OPINION: It will no doubt be surprising to the former Liberal Foreign Minister, Alexander Downer, and former Victorian Labor Premier, John Brumby, that they sit on the board of a corporate entity apparently judged to be a national security risk.

John Lord, a former commander for the Royal Australian Navy who retired at the rank of Rear Admiral, will be equally perplexed that representing the local operations of Huawei, the Chinese telecommunications conglomerate, has proven so controversial.

All three have fallen foul of concern about the provenance of the parent firm, which emerged from the Chinese military-industrial complex to become one of the most significant global players in mobile and core broadband network provision.

Huawei’s strategy of hard and soft investment in Australia now lies in tatters. The appointment of a local board in June 2011 was an experiment that has neither provided access nor convinced Canberra of a commitment to best-practice corporate governance or social responsibility.

The deployment of cutting-edge mobile technology and strategic alignments with both Optus and Vodafone, combined with the soft promotion of rock concerts by Coldplay, has not made the firm anymore acceptable than hosting conferences on digital inclusion addressed by the very Government minister responsible for rolling out the National Broadband Network.

The firm has been told privately that “there is no role for Huawei in the National Broadband Network”. Australia is by no means the “Paradise” of opportunity that the band warbles in its latest single. The play has become cold.

Julia Gillard effectively confirmed that national security concerns precluded Huawei from tendering. “You would expect that as a government we would make all of the prudent decisions to make sure that the infrastructure project does what we want it to do and we’ve taken one of those decisions,” she said in Seoul, in comments carried by the Financial Times.

There are a number of ironies at work. As a critical platform provider Huawei is well aware of the power of the networked society to affect change. The confluence of technology and social media practice is transforming politics across the globe, including in China itself. The unresolved question is whether Huawei, with its genesis within the People’s Liberation Army, is a commercial entity or corporate sleeper for Chinese political and military interests?

A report commissioned by Huawei and presented at a national conference organized by the firm in Canberra last August emphasised the critical importance of the internet in generating accountable governance.

Dr Tim Williams, a former advisor to David Milliband in the United Kingdom, authored the “Connecting Communities” report. It featured a chapter on “E-Democracy: The Revolution Will Be Webcast, Tweeted and YouTubed.”

It noted “the very creative and powerful challenges to governments and bureaucracies” from the capacity of social media networks. These, it argued, boost participation, increase transparency and accountability and force responsiveness.

Huawei Australia endorsed the findings arguing that it made a “neat fit” with its corporate responsibility to enrich communities through communication. ‘We hope that this White Paper promotes and inspires engagement and discourse between Australian businesses, industry groups, Government and, of course, communities themselves,’ wrote its Director of Government and Public Affairs, Jeremy Michell in the foreword.

The capacity of high-speed access to address a democratic deficit was reinforced by Senator Stephen Conroy. He used the Huawei conference to outline the ambition for the NBN. It could he argued act as a mechanism to fuse “community, inclusion and opportunity.” None of these appears to apply to Huawei Australia.

It may have provided a platform to bolster the political justification for the infrastructure but it need not tender to build it. As the Attorney General department put it in a statement released on Saturday, ‘as a strategic and significant government investment, we have a responsibility to do our utmost to protect its integrity and that of the information carried on it.’

If Huawei and its locally appointed directors feel they have been played for a fool, they have ample grounds for doing so.

The implications of the decision for foreign direct investment from Chinese-controlled entities could be far-reaching. It is far from clear just what a Chinese entity could do to pass the national interest threshold?

As Greg Golding a senior partner at King & Wood Mallesonsnoted on the CLMR portal this week, there is a touch of xenophobia in the debate over FDI from Chinese-controlled entities and no evidence that these firms pursue anything other than commercial interests.

Indeed, the Huawei Australia strategy demonstrates an aspiration to meet corporate governance principles. There can be no doubting the integrity or gravitas of those selected to join the board and in Alexander Downer’s case surely a granular, if dated, understanding of specific ASIO concern in relation to Huawei’s operational model and the threats it may or may have posed to national security.

Assuming these were not flagged or ignored, the experiment brings a degree of external oversight unseen in Chinese operations to date. Equally, there is recognition and an expansive definition of corporate responsibility within the Huawei governance model.

Its endorsed white paper, for example, calls for government commitment to open source principles and sharing data. It recommends online concession passes for seniors and the drafting of a statutory duty for the communications regulator to promote social inclusion.

The challenge for Huawei and for China’s outward facing corporations is to demonstrate that stated commitment to the highest standards are warranted both in board governance and ensuring the integrity of risk management systems.

Much has been written about how Australia can use the birth of the “Asian Century” to inculcate higher standards of corporate governance and effective regulation within the country and across the region. It is an opportunity that has just been squandered.

It is, of course, appropriate to have restrictions if there is evidence to support them or if risk cannot be dealt with the through imposition of security clearance procedures as the Singtel/Optus tie up demonstrates.

The purchase of Optus by Singtel, which is partially controlled by sovereign wealth funds from Singapore, was approved only after inclusion of specific undertakings to ensure ongoing security protocols were in place.

Placing barriers to entry in the government space for the building of a network when Huawei operates extensively in the corporate sphere here in Australia seems more than a little political. It mirrors the overtly partisan nature of the debate in the United States, which is mired in assertion rather than evidence and procedures for determining investment occluded rather than transparent. A Coldplay indeed.

Justin O'Brien is a professor of corporate law and director of UNSW Law's Centre for law Markets and Regulation. 

This post first appeared simultaneously in The Conversation and the CLMR portal.