A question of conflict

Stephen Mayne
February 14, 2010

Should a top law officer make decisions on a firm he has shares in?

The row over the Solicitor-General and BHP shares is mainly a question of perception, says Stephen Mayne
The case of Victorian Solicitor-General Douglas Graham, QC, and his BHP shares is the latest example of an avoidable conflict of interest. On the surface it looks like a pretty open and shut case. Mr Graham presumably knew he had an interest in companies with almost $1 million worth of BHP shares when called on to decide whether to recommend contempt action against the company. Attorney General Jan Wade, who also holds 700 BHP shares, apparently found out about his shareholding only last week.

If Mr Graham did not disclose it earlier to her or to another appropriate person, we can ask why didn't he. If he did not, it would be a pretty clear breach of the public service code of conduct, which would be all the more surprising given that Mr Graham is a well-regarded and highly intelligent lawyer.

While things such as Peter Costello's wife holding 200 shares in Commonwealth Bank are too small to be relevant, a link to almost $1 million worth of BHP shares is highly relevant. However, BHP is a $35 billion company. Its Ok Tedi mine in Papua New Guinea is important, but the contempt ruling was only one step in a long legal battle between the Big Australian and the 35,000 landowners which was eventually settled earlier this year. BHP shares fell 16 on the day it was found guilty of contempt - something later overturned when it was realised the law firm Slater & Gordon could not bring contempt action under new Victorian law.

Mr Graham himself probably stood temporarily to gain the opportunity of making only a few hundred dollars from his decision, hardly something that should cost him his job. And nobody is suggesting that his advice was in any way influenced by his shareholding.

But conflicts are usually about principle and perceptions. They generally fall into the categories of personal, commercial and political, or a mixture of the three. Then there is the question of personal opinions creating conflicts. Some people argued that after Justice Frank Vincent publicly criticised the coercive powers of the NCA, he should not have sat on the John Elliott trial. Clearly, conflicts can emerge at many levels, but the ultimate test is usually the standards set by the company or government you work for.

In the case of Mr Graham, the state Opposition is questioning whether he breached the code of conduct which says such interests have to be declared to a superior. His interest dwarfs Mrs Wade's holding of 700 BHP shares and is something that should have been disclosed under the code if it was not. However, both Mrs Wade and Mr Graham potentially have a bigger conflict over the $1 billion-plus legal dispute between the Kennett Government and the Esso-BHP joint venture over who pays the Federal Government's resource rent tax on Bass Strait gas. This fight has already cost the parties more than $100 million in legal fees over six years and it is not appropriate that the two top legal officers on the state's side have shares in the opposition.

After all, the BHP contempt case was arguably just a case of interpreting the law. The tax fight is one of Australia's biggest ever commercial disputes which will materially affect BHP and Victoria's financial position. Jan Wade herself has a mixed record when it comes to conflict of interest. She ruled herself out of making decisions on the Elliott trial because he was a former president of the Liberal Party. Yet she also allowed the Premier to put her in a position whereby she and her office, including Mr Graham, make decisions about contempt of court charges relating to politicians.

Clearly it was not in Mrs Wade's interest for charges to be laid against the Premier when he looked to be seriously in contempt for attacking the NCA during the Elliott trial. As the debate about conflict of interest rages throughout parliaments across Australia, the politician with one of the most controversial "records ", Premier Jeff Kennett, remains above the fray. While Jim Short and Brian Gibson resigned over minor indiscretions, Mr Kennett has survived a long list of arguably very large commercial, personal and political conflicts. While Mrs Wade ruled herself out of the Elliott trial because of a political connection, Mr Kennett has not ruled himself out of business dealings with Federal Liberal Party treasurer Ron Walker, who is also one of his closest friends.

Mr Kennett is still chairman of the casino sub-committee which deals with Crown, and he has seen off his various perceived conflicts over KNF, the SECV headquarters deal and his share dealings under the Victorian code of conduct.
The only answer for someone who aspires to high office is to rid yourself of all potential conflicts. Don't deal with your friends and don't make decisions on companies you own shares in.
Then the debate could move back to some of the real issues affecting the public interest.