Date:
Author: Gerhard Hambusch, Associate Professor, University of Technology Sydney
Original article: https://theconversation.com/what-does-the-mineral-resources-crisis-tell-us-about-the-state-of-corporate-governance-in-australia-243038
The $7 billion Australian mining giant Mineral Resources (MinRes) is facing a governance crisis.
Chris Ellison, the company’s founder and managing director, faces allegations of tax evasion and using company resources for his personal benefit.
Ellison is now set to stand down as managing director in the next 12 to 18 months. He’ll also pay the company almost $9 million in penalties.
But serious questions remain about how the company got into this situation in the first place. Concerns about the way the MinRes board handled the situation have hurt the company’s standing.
So, can MinRes regain its credibility and avoid future crises? And what are the broader corporate governance issues for Australia’s business community?
A number of allegations
Recent media reporting has raised a number of allegations of unethical conduct and lack of transparency against Chris Ellison.
Ellison and some other (yet to be named) senior executives have been accused of using offshore entities to bypass Australian tax reporting. This allegedly enabled personal spending and inflated equipment sales at the expense of shareholders.
There are also allegations he and unnamed others charged the company above-market rent on properties owned by executives.
On Monday, the board updated shareholders on findings from its own investigation.
It concluded Ellison had “on occassion” used company resources for his own personal projects. A new independent committee will continue to review related party transactions involving Ellison.
The board concluded Ellison’s use of company resources hadn’t caused MinRes any material financial harm. But its findings still raise serious questions about governance oversight at the firm – and in Australia more generally.
A slew of problems
Key concerns include perceptions that:
- the board failed to act promptly
- conflicts of interest were inadequately managed
- the decision to keep Ellison on for another 12 to 18 months – despite the board describing his actions as “profoundly disappointing” – could harm the firm’s public image.
MinRes has also relied heavily on Ellison’s leadership since its founding, raising questions about succession planning.
Both the Australian Institute of Company Directors and G20/OECD Principles of Corporate Governance emphasise the importance of regularly refreshing leadership.
Long-term reliance on any single leader should be avoided.
Some may also argue the board wasn’t transparent enough when it first learned about many of the allegations back in 2022.
To regain the trust of shareholders and the public, the MinRes board will have to address all these issues and strengthen its commitment to ethical oversight.
A governance wake-up call
The crisis at MinRes offers some essential lessons for boards across Australia.
The long-term financial consequences will depend heavily on how well the board can take decisive action and stabilise investor confidence. A mishandled scandal could permanently impair the company’s valuation, especially if any further issues come to light.
However, governance failures can have ripple effects that extend beyond the companies directly involved. They can erode public trust in corporate Australia as a whole.
We’ve recently seen a range of high-profile examples, including PwC Australia’s misuse of confidential government information and the unlawful termination of 1,700 Qantas workers.
This only underscores the urgent need to repair trust in the business sector, with strong, ethical governance standards.
The role of a company board
Despite the board’s ultimate findings, questions remain about whether the governance practices were robust enough to detect and address these issues sooner.
The role of the board of any organisation is always going to be complex. Under Australian law, their overarching requirement is to:
exercise their powers and discharge their duties in good faith in the best interest of the corporation and for a proper purpose.
From the outside, the current board of MinRes appears to tick all the boxes of good governance.
It is made up of nine members, eight of whom are independent, with the remaining position held by the managing director.
There appears to be no indication the board was compromised – which may occur if board members are large shareholders or have financial interests in other companies that MinRes might deal with.
It could therefore be expected that they have been acting in the best interests of MinRes, to the best of their ability.
But did the board have the skills and ability, for example, to be aware of the use of company resources by the managing director?
Adviser to institutional investors, CGI Glass Lewis, has called for more accountability for former directors who were on the board at the time the allegations took place.
Where were the regulators?
The nation’s corporate watchdog, the Australian Securities and Investments Commission (ASIC), has now commenced a formal investigation. But some stakeholders might feel earlier regulatory intervention could have helped.
Ellison reportedly sought an agreement with the Australian Tax Office to keep his offshore tax arrangements confidential, potentially limiting broader regulatory awareness.
It’s too early to say what the corporate regulator will find. But there appears to be an opportunity for regulators to evaluate how they approach oversight in complex, high-stakes corporate environments.