimacy of old associates and school friends and the use of financial ‘incentives’ kept everyone in line. It created an environment in which a culture of managerial enrichment and recklessness was possible.

In so saying, let’s not forget that the share market at the time had its role to play in driving the behaviour of these individuals. The market was arguably complicit in these failures in the sense that for every bit of questionable behaviour, greedy brokers and investors were needed to suspend disbelief.

According to recent evidence from an Arthur Anderson employee, the HIH board frequently ignored auditors’ estimates on profit figures and instead, reported profits that matched the projections of stockbrokers and analysts. In an alarming insight, he said that "HIH had a particular profit target and that was essentially locked in and it was my belief that that was a driving force behind a lot of these adjustments that we were raising with the audit committee that they were uncomfortable with”.

The market was looking for growth stocks to match the perceived performance of dot-com companies. HIH had to ‘perform’ or be jettisoned as part of the ‘old economy’.

In light of this, and the culture of exuberance of power elites that existed, the lesson is not simply better corporate governance. Labor’s opportunity in terms of “policy message” and “policy substance” – to use Mark Latham’s terms – is to undertake a fundamental re-think about its approach to management incentives and shareholder expectations.

The question, of course, is whether ‘corporate’ Labor is up to the challenge.