2001 Brambles EGM transcript

Stephen Mayne: just a house keeping matter first. I am here as a proxy holder today. Can you commit to disclosing the proxies for all the resolutions before we vote? My preference is that we do it after the debate, so there is no limit on the debate. I asked you this at the BHP meeting recently and you put it to a vote and the meeting voted against it and on those grounds you didn't disclose it. I think that the actual rules are, it is like a poll, that if one shareholder wants to see the proxies the Corporations Law says that a chairman has to disclose the proxies. So, even if a meeting was to vote against it today, can I suggest that you just ask the shareholders to close their eyes, if they don't want to see what the proxy votes are? Because I really want to see what they are, to see how the big institutions have voted before deciding how I vote, because I know that none of those institutions will stand up today and express an opinion. The only way to tell what they think is how they vote.The other issue is, I really want to see how many undirected proxies there are in your back pocket, and obviously you will be voting those proxies in favour of the resolution.

Don Argus: we have said that at the memorandum, yes.

Stephen Mayne: Yes, that is right, but if you can you tell us how many you have got to be voted that way, rather than lumping them all in together like you did at BHP so we had no breakdown? I have got some specific questions after the house keeping one.

Don Argus: Well, as you know Stephen, I don't think that is fair on people who put themselves, who make the effort to come out to these things, and I do not like to have those things starring people in the face. And I hear what you say about putting them afterwards. There is no legal requirement for me to do that. So, in my usual fashion, I'll ask if it is the will of the meeting, that they want to have the proxies on the screen behind me, so they are looking them in the face, then I am happy to do that. But if the meeting says, no they don't want that, then clearly we will continue on and the proxies will be announced when we announce the result of the polls. So let's test the will of the meeting? If people want to have the proxies in their face, if you show your hand. Against. Alright, you want the proxies up, that is fine. We will put the proxies up on the screen behind, and you will know what the voting pattern is. Doug, are we getting them up? Okay Stephen, the housekeeping, you have some specifics?

Stephen Mayne: I guess, I just was going to reflect briefly on the similarities with what has happened with BHP. We have the same chairman, Don and yourself. We have got the domestic company with a management succession problem.

Don Argus: What is that? Management succession problem?

Stephen Mayne: Needing to find a new CEO.

Don Argus: No, that is presumptuous Stephen! I won't wear that and you know that.

Stephen Mayne: Alright, we have the same legal advisor in Allen Allen and Hemsley.

Don Argus: And a very good...

Stephen Mayne: ...And the very legal advisors that have obviously advised that we don't need to have an independent expert report.

Don Argus: No, that is not so. The board makes that decision Stephen.

Stephen Mayne: Well, I guess, my specific question is, why haven't we got an independent expert's report. We haven't got any forecasts on EPS. Even some of the big shareholders are saying...

Don Argus: Now Stephen, I give you a lot of credit for being a good analyst. Here is a company that has had a joint venture for 27 years. 80 percent of the income is coming from these joint ventures and you want to put the shareholders to the expense of an independent experts report. And you know very well, that you normally only get an independent expert's report, if there is a conflict of interest or you are trying to justify a particular reason for doing it. That would be a complete waste of money. And Jack has already asked the question about $45 million of fees that we have paid in this thing now. It would be a waste of time, Stephen.

Stephen Mayne: Well, the shareholders own this company. And the board is putting up a proposition here, and part of this proposition includes things like, a big pay package for the new CEO. And I would like to see someone independent of the board actually running the numbers.

Don Argues: What value would it add Stephen?

Stephen Mayne: It would give the shareholders an independent perspective on whether 57 percent is a fair share of the equity. Our assets that are going into this are much stronger and better, particularly Recall, than the assets that are being put in by the other side and I'd like to see some numbers on that.

Don Argus: I am sure GKN probably have a different view. They may not be that fussed about the equipment hire, some of the other assets they have inherited. I hear your point. We have made the decision based on the knowledge we had and it would have been a waste of money.

Stephen Mayne: Okay, I guess, the other specific question is, we have lost our CEO John Fletcher, we have lost the finance director, Mr Brown. There aren't that many professional directors in Australia who actually have no skeletons in the closet, and one of the few is actually John Cloney, who is one of the best directors in Australia. Everything he had touched has gone well and, I just find it puzzling and a bit disturbing that the combined entity is losing one of the best professional directors in Australia, as well as having lost Mr Fletcher and Mr Brown as part of this process. Why, specifically, is John Cloney the director that has decided to leave, when he is one of the best directors out there?

Don Argus: John elected to retire. John may not have wanted to do the extensive travel that will be required in this. As you know John has a full portfolio of things he wants to do and it would have required John to rearrange his schedule quite considerably. And John made that judgment. I agree with you, John is a talented director, as is Neelie, and we are very sorry to lose them. But that is the reality of life. Okay, any more questions?

Stephen Mayne: just a couple more Don. I guess, two points of difference between the BHP and the Brambles deal, there is no break fee in this deal which is a good thing. And there is no premium which is a good thing. I guess, the thing that I am a bit worried about, is that at the BHP meeting you said that if BHP didn't merge that it will whither on the vine and fail to attract decent management.

Don Argus: I am not here to talk about BHP Billiton Stephen. Please talk about Brambles.

Stephen Mayne: Okay, you said that we fail to attract decent management. BHP has written off $10 billion over the previous ten years. They were a discredited management team. So, the argument worked well there.

Don Argus: Stephen, please stick to Brambles.

Stephen Mayne: The Brambles management team had been highly successful. Since you have come on as chairman there has been a lot of upheaval in senior management ranks and now we have had a wonderful 27 years with our London friends, which has worked fantastically, and now we are changing something that has been terrific over the years. Now a couple of weeks after the BHP meeting, when you raved about the great management team we were all getting, Mick Davis the CFO resigns and goes off and joins some company...

Don Argus: Stephen, please talk about Brambles. I am not here to listen to you about BHP Billiton.

Stephen Mayne: Are you aware of any of the senior management team who are considering there options and not joining this new structure which you created, in taking the John Cloney option, of saying, I like the old structure, I don't like the new structure, I'm getting out. Are there any other big losses in the management team that you re aware of, ala Mick Davis at BHP?

Don Argus: Not to my knowledge. Any further questions?

Stephen Mayne: Mr Burrows, I will be voting in favour of Don's election. Just one point of clarification. When Macquarie Bank advised Rio Tinto and CRA and the DLC was put through, I think it was four or five years ago now, the then Chairman John Uhrig saw his fees rise to more than $500,000 a year, and he was the highest paid non-executive chairman in Australia, on the basis that it was a bigger company and he had to get the same as what the British chairman was getting, etc, etc. I may have missed it in the documentation, but with the BHP proposal, it was specified that there would be no individual increases in fees for directors. I know that the overall fees are going up from $1 million to $2 million. Can you advise whether the new chairman's fees will be higher than they were last year?

Mark Burrows: That is a matter for resolution at the tail end of this in terms of the increase in fees and that is set out in the information memorandum. I can't comment on BHP, but all I can say to you, just in terms that I have got the floor here, is that in comparison with what actually is the position in the UK for PLC companies of this size, the chairman's remuneration is considerably less than what is actually the norm there.

Stephen Mayne: Can I have a yes or no. What was Don paid last year. Is it envisaged that there will be an increase if all the resolutions are passed today? I appreciate it probably is low....

Mark Burrows: We have got a specific resolution on increasing directors fees...I think that is the appropriate point to discuss it.

Stephen Mayne: Right. So you know and you're not telling us? Or...?

Mark Burrows: We have got a motion to increase directors fees later in the meeting. That would be the appropriate point to discuss individual director's fees.

Stephen Mayne: Okay. I'll come back to it.

Stephen Mayne: Chairman, just a couple of comments. From my reading of the package, it looks like CK's getting about almost $3 million cash a year, a bonus of up to $1.5 million a year, so that will be getting up to $4.5 million and we're proposing to give him $5 million dollars worth of free shares if the EPS growth compound is more than 15%. Now I welcome the fact that you've got a hurdle in there, but the whole question of giving an executive free shares I think is not desirable and it would be preferable to have options that allow him to actually buy the shares himself. Now, you could work so that the value was the same over the long term, but just handing out free shares has not been a pretty experience in Australia if you look back at AMP with George Trumbull, if you look at Dennis Eck at Coles Myer, it just seems that it's regarded as excessive so I guess my question is: why has it been necessary to offer such a huge, huge package and the other issue is that why is there a provision that we have to give 24 months notice if we want to terminate CK Chow and if we don't give 24 months notice he gets a cash payout of $8 million on top of everything he's already getting. Now surely a good CEO. is confident he'll perform and doesn't need to build in pages and pages of conditions and clauses which protect his long term contract. Jack Welsh, the best CEO in the world from GE has a one page contract which says the board can sack him at any time for no reason if he doesn't perform.

Don Argus: which gives him a payout of around $80 million, Stephen.

Stephen Mayne: But they chose to give him that....

Don Argus: US dollars, Stephen.

Stephen Mayne: He didn't need that written into his contract, though, because he was confident that he could do this. I mean, CEO's...

Don Argus: Let me explain the situation to you. If you are going to extract international executives out of other companies, these guys have already got a very comprehensive package with their existing firm. And they leave an awful lot of money on the table if they do change employment. Now, if you are going to engage international executives, and I happen to believe that as you have done your international search, and this is an international, a global company now, and you do need to get the best talent around the world, then you have got to release those guys from a particular enterprise, then you have got to able to compensate them for what they leave behind. And really that is it in a nutshell. It's happened in a few companies I am aware of and I know that that is standard practice around the world. And for any company in Australia that wants to go that route, and go global, and they want to extract someone from another enterprise. Then they are going to have to compensate them for what they have had to leave behind.

On the package itself, on the international package, let me just tell you the way that it works. There is a base salary structure that is pitched at 75 percent of his comparative group of companies. So, he's not being overpaid on his base salary. He is then on a short term incentive, which is some pretty stretching hurdles that he has to meet. And then he is on a long term incentive which is taken on the total shareholder remuneration piece, the total shareholder return piece. And he can only get those, they can only trigger, those hurdles only trigger, in the context of his short term incentives, if he hits those hurdles. If he hits those hurdles, then we all benefit. And then his long term incentive. We want him to hang around, then he'll only get the benefits on his long term incentives if he competes well with the comparative group of companies, and they are international companies that we will have, will put Brambles into. So, this is no free ride.

Now, as far as the 24 months notification is concerned, if I changed, if I was going to change my residence out of United Kingdom and come to a place like Australia, I'd want some certainty that I only got here for a short period time then I find that I'm out on the street, because I've already given up some of the things that I have achieved in other parts, and that to me is a smart way to put a contract together and to show the good will and hold these sort of guys into your environment. Stephen, the days of the cradle to grave employment is gone. These guys don't get superannuation. They are there. They have got to achieve. They have been driven very hard by incentive standards. I will not comment on other contracts that you refer to. All I know is that the contracts that I have negotiated with some of the international execs are, they are tight, they are stretching and the shareholders get the benefit as well as anyone else.

Stephen Mayne: They are all good points Don. The only objection is, we are paying him a truck load, four and a half million, we have given him a first class airfare and remuneration cost.

Don Argus: I don't believe it is a truck load. I don't believe it is a truck load at all in the context...

Stephen Mayne: I just hope that if CK suddenly decides to leave us, and doesn't give us 24 months notice then he can pay us $8 million, I mean it's just...

Don Argus: Common, you know better than that. That argument doesn't wash...

Stephen Mayne: These golden parachutes are just excessive. We are paying him a lot...

Don Argus: It's not a golden parachute Stephen, you didn't listen to me. Its not a golden parachute at all...

Stephen Mayne: If you fire him, if you fire him because he doesn't perform. If we say in 12 months, he's been hopeless and we want to get rid of him, you have got to pay him $8 million. That's a huge golden parachute...

Don Argus: But he could go to the court. But he could also go to the court and say I have been wrongfully dismissed and the court would probably approve a two year pay out. Okay, other questions?

Stephen Mayne: Just a question before Don. Does the board have within its contemplation a new pay scale for the directors, for the three classes of directors? The two deputy chairmen, yourself as chairman, and ordinary non executive directors?

Don Argus: Yes, Stephen, it does. It is outlined on page 62 of the information memorandum.

Stephen Mayne: Okay, so you are going to get 180 thousand pounds a year.

Don Argus: And you can convert that to Aussie dollars I hope?

Stephen Mayne: and what were you paid last year as chairman.

Don Argus: Oh, Stephen I don't know. I'll find that out and advise you. Is that relevant to the point that you want to make?

Stephen Mayne: It was a very simple question at the start and it will be up by 20%, answer.

Don Argus: It will be up. I don't know whether it will be up 20 percent. Again, and I hear your point that you made about John Uhrig. I happen to believe that John Uhrig worked pretty hard for his company. And you are now dealing in a global company. And if we are going to keeping coming back to a smaller company, then we are losing what we are trying to achieve here.

Stephen Mayne: Yes, I think you deserve a pay rise and I will be voting for this. I was just trying to find out the information, that's all.

Don Argus: Stephen I will make that information available to you. I'll even give you what I got last year.

Stephen Mayne: Terrific. Thank you very much.

Don Argus: All right, good on you.

Go here for a full chronological list of edited AGM transcripts available from the past decade of shareholder activism.

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