Conflict of Interest in Financial Term Paper

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There is no doubt that Macquaries used its knowledge of the internal workings of Alinta to make decisions about whether or not to involve its own finances.

Qantas and Geoff Dixon attempt to avoid Alinta's problems by keeping Dixon away from the actual buyout dealings. However, the sizeable payout and other financial perks given to Dixon, especially in light of the other corporate abuses going on, seems suspect at best. Overall, the Takeover Panel's suggestion that individuals who are involved in the buyout of their employing company should step down seems the most solid advice in avoiding conflict of interest.

IV. The Takeover Panel and Conflict of Interest

In their Guidance notes, the Takeovers Panel attempts to alleviate or prevent negative outcomes, citing that private equity bids and other buyouts can have major effects. Many of the items outlined by the Takeovers Panel have specific applications in the deals and issues related to Qantas, Alinta, and Macquaries bank.

The Panel cites that its major concerns are to ensure that buyout bids are considered in an unbiased manner, without the influence of participating insiders to move forward with one bid or another. The Panel also lists that companies should ensure that any disclosure of information to buyout bidders is appropriately controlled.

In the case of Alinta, the MBO involving Browning and Poynton was subject to influence by the two men, who kept their positions within the company. Macquaries Bank similarly used its inside influence to make bids for buyout that took advantage of their position. It is unlikely that other bids were provided with the information furnished by the inside parties, causing an unfair advantage for those involved in the Alinta MBO buyout.

The Takeovers Panel additionally suggests ways to address potential conflicts of interest, with few of the suggestions being incorporated into the buyouts in question.

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The Panel's suggestion to inform the board as soon as participants are approached by a potential bidder may have made it possible to avoid problems in the case of Macquaries, Browning and Poynton. Poynton and Browning in fact went against the board's intentions by seeking out Macquaries' help rather than seeking out board consent before taking action, as the Panel suggests. Overall, the Takeovers Panel outlines a number of cautionary suggestions that could have helped the three companies discussed here to avoid the conflicts that arose from their buyouts.

V. Summary

The cases of Qantas, Alinta, and Macquaries Bank are high profile cases -- they involve large sums of money and the participation of numerous other workers and investors. It appears that poor decision-making on the part of individuals and entire institutions resulted in the abuse of the power and duties entrusted to those participants. If this sort of poor decision-making can happen even in the closely-watched large-scale businesses mentioned here, it can certainly also happen at other levels of business and investment. Where it is happening, loss of confidence and loss of business threatens the markets, individual businesses, and individuals.

To mitigate this risk, businesses can adopt the rigorous guidelines suggested by the Takeovers Panel. In particular, companies involved in a buyout or possible buyout should appoint an IBC to manage the protocols and processes involved. Beyond these internal checks, the most effective way to regulate these issues is sadly through the self-management of the market. By allowing the market to self-regulate some individuals may be taking larger risks; however, investing and other finance procedure is never without risk. In the process of self-regulation, institutions and individuals like Browning and Macquaries Bank will be passed up for others who have maintained a reputation of trustworthiness and avoidance of conflict in interests.

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