Independence of Thought

The practical matter of developing independence of thought as young people take each step from childhood development, through adolescence and adulthood is fairly well understood as a process, to my mind roughly parallelling Jean Piaget's preoperational through concrete and formal operational stages of development.

Our education system is largely constructed around the pedagogical concepts of direct instruction and precision teaching derived from B.F. Skinner's ideas on educational philosophy. Skirting the controvery altogether, if at all possible is this ever-sensitive subject, the fabric of our educational institutions at all levels are strongly influenced by his teachings.

Is it contestable that most people learn well and many excel in teaching environments where the material is specifically tailored for the level and outcome?

The digression into philosophy of education in this article is a metaphor, analogy or perhaps allegory for advanced teaching, work place and life-long learning. It is generally accepted that children pass through several stages of congnitive development before achieving the ability to construct abstract thoughts.

It is not widely held that individuals actively choose to learn and accept taught outcomes even if nowadays the teachers themselves readily focus on the student-centred classroom and associated pedagogical methods. The recognition that students are active participants in learning rather than empty vessels to be be filled with knowledge edges upon the existentialist notion that the individual not only can but rather must make his own choices.

In everyday terms, primary school is the opportunity for the young pupil to be taught fundamentals, secondary school provides the maturing student the chance to learn higher-level concepts, tertiary education continues the growth path, capping off the formal educational portion for most people with the chance to collaboratively work with peers and thought leaders on advanced techniques and even the creation of new theories.

The quality of primary and secondary education has come into question in Australia quite recently and seems to have followed earlier trends in the UK and the USA. The current debate centres around two problem areas that has been perceived by politicians and the community as in need of reform. The first issue relates to the quality of teachers, the treatment of teaching as a profession including proper remuneration. The second issue is the controversy over the adoption of Outcomes Based Education (OBE) where achievement levels replace conventional teaching methods and objective assessment based on grades.

Part of the the problem is that many graduates do not have the opportunity, by reason of limited opportunity, to build on this foundational learning, whether the formal learning component extended to secondary or tertiary level at undergraduate or postgraduate levels.

While much can be done to improve the presentation and substance of undergraduate education there is much circumstantial evidence to suggest that the outcomes are positive in some subject areas if not in others. By and large, most tertiary graduates in professional areas such as law, medicine and teaching successfully transition into the workplace.

To the credit of these institutions and the employers of graduates from those institutions, there remains a broad and deep range of nonprofessional subject areas in science and arts, such as physics and anthropology, whose graduates contribute to the well-being of society, albeit many of whom take up professions and whose qualifications are highly regarded.

The undergraduate degree structure in Australian universities is based on the student selecting a range of units in science, arts or a prescribed study course, for example, medicine or law, for which core units are mandatory delections. Postgraduate degrees may follow an honours degree, or equivalent, to four years study inclusive of a research-oriented thesis.

The degree structure varies widely elsewhere but the profound experience of the leading British universities of Oxford and Cambridge where one reads for a degree, and the USA where professional studies are undertaken as postgraduate degrees after an undergraduate degree. I strain to identify advantages of these systems over the Australian one beyond the development of independence but perhaps that is enough.

It serves no purpose to pretend that undergaduate degrees, both those that are general in nature and those oriented towards professional practice, are anything more than they are. Certainly they offer great learning opportunities but the level of discourse and quality of teaching outside of the premier institutions is merely ordinary. The degree is a stepping stone to the work place, a diploma that demonstrates commitment and academic achievement.

The professions are distinguished by their traditions, codes of ethics, professional associations and standards or practice. As a rule, they offer mentoring in the workplace in the form of internships for medical graduates, articled clerk for lawyers, chartered year for accountants, or some other professional year before admission to the ranks of the profession. The lowest rank.

One of the key tenets of professional or chartered membership of professional associations is to make a commitment to continuing professional education. This should not be an onerous obligation on most individuals but rather an extension of their choice to enter the profession and part of this personal commitment to life-long learning.

ASX Corporate Governance

The nexus between professional integrity and personal ethics is fundamental to the confidence that the general public has in dealing with professionals. For example, the trust that we have in being well treated by the family doctor, solicitor or accountant. Nowhere has that trust been in question more than in the shaken confidence of the the average person in our public companies.

The measure of activity taken in reinforcement of corporate governance principles is justified for reasons of public confidence in our institutions, including the venerable Australian Stock Exchange (ASX), albeit itself a public company. The improvement in performance seen by companies that conscientiously adopt corporate social responsibility (CSR), among other principles, is a more prosaic if pragmatic reason.

On Wednesday 20 November I attended an event hosted by the Australian Institute of Company Directors (AICD) on ASX Corporate Governance. The guest speaker was Eric Mayne, Chair ASX Corporate Governance Council among his roles at the ASX, and formerly Managing Partner at Mallesons Stephen Jaques. The room at the Hyatt Regency, Perth was the same one where I participated in the AICD Company Directors course a year ago, earning my stripes as a professional director with P-plates and a decade of experience.

Steven Cole, partner of Allens Arthur Robinson and State Councillor of AICD (WA Division), introduced the session and speaker by starting with the observation that Australia has a highly regarded system of governance and, notwithstanding a few high-profile failures like HIH, remains a nonprescriptive environment rather than adopting a legislative approach like Sarbanes-Oxley. It if ain't broke then you don't need to regulate it.

The approach is basically to comply with the principles and to disclose the relevant information or not to disclose, taking an if not, why not approach if you are not complying with a full disclosure statement in the annual report. The principles were drafted and adopted in 2003 with the intention of a review being held after three years in 2006. The objectives of the review are to remove regulatory overlap between ASX rules and Companies Act, refinement and consistency of terminology across the rules and removal of ambiguity.

The AICD has provided a blog with information and inviting feedback.

After a brief overview of the issues, the format adopted was as a fireside chat so the audience can be voyeurs of the ensuing discussion. Eric Mayne comes from a background as regulator, consultant and practitioner giving healthy view points. He began with a polite comment about the five hour flight giving him plenty of time to catch up on his reading.

The tension between the small and big ends of town. Steven Cole earlier mentioned from BHP down to West Perth mining companies. The principles have been about 30% redrafted.

Steven Cole noted that the higher level principles are easier to read however the guidance notes rate as more difficult to read and follow. Eric Mayne asked if people are happy with the level of prescription, or should we pull back from current stance. Innocent question, is it a higher workload on monitoring compliance with 10 (or 8) high level principles and 28 (or 27) guidance?

ASX has carried out three levels of review:

1. Listed Companies - From 85% compliance in the first year to 92% in the second year.
   
2. Listed Trusts - Increased level of if not, why not reporting, similar (~2% lower) but less disclosure in spirit of the principle, encouraged to increase compliance.
   
3. Encourage thinking about issues, companies to change culture themselves - not via ASX rules.

Disclosure and transparency are the cornerstones of the ASX as a market and brand. If continuous disclosure is not seen the practice is to pick up the phone and speak to the companies.

A key change is to reorient the focus from best practice to good practice, recognising there is not only one way of doing things and encouraging alternative ways, for example, exception reporting by smaller companies.

Plain English drafting and consistent terminology. P2 definition of independence clarified to relationships that affect independent status. Alignment of committee recommendations for risk and audit, remuneration and nomination committees, with independent chair and directors. Audit committee expertise becomes relevant qualifications and experience not financial experience.

P3 prohibits hedging of unvested options and disclosure to company of hedging of vested options. P7 deals with recognition and management of risk. The establishment of a risk profile, risk management policies to cover material business risks that includes financial and other material business or nonfinancial risks. CEO/CFO signoff on financial statements P7.2 and CEO signoff other material business risks P7.3.

The consultation period closes 9 Feb 2007 with revised principles commencing 1 July 2007. Feedback on regulatory burden and the cost of regulatory burden would be useful data from corporate sector.

They were considering two sets of guidelines for smaller and big ends of town, like main and secondary boards in the past. Survey of small-to-medium listed company sector shows some require assistance eg. audit but no push for separate system of principles of corporate governance.

Q. Smaller companies lots of if not, why not; third-parties do not focus on explanation, ignore adequacy and mark down, tick box mentality.

A. Structure of revised principles help - commentary guide. Cosmetic preparation may be of assistance to companies, ticked box for complied might help.

Q. Intelligent and competent directors are more important than independent directors. Crooks will still act like crooks.

A. Training on obligations, availability of legal advice. Gerry Harvey model of governance. Training more important than independence. AICD Company Directors Course.

Risk management in P7 followed by disclosure with respect to corporate social responsibility (CSR) versus future outlook. May be disclosing a competitive advantage that you currently enjoy. It is too early to impose even if 90% of corporate websites discose CSR, so what continues to happen here and internationally. Section 299A obliged to report on prospects and forecasts to enable shareholders to make informed decisions. Rule 10 remuneration - dilution or associated party transactions makes a difference to discolsure.

The relevance to companies of all sizes is fairly obvious when viewed through the prism of professional levels of expectation in practice. There is no obvious reason why the quality of work output, reporting or disclosure should be significantly different between small or large companies.

Our education system is truly lacking if the executive tier of management is incapable of preparing adequate writtern reports. The quantity of disclosure should be shaped and coloured by relevance to the organisation. It is pointless to pretend to disclose on issues of little or no relevance whatsover.

There is a saying among pilots that there are old pilots and there are bold pilots but there are no old, bold pilots. The same kind of filtering process happens in every arena so that it is rare for the executive bad apple to remain in the executive barrel.

Another healthy piece of advice for smaller operators again borrowed from the pilot fraternity is that private pilots should take a professional approach to their flying just as their commercial brethren.

How far to take this analogy that I have stretched already to a tight band. The Companies Act requires that directors have a duty to exercise care and diligence, to act in good faith, honestly and for a proper purpose. The concept of professionalism among pilots is called airmanship.

Every business man, no matter how large or how small is his enterprise, should carry out his duties with the highest levels of integrity and professionalism just as a pilot, whether a humble private pilot or airline transport pilot, should carry out his duties with the highest levels of airmanship. There is no plausible reason to excuse doing otherwise.