Coles Myer's two day marathon in 1992

COLES MYER directors won't have endeared themselves to their peers with their remarkable concessions to the Australian Shareholders Association and Laurence Gruzman yesterday.

It is unheard of for a major corporation to go to the lengths that Coles Myer has gone to in recent days to appease one shareholder and an external lobbyist like the ASA. Given the circumstances of Mr Gruzman's recent arrival on the Coles register, and his immediate and aggressive campaign, the response is even more astonishing.

Either the Coles board is paranoid and overreacting or they genuinely believe that the campaign Mr Gruzman and the ASA are running on the issue of Coles' related-party transactions has more sinister undertones than have yet been established.

Whatever the validity of the reaction, Coles shareholders generally have been provided with an unprecedented insight into the nature and extent of their company's related-party transactions and processes for monitoring them.

They have also been given the benefit of a special examination of such dealings by the company's auditors, Price Waterhouse, and a public detailing of the nature and extent of what has effectively been an intensive two-month audit of the dealings. And received direct assurances from the auditors that the investigation turned up nothing untoward.

Just about every major public company in the country has related-party dealings. It might simply be the presence of a partner from their law firm on the board, or a director shared with one of their bankers, or their accountants. It might be that they share a director with a customer or supplier.

The accounting standard that has been used as the lever to force an extraordinary level of disclosure from Coles, and which indirectly led to the company deciding to adjourn yesterday's annual meeting and send out an addendum to its accounts, is a revised standard dealing with disclosure of related-party transactions.

As Coles made clear through its actions and words yesterday, that standard is capable of different interpretations and, in the absence of a court ruling on the extent of disclosure (and Coles is obviously keen not to be the company that provides the test case), one interpretation is likely to be as valid as any other.

Coles, even if it only provides an audited version of the stock exchange release it issued on Monday, will establish a high benchmark for disclosure generally. If it goes beyond that, the precedent will obviously be of an even higher standard of disclosure.

OTHER companies, even though they may not have Mr Gruzman breathing down their necks, cannot ignore what is occurring at Coles and, even if they wished to, will have to be conscious that the perception of success generated by the actions of the ASA and Mr Gruzman will be an encouragement to the ASA and other shareholders and the regulatory and self-regulatory authorities.

With shareholder activists having succeeded in traumatic change at Westpac, and now putting Coles through the hoops, it is inevitable that the tide will continue to run in one direction.

That isn't a bad thing. Generous definitions of reasonable disclosure are in the interests of shareholders and the wider community, whether the disclosure is of related-party transactions or anything else that directly affects shareholder protection.

Common sense, however, would suggest that the disclosure produced by Coles on Monday, even without the validation provided by Price Waterhouse yesterday, should have been sufficient to satisfy even the most activist shareholder.

There is a point where enough is enough and the cost of more is too great to justify the effort and expense. The cost of producing and mailing out an addendum to Coles accounts and reconvening the annual meeting comes out of shareholders' pockets.

From Coles' perspective, of course, the issue is not quite as simple as saying that it has provided adequate disclosure and independent verification of the integrity of the dealings between directors and their associates and the company.

COLES appears to see the issues in two components. One is a suspicion of Mr Gruzman's motives, whether justified or not, and an apparent recognition that an attack primarily focused on its chairman, Solomon Lew, and his fellow director, Lindsay Fox, has the potential to destabilise the company whether or not that is its intent.

The other is a quite rational belief that Coles and its directors cannot afford to allow any shadow to be cast over the integrity of the company and its board.

It isn't possible to raise questions about the extent or nature of related-party transactions without some implication that something smelly has occurred, no matter how elegantly or graciously the questioning is done _ and Mr Gruzman yesterday couched his comments about the company and directors in careful and generous terms.

That is why at one level Coles' response to the campaign by the ASA and Mr Gruzman could be seen at one level as a gross and costly overreaction and at a different level as being completely justified by the nature of the attack, even without the other dimensions Coles appears to read into the campaign.

What Mr Gruzman does next could be quite revealing. Whatever level of information Coles might put into the addendum to the accounts _ and it did say yesterday it would take into account all the interpretations of the accounting standard that had been put to it in determining its level of disclosure _ it wouldn't be possible to exhaust all possible levels of information that could conceivably be asked for.

Given that the standard is, in effect, new and that it is open to interpretation, there will always be the potential for someone to mount a legal action against the degree of disclosure in the accounts if a legal challenge is what they want.

What a legal action would achieve other than to provide a distraction and a privileged forum is unclear, but then Mr Gruzman's motivation and agenda are at this point most unclear. It is unusual for someone to mount the sort of campaign he is mounting against Coles virtually before the ink has dried on the registration of his shareholding.

Just because it is unusual and Coles appear to be unsettled by it, of course, doesn't mean that it is necessarily driven by some form of subversive gameplan.

Whether Mr Gruzman accepts a reasonable response (and Coles is defining reasonableness, in terms of its disclosure if not in terms of its attitude to Mr Gruzman, very generously) will help to place his actions in context and provide an insight into whether he is simply another Gavin Solomon (of Westpac fame) or something else entirely.

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