VECCI, a free-market champion that has traditionally argued for smaller government, is now dependent on government for about half of its revenue, and receives at least $15 million a year to administer programs or grants. Pressure is growing on chief executive Mark Stone, who flagged his aim of building a record membership of 20,000 when appointed in mid-2011. Mr Stone has defended the fall in membership, saying the 20,000 aim was aspirational. ''Our membership and revenue is extremely strong,'' he said. ''Sometimes numbers are not good indicators of what is going on in reality.'' But last week the senior executive responsible for membership was made redundant along with at least five membership/marketing staff. VECCI now represents only 2.5 per cent of Victoria's 200,000 businesses with employees. If sole traders are included it represents about 1 per cent of the state's 500,000-plus businesses.

It has struggled with declining membership for years, but the process has accelerated under Mr Stone. Leaked documents from August also reveal the failure of Mr Stone's plan to reboot the organisation, a central plank of which was the resurrection of an offshoot of the Melbourne Chamber of Commerce in a bid to reduce its reliance on its small and medium business base and attract big corporates. For a fee of $25,000, company chiefs are offered benefits such as access to an AFL corporate box and events with state political powerbrokers. Members of the Chamber of Commerce include Bombardier, Boeing and Bank of Melbourne. But the move to resurrect it has so far foundered, with confidential budget figures for August showing revenue was less than half the targeted amount and it was losing money. Mr Stone told The Age he was confident the Melbourne chamber would meet its targets. Worried VECCI insiders told Fairfax they feared the current strategy was moving VECCI away from its traditional role as voice for small and medium businesses and that it would now be competing with other big business groups such as the Business Council of Australia, Australian Industry Group and the Committee for Melbourne.

Mr Stone said despite the reliance on government grants, VECCI remained a ''frank and fearless'' lobby for business. But senior business, Liberal and Labor figures agree it has been notably tame since an initially rocky relationship with the Baillieu government. Its role as a public advocate for business has dwindled, with press mentions more than halving since 2011. Despite its conservative roots, VECCI was a particularly prominent and successful advocate for business under the Labor governments of Steve Bracks and John Brumby. Former Liberal premier Ted Baillieu is known to have been angry that VECCI was not more critical of Labor and initially snubbed it after his surprise election victory in 2010. Relations have improved under Mr Stone.

Opposition shadow treasurer Tim Pallas is a keen observer of government-business relations. Asked about the plight of VECCI, he said: ''The Napthine government's failure to manage its relationship with a peak employer body is yet another symptom of the dysfunction that threatens to cripple the Victorian economy.'' Mr Stone said the decline in membership was explained partly by the decision to end a cut-price affiliate membership package. ''Take that out of the numbers and compare apples and apples, it's pretty constant through the years. We are building the business to make sure we are not reliant on government revenue,'' he said. VECCI president Mark Birrell did not return calls. Know more? rmillar@fairfaxmedia.com.au