Landing big hits on CBA in 2000

Let's just remind readers exactly what went out on the notice of meeting that persuaded 17,336 shareholders to register a proxy vote in my favour over 90 million shares and 5,676 shareholders to vote 136 million shares against me.

"Stephen Mayne, age 31. Bcom (Melb). Stephen is the publisher of www.crikey.com.au and www.shareowner.com.au and has been a business journalist for 11 years with range of Australian papers. He won the Walkley Award for business journalism last year for a series on shareholder activism. As a campaigner for shareholder rights Stephen believes the Commonwealth Bank should take a far more active stance as a fund manager to create a greater culture of shareholder pressure in Australia."

The bank edited out the bit about opposing its cash for comment deal with Alan Jones so shareholders were only voting on this platform to end the bank's passive funds management platform.

After getting just 28 per cent of the vote at AMP and only 13 per cent at ASX, I was hoping to pick up 20 per cent at the Commonwealth and was absolutely over the moon with 40 per cent.

Remarkably, not a single paper managed to report the 40 per cent figure and the platform so no-one has interpreted this as a sign that many Australian investors want groups such as the Commonwealth Bank to become more activist with the $74 billion they manage.

Support for Crikey on the floor of the meeting was also quite strong. Media bad boy John Safran, Hugo Kelly and Jordanian journalism student Mariana Al-fah all came down to Jeff's Shed and helped me distribute about 600 flyers to shareholders before the meeting.

Before we go, you may as well read what it said:

Fight Cash For Comment And Passive Funds Management

Stephen Mayne, the only external candidate for the Commonwealth Bank board, is hoping you can help send a message to the board today.

Stephen is trying to create a greater culture of shareholder pressure and accountability in Australia by standing for several boards to pressure them into improving their corporate practices and performance.

CBA is still paying 2UE broadcaster Alan Jones between $100,000 and $500,000 a year in a cash for comment deal through Colonial State Bank. A vote for Stephen would tell the board you want this grubby practice to stop. Optus dropped their deal with Alan Jones within two weeks of Stephen standing for their board and CBA should follow suit.

And now that CBA has taken over Colonial to become Australia's biggest investor with $74 billion under management, the 7.6 million Australians who owns shares would be better served if CBA became Australia's first publicly active fund manager.

If CBA fund managers asked well-researched questions at AGMs across the country, boards would perform and Australia would have a greater culture of shareholder pressure which it desperately needs.

Instead, you have this club of directors who sit on the boards of passive fund managers such as CBA as well as the companies they invest in.

Between them, over the past year the CBA directors have also sat on the boards of major companies such as Perpetual, News Corp, PMP, David Jones, BHP, Pacific Dunlop, Telstra, Santos, QCT, Howard Smith, AGL, Orica, Pasminco, West Australian Newspapers, Foster's Brewing, National Foods, Leighton Holdings, Pioneer International.

Further more, big banks such as the CBA now have a fundamental conflict of interest as both lenders to and investors in the same companies. CBA manages $74 billion in investments and has $28 billion of corporate loans out there. And it is the same cosy club of directors operating on both sides of these investments and loans.

CBA need to set up procedures to ensure the fund managers are free to exert pressure on behalf of their clients, the millions of Australians whose savings they manage.

Today is a chance to tell the CBA board that you want them to become more active and more ethical by abandoning cash for comment and taking a stronger stand at AGMs across the country. Stephen Mayne will come a long last today but the more votes he gets the stronger the message.

Stephen is recommending a vote against Ros Adler, Ken Cowley and Tony Daniels today as they have chequered records not suitable for a performance-upholding fund manager.

ends

We were competing with the Financial Services Union and even the Communist Party of Australia when it came to handing out flyers but most people happily accepted ours.

The meeting itself lasted for an amazing six hours and 10 minutes in total and it was the poll for board seats that extended it by almost two hours as ASX-Perpetual tallied up the votes.

One of my lefty mates from The Rationalist Society and the Fabians got the ball rolling by asking chairman John Ralph whether the Commonwealth Bank was still involved in this cash for comment business.

Ralphy was obviously well briefed on my platform and responded that Alan Jones was still on the payroll through Colonial State Bank but the agreement specifically stated that the shock-jock was not permitted to talk about the bank on air and was paid to motivate sales staff.

Ralph seemed to think this was a good answer so the first thing I did on getting to the microphone after about two hours was to ask whether he was basically saying that they had bought Alan Jones's silence. Not wishing to let an opportunity slip, I quoted one journalism lecturer who had told his students that one interpretation of the practice was that Jones and Laws were in effect running a protection racket.

Ralph failed to respond to this because it was combined with my first question which dealt with why the Commonwealth Bank remains a passive and silent fund manager.

This was in fact a series of questions which asked whether CBA subscribed to the proxy advisory group Corporate Governance International, how it was voting its own shares at the meeting, what processes it had in place when fund managers were voting for CBA directors standing for other boards and why it never spoke out at AGMs or exerted public pressure?

I hardly heard Ralph's answer as the adrenalin was still flowing but I seem to recall him saying something about the Commonwealth Bank only having voting control over 60 per cent of its shares under management because the rest stayed with the client. He also suggested that CBA might lose some clients if it started making too much noise or recklessly voting the shares all over the place. If Crikey has its way, passive fund managers will start losing clients for precisely the reverse.

Murray as feisty and defensive as ever

David Murray is without doubt Australia's crankiest big company CEO. He has no sense of humor and is a dour banker with a short fuse. He got testy on a number of occasions at the meeting including when various union types kept on getting up and challenging the bank to stop its push to place all staff on contracts.

When oddball shareholder John Schultz suggested some staff were monkeys because they were being paid peanuts, Dave snapped back that he took offence at his diligent workers being called monkeys.

Similarly, Dave even provocatively flagged the prospect of a foreign takeover with the Australian dollar being so low. And as pensioners got stuck into him about fees on their accounts, cranky Dave claimed no foreign bank would suffer the huge impost of servicing 1.5 million pensioner accounts without any compensation from the Department of Social Security. What a generous guy for carrying out this community service.

Now, let's take a look at how the votes were cast at the meeting.

It is very instructive to compare this with the proxies cast at the AMP AGM in May when I got 27.4 per cent of the vote. Check it out.

HOW THE PRE-MEETING AMP PROXIES VOTED

Motion Description For Against Abstain %for
2(a) Election of Lord Killearn 143.12m 7.27m 25.15m 95.16%
2(b) Election of R J Grellman 151.19m 1.75m 23.42m 98.85%
2(c) Election of P Mazoudier 140.45m 8.89m 24.19m 94.04%
2(d) Election of I A Renard 134.56m 7.70m 23.98m 94.58%
2(e) Election of S D Mayne 28.15m 74.5m 104.98m 27.4%
2(f) Election of P J Batchelor 149.71m 2.84m 11.34m 98.1%
3 Share Options to CEO 125.93m 41.17m 7.4m 75.3%
4 Amend Constitution 155.5m 3.37m 4.3m 97.8%

The most striking thing in these figures is my massive abstain vote, indicating that institutions just can't bring themselves to take a stand on anything. But now take a look at the CBA pre-meeting proxies and you'll see this has changed dramatically in just six months.

How CBA proxies shaped up before the AGM

Candidate For Against Abstain proxy discretion Chair discretion
C Galbraith 228.2m 2.36m 36m 1.2m 60m
W Kent 228.2m 2.48m 36.6m 1.2m 60m
T Daniels 216.6m 13.42m 36.6m 1.2m 60.2m
F Swan 227.77m 2.72m 36.6m 1.2m 60.1m
R Adler 226.53m 4.28m 36.6m 1.2m 60.5m
K Cowley 225.3m 4.736m 36.6m 1.2m 60.1m
S Mayne 89.65m 136.1m 36.65m 1.2m 64.5m
F Ryan 227.2m 3.85m 36.6m 1.2m 60.1m

It is most curious that the external candidate has five times the abstain vote at AMP and then exactly the same as the incumbents at CBA. It just doesn't make sense that things could turn around so quickly.

Similarly, it is a welcome development that only about 18 per cent of the shares were voted at the AMP meeting yet at CBA it was about 32 per cent of the shares cast by about 73,000 of its 770,000 shareholders.

I had recommended on this website that shareholders consider voting against former Santos CEO Ross Adler, PMP chairman Ken Cowley and maybe even accountant Fergus Ryan.

However, the director who deservedly got the highest no vote was in fact former Tubemakers chief executive Tony Daniels. I'd seen Pasminco shareholders give its board a complete shellacking the day before and Daniels was one of them. A quick look at his other directorships reveal that he has two other dogs in the portfolio in Pacific Dunlop and Orica.

Clearly a few institutions have taken a set against him as Daniels had the lowest yes vote of the incumbents with 278.58 million votes in favour and 14.53 million against. In percentage terms he "only" had 95.2 per cent in favour.

It is worth considering what would have happened if chairman Ralph had suddenly decided to give me the 64.5 million open proxies rather than Daniels.

My vote would have lifted to 156.2 million or a majority of 53 per cent and Daniels' no vote would have jumped to 74.73 million or 25 per cent. It's still a comfortable victory but the day is not too far away when a chairman will have to use open proxies to save a director's neck.

Tell us why you backed Daniels, chairman

When it came time to debate David Murray's latest 250,000 share options package, I got up and first took the opportunity to ask John Ralph to tell the meeting why he'd voted open proxies if favour of Daniels and against me. To maximise the pressure I repeated the fact that Daniels has the trifecta of dogs in his directors portfolio and added that the disappointing Onesteel float would suggest the Tubemakers assets that he managed weren't exactly singing either.

Ralph refused to dump on me when he could have used any number of lines, such as: "Mr Mayne you have record of disloyalty in that you dump on your employers and you would be too big a risk for the CBA board"

However, he defended Daniels saying that "I happen to believe he is a very good director" who gives the good "perspective and context".

The fact that they sit on the sinking PacDun ship together makes it very difficult for Ralph to publicly denigrate Daniels but it was important to make the chairman publicly defend him and for the shareholders to be informed about the baggage he carries.

More info needed on Murray options

My last contribution to the meeting involved Murray's options. An earlier shareholder had really bagged him over cash for comment so I provided some context by pointing out that Murray had been the strongest opponent to it within the Australian Bankers' Association and that they had inherited this latest deal from Colonial.

I then said that by any financial measure the bank had performed extremely well in surging from a listing price of $5.40 in 1990 to the current level of more than $29. However, to assess Murray's options we needed the full context of what he'd already made and the bank should inform shareholders what his average strike price is on the existing 2 million options that he owns.

As best Crikey can remember, the average is not much above $10 a share, so this cranky CEO who makes more than $2 million a year also happens to be sitting on paper profits exceeding $20 million. Clearly, this is material to shareholders but the chairman simply said any shareholder who wanted this information could get it from the company secretary. Talk about dodging the question. Murray would know this off the top of his head and I asked for the information but they refused to give it. Needless to say, the latest options were approved even though the chairman could not answer the question as to when they'd be issued in the next 12 months. One suspects that Murray might "do a Macquarie" and wait for a dip in the share price and issue them then. Ralph said he would get back to me on this question of timing, but I'm still waiting for him to get back to me from the 1998 Foster's AGM when he promised to tell me how much punters were losing on Foster's poker machines each day.

In case that was not enough information, check out the piece below which we ran before the meeting.

The decision to stand for the Commonwealth Bank board at the AGM in Melbourne on October 26 was based largely on the need for Australia to get more activist fund managers.

The Commonwealth Bank board will at least have the concept of greater shareholder activism thrust before them if they have an outsider standing for their board on a platform of activism. That's what they now have.

The arguments are much the same as with the AMP earlier in the year when I came a long last but still got 28 per cent of the vote after running on an activist platform.

Put simply, I believe Commonwealth Bank fund managers should be standing up at AGMs and speaking out publicly to drive their $74 billion in Australian funds under management harder. As Australia's biggest investor on behalf of millions of Australians, it is their job to help create a great culture of shareholder pressure in this country, something desperately lacking at the moment.

Industry concentration a growing concern

After the $8 billion takeover of Colonial earlier this year, the Commonwealth Bank has become the biggest and most powerful fund manager in the land. When combined with the National Australia Bank's takeover of MLC, Australia now has a dangerously concentrated funds management industry. This is bad news for those like Crikey who want to break up the old boys club to outsiders.

The old boys networks even more intertwined

For instance, let's assume that the Commonwealth Bank fund managers have some corporate governance and strategic concerns with Rupert Murdoch's News Corp and WA News, owner of the uninspiring monopoly daily newspaper in the West. Would the managers be more cautious because they know that the Commonwealth Bank has been one of News Corp's main bankers for many years? And would they be extra sensitive because News Corp's long time Australian boss and director Ken Cowley is also on the Commonwealth Bank board. I reckon they would and the Bank should spell out its independent charter for its fund managers.

I'm also running for the WA News board and this too is an interesting case study. Former BankWest chief executive Warwick Kent is a director of the Commonwealth Bank and WA News. So do you think that the Commonwealth Bank fund managers are going to vote against Warwick Kent and for me when it comes to elections for that company's board? You bet they won't. The complex web of director, shareholder and banker relationships in Australia have just become a whole lot more incestuous.

Lazy fund managers need some prodding

Federal Financial Services minister Joe Hockey is right when he says that many Australian fund managers are lazy. If you give them your money, they should die in a ditch to protect it. So if a listed company does something dodgy, they should be held to account in the public arena by the money managers at the Commonwealth Bank. A vote for me is a vote for this sort of outcome. As a shareholder activist, I would carry a lot more weight if also on the board of Australia's biggest fund manager.

Why can't we be more active like the Brits and Yanks?

Britain has the Hermes fund and the US has the Lens fund, both of which are activist operations that take public positions on issues like board composition and the strategic direction of a business. They have both outperformed the market in recent years and have also created a greater culture of accountability within the markets that they operate in. The Commonwealth Bank is uniquely placed to become Australia's version of this.

Good relations with the Commonwealth Bank

I've been banking with the State Bank of Victoria and then the Commonwealth Bank for about 15 years now. At the moment I have a savings account, two Visa cards, three different loans over a property and all the Crikey banking going through the good old CBA. As a customer, my only complaint is the surging fees. Thankfully, Ive also followed the maxim that it is better being a shareholder than a customer of a bank. However, I had to sell the last of my shares earlier this year to pay for Crikey but have made about $10,000 in capital profits from trading them over the years. CEO David Murray invited me to the Opera about 15 months ago, not long after the Daily Telegraph had patched up a big blow-up with the bank over branch closures and my attendance at their 1998 AGM.

Thank god they've got a new chairman

The silver fox Tim Besley is without doubt one of the most arrogant chairman I've encountered - especially last year when it came to answering questions about the $11 million the bank lost on Paul Keating's piggery deals. Thankfully, he's now been replaced at the Commonwealth Bank by John Ralph who is a nice guy and a competent chairman but has too much on his plate. It will be interesting to see how John Ralph handles the AGM and whether he follows Stan Wallis's move during the AMP process and finds times for a pre-AGM meeting. Let's hope the super busy chairman can find a spare 20 minutes somewhere.

How you should vote your shares

In terms of voting, my advice is obviously to vote yes for me. It would also be useful if you appointed me as your proxy for the meeting, which 566 AMP shareholders did earlier this year. It gives me more standing at the meeting and also a chance to hold back on voting your shares until we see how the debate flows.

I'm destined to come a long last but my vote will look relatively better if you voted no for everyone else. However, clearly some of the candidates are very good and, based on merit, are deserving of a yes vote. But others have some baggage or a potential conflict of interest and you should weigh this up before deciding how to vote.

What I would bring to the board

At 31, I'd be one of the youngest directors of a public company in Australia but it is not as stupid as it sounds. I was banking and insurance writer for The Age in 1992 and know the industry reasonably well. A good knowledge of government and regulators is also useful on a bank board and I did the 18 month stint with the Kennett government in 1992 to 1994. Similarly, banks need to manage their brands and public image carefully and that is something that I could help with after 11 years in journalism. Most importantly, I know my way around the stockbroking and funds management business and have a good knowledge of corporate Australia which could be used to help turn the Commonwealth Bank into Australia's first big activist fund manager. No-one else has been to more than 100 AGMs over the past two years.

Warwick Kent's conflict of interest

It is a good to have another banker in Warwick Kent on the board as you need directors who can see what management is really up to. But in my view Warwick Kent should not continue to be a director of both CBA and Perpetual now that the funds management side of the bank's business is so large. The two are both significant players and major competitors in the funds management and financial services business yet Warwick Kent remains a director of both companies. He should give up one of them and you could send him a message about this by voting against his re-election to the ComBank board.

Ken Cowley's average record

Ken Cowley was Rupert Murdoch's most loyal and longest serving lieutenant but he is responsible for several big stuff-ups. Super League has cost News Corp about $500 million and Cowley was one of its masterminds. When he was in charge of Ansett it performed badly until they hired Rod Eddington from Cathay Pacific who turned it around before News Corp sold out earlier this year. Cowley has also remained chairman of PMP Communications since News Corp sold out two years ago and it has remained one of the market's worst performing stocks. News Corp's pay-TV strategy has also been handled badly and the company also massively overspent on new printing operations for its papers about 10 years ago. Cowley is clearly a man of great experience who knows his way around corporate and government Australia but he's now carrying lots of baggage and is deserving of a bigger no note than the other directors.

The indulgent Ross Adler

The recently departed Santos boss is one of the last great self-indulgent corporate leaders. At the helm of the gas giant in Adelaide he wasted millions of dollars maintaining the corporate jet and pouring money into monuments for himself and Santos at Adelaide Uni. He also poured huge sums into the Liberal Party which for many years have maintained the anachronistic 15 per cent shareholder limit. Santos shares have rocketed since Adler resigned and the new leadership decided to get the shareholder limit lifted. If that is any indication, maybe we should lose Ross from the board of the Commonwealth Bank board too.

Fergus Ryan's SECV blunder

Given that the meeting is being held in Melbourne, a few of the shareholders attending will be interested to know about the one skeleton in this respected accountant's closet. Fergus was a director of the old State Electricity Commission in the early 1990s under the dying Kirner government. It one of the stupidest deals ever signed, Fergus and his fellow directors agreed to an extravagant $646 million 20-year lease over a brand new SECV headquarters in Flinders St which was built by the Grollo brothers. Not only was it pitched at $800 a square metre or $32 million a year - about four times the prevailing market price - it came as the Liberal opposition was working up its policy to break up and sell-off the SECV. On winning office, the Kennett government renegotiated the fixed-price lease and bought the building off the Grollos for $250 million. They then filled it full of other tenants and sold it a few years later for about $110 million, incurring a $140 million loss for taxpayers in the process. Now Fergus is well-regarded for his work at Arthur Andersen but a more vigilant non-executive director would have stopped the SECV management from squandering money in this way. David White was Labor's Industry Minister at the time and also has a lot to answer for.

The others look pretty good

I've got no specific knowledge of problems with the other candidates, Foster's chairman Fred Swan, former ANI boss Anthony Daniels and Mr CR Galbraith. I'll probably vote in favour of them and against some of the others mentioned above.

David Murray's options

Given that CBA CEO David Murray has already made more than $20 million out of his various share options schemes, the latest gift is arguably too much. However, if you agree with the concept of constantly raising the bar each year to give a CEO even more financial incentive, then give it a tick.

Copyright © 2022 The Mayne Report. All rights reserved

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