Inoculate KPMG, auditors against ethical blindness, academic says

In his submission to the Parliamentary Joint Committee (PJC) on Corporations titled KPMG Hides Ethical Blindness of Directors, Auditors, and Regulators, principal of the International Institute for Self-Governance Dr Shann Turnbull said the Australian Securities Exchange (ASX) has “blindly promoted” the UK commitment to unethical unitary boards.

This, he continued, forces directors to identify and manage their own conflicts, which arise from directors deciding who stays on the board, how much they pay themselves, and other “inappropriate powers”.

This includes selecting, controlling, and paying the auditor. Turnbull pointed to critics who noted that “directors can set and mark their own exam papers”.

Turnbull said the ASX has heightened its unethical unitary board conflicts by being the first securities exchange in the world to trade its own shares without prior disclosure of who is buying or selling (sunlight trading). He said other major exchanges around the world have adopted this “unethical dysfunctional practice to deny the purpose of having public exchanges to discover prices established by known insiders or manipulators”.

“Inoculating firms from ethical blindness, as described below, would allow the Australian treasurer to create competition for the ASX, and/or replace it, by allowing any firm to trade its own shares on condition they adopted sunlight trading like the majority of businesses in the world,” Turnbull said.

“The 53,000 firms in the world who covertly trade their shares on stock exchanges represent less than 2 per cent of incorporated stakeholder enterprises in the world that involve 12 per cent of the global population but with less than 2 per cent in value of incorporated global assets.”

Turnbull’s submission also noted that while an auditor is usually approved by shareholders or members to ascertain the integrity of the accounts presented to them by the directors, this does not happen with a KPMG client, the Australian Institute of Company Directors (AICD). The AICD denies any voting rights to members at its regular AGMs, he said.

“Voting was introduced at their 2025 AGM to approve, for the first time, the payment of director Fees,” Turnbull said.

“The fees approved were $395,000 per year. This required a special resolution with a 75 per cent vote that section 5.5 of the AICD constitution suggested required ‘at least 75 per cent of members present in person or by proxy and entitled to vote on that resolution’.

“As the AICD has 53,300 members this seems to require around 40,000 affirmative votes. However, the actual votes in favour were only 977 after the chair voted 102 open proxies in favour of the Special Resolution. Inconsistently, the chair later announced that the directors and executives would abstain from voting. The fees were approved by applying a rule that added the words ‘votes cast by’ to state ‘at least 75 per cent of votes cast by members present (including by proxy) and entitled to vote’.”

Turnbull suggested inoculating directors, auditors, and others against ethical blindness by electing a corporate governance board (CGB), as suggested by the ASIC chief accountant, Ian MacIntosh in 2001.

He explained that a CGB eliminates the inherent systemic conflicts of interest of a unitary board by separating the power to manage a business from the power to manage a corporate entity. This would also simplify director duties by eliminating their conflicts of self-interest in being involved in nomination, remuneration, and audit committees.

“It introduces virtuous audits and is a crucial first step in introducing… “polycentric” self-governance,” Turnbull said.

Turnbull said the concept of contested distributed “polycentric” decision-making to achieve self-governance, which was originally identified by American political scientist Elinor Ostrom in her 2009 Nobel Prize lecture.

“There is no ethical material commercial reason for company directors to obtain both the power to manage a business and the power to manage their personal conflicts in managing their board appointment, remuneration and their auditor. In this way a CGB removes the ‘inappropriate powers’,” he said.