Murdochs, Packer, Ron Walker, ANZ, Telstra and pay protests
July 14, 2008
Here are Stephen Mayne's stories from the Crikey edition on Tuesday, September 13, 2005.
4. Lachlan and Anna fire a devastating blow
By Stephen Mayne
The court of the Sun King is in open revolt. How else can you interpret the extraordinary 9000-word plus New York magazine profile of the Murdoch family soap opera which features all sorts of quotes about how Lachlan and Anna Murdoch "felt" and "thought" at various times during the break down of their relationships with Rupert. The picture they paint ain't pretty.
Rupert runs a notoriously tight ship at News Corp in which criticism of the great man is not tolerated so to receive this orchestrated bucketing from his second wife and eldest son must really cut to the core.
For instance, Anna Murdoch has revealed that she was unceremoniously booted off the board in tears and was accompanied from the room by Lachlan after Rupert declared she was "an embarrassment to everyone else on the board.” That's got to count against Rupert in the eyes of all Anna's children.
John D'Arcy's new book reveals that Rupert's old school mate and News Corporation chairman Richard Searby QC was also unceremoniously sacked from the board 15 years ago.
What does this mean for Lachlan's spot on the News Corp board given that he has now emerged as someone prepared to tip a bucket on his dad publicly? Rupert sacked his chairman and sacked his wife. Will he tolerate the recalcitrant and disloyal son? Does he have the power to do this?
The 1998 divorce has certainly changed the dynamics at News Corp but with Rupert unilaterally over-riding that agreement by giving Wendi Deng and his infant children more power in the family trusts, the prospects of a major family blow up remain real. The New York magazine profile is a major escalation which has to further destabilise Rupert's 52-year unfettered hold on power.
Despite all the books which have been written about Rupert over the years, never before has so much tightly-guarded family information entered the public domain. For instance, we've got quotes from James Murdoch cursing claims that his older brother was heir apparent:
Publicly, the kids signed off on Lachlan's elevation. Still, an executive who worked for James, younger than Lachlan by just fifteen months, recalls the day James spotted a newspaper article on his desk talking of Lachlan's ascension.
James grabbed the article from the exec's desk. “He tore it up, crushed it into a ball, and stomped it on the ground,” recalls the exec. “It's not f*cking true,” James announced.
This sort of disclosure has to cause more bad blood and it seems that literally dozens of News Corp executives have risked upsetting Rupert by co-operating with the magazine, most of them off the record. It is doubtful many of them would survive if caught.
When you've accumulated 52 years of enemies and fired hundreds of executives whilst ruthlessly building a global media empire, there comes a time when enough of them will get together and fire a few shots back. Without a united front from his own family, it almost feels like open season on the Sun King, with Anna and Lachlan leading the charge.
Whether Rupert will be around at the helm of News Corp in 2007 to face his first News Corp board election in decades remains an open question. The iron grip is weakening, but it will take a hell of a battle to blast Rupert Murdoch out of the News Corp boardroom, even though most analysts now believe this would add value to all shareholders.
7. Kerry Packer's television collusion 20 years ago
By Stephen Mayne
As Kerry Stokes attempts to sue the world, alleging collusion and illegal behaviour by Australia's two richest and most powerful families and various others, it is worth quoting a couple of extracts from a new book by John D'Arcy, the last managing director of the Herald & Weekly Times before News Corporation bought the business for more than $2 billion in early 1987.
D'Arcy is now 75 and much of the book, Media Mayhem: Playing With the Big Boys in Media, was dictated onto tapes and then transcribed so it is a bit rough and ready at times but some of the insights are fascinating. Firstly, let's get a feel for Kerry Packer's understanding of the Trade Practices Act in the mid 1980s:
Kerry rang me one day, not long after I had taken the job in Melbourne (as CEO of HWT in 1985), and suggested we protect the current television stations' ownership of sporting rights in future renewal negotiations. This was to be effected by an agreement between the three commercial networks – 'Keep Off The Grass' (KOG).
Such an agreement was probably not in absolute agreement with the Trade Practices Commission, but made commercial sense, and I agreed on behalf of the HWT and affiliated television companies. Kerry's next request was would I tell "those f*cken b*stards at Fairfax about the deal!"
Fairfax, on behalf of the Seven Network, agreed.
Whilst the Seven Network litigation is a lot more complex than this, various sporting rights owners around Australia should remember that such an approach to business demonstrates how Kerry Packer became Australia's richest man. Packer put in place an illegal collusive arrangement that was to deny every major sporting code a fair market value for their rights.
The statute of limitation has obviously long since expired but ACCC chairman Graeme Samuel would be most interested by such a revelation as he contemplates approving major media mergers next year. Samuel was responsible for extracting the highest price for the AFL's TV rights so he knows how important it is to have a competitive tender process.
17. Is Ron Walker commissioning pro-Kennett features?
By Stephen Mayne, former Kennett government spindoctor
The latest fill-in editor of The Australian's Strewth column, Michael Bachelard, had an interesting theory in Monday's column:
When he was Victorian premier, Jeff Kennett regularly ranted at The Age, accusing the newspaper of bias and of being anti-reform and desperate to bring his government down. The ABC's 7.30 Report suffered from similar views and was banned from interviewing Kennett for years. But last week Kennett appeared on the program to hit out at Health Minister Tony Abbott for his callow jokes about former NSW Liberal leader John Brogden. Swiftly The Age swooped and this weekend not just one but two lengthy, full-page profiles of the former premier appeared, one on Saturday, another on Sunday. Both were nice, soft pieces that began with descriptions of his office decorations and time management before referring to the rapprochement with the ABC and his new role at the Hawthorn Football Club. Both contained vague hints of lingering political ambition. Welcome back into the fold, Jeffrey.
A fair argument indeed, but Bachelard could have made an additional point: that Kennett's great mate Ron Walker is now chairman of Fairfax and a regular visitor to The Age's Spencer Street building.
Shaun Carney's 2,112 word Saturday feature was trumped by Peter Wilmoth's 2,353 word epic the following day, and neither laid a glove on the lad. The easy conspiracy theory goes as follows: Age editor Andrew Jaspan doesn't want to be shafted for Ron's mate Neil Mitchell so he endeavours to please his new chairman with a soft Saturday profile of his great mate.
Meanwhile, Sunday Age editor Alan Oakley operates independently of Jaspan and commissioned his own soft Kennett feature to impress chairman Ron as he firms into favouritism to be the next editor of The Sydney Morning Herald, provided big red gives him the nod.
That's almost certainly garbage as both papers simply leapt at the chance to interview the notoriously unco-operative Kennett after his Hawthorn coup and depression commentary over the Brogden affair. So why did Kennett agree to co-operate with the paper he hated so much? Was it after assurances from his mate Ron that he was unlikely to be done over now that friendlier forces were in control at Fairfax?
23. ANZ explains share scheme as McCrann fires another shot
ANZ spinner Paul Edwards writes:
Your Crikey Daily article yesterday "How does the ANZ CEO get buy on $43 a year" is factually incorrect. Under ANZ's approved Directors Share Plan:
- Directors who forgo salary are entitled to receive shares to the value of remuneration forgone. These shares have a restriction period of between 1 and 10 years and are subject to forfeiture for serious misconduct.
- For taxation purposes, Directors are taxed on the value of shares at the end of the deferral period and they are taxed on the value of the shares at the top marginal rate of 47 cents (plus 1.5 cents Medicare Levy).
Options are taxed on exercise at the full marginal rate of 47 cents (plus 1.5 cents Medicare Levy) on the difference between the exercise price and the share price at the date of exercise (unless an election is made to be taxed on receipt of options).
It is very disappointing Stephen that you would not check something like this before hand. The details of the Director's Share Plan are disclosed in the annual report and I am always accessible and happy to check any point of fact out for you before publication.
Stephen Mayne writes:
Similar arguments were proferred by my old boss Terry McCrann in the Herald Sun today in another amusing spray that, once again, fails to mention Crikey by name, just like this piece from last week.
Okay, so it seems the sacrifice issue is a tax deferral strategy and the CGT discount arises with any gains made, of which there have been tens of millions for John McFarlane. As I said yesterday, it would still be very interesting to know exactly when and how much tax the bonny Scot will pay on his $120 million-plus equity play since arriving in Australia.
Of course, once he's paid for the stock, there are all those tidy fully franked dividends, but you can't quibble too much about these as ANZ have already paid tax on these earnings – at the corporate rate of 30%.
Some of this comes down to how the equity instruments are valued by the ANZ and there have been recent studies which suggest systematic under-valuation of options by Australia's major corporates over the last five years.
Finally, if there is absolutely no tax benefit, why did McFarlane take only $43 in cash salary in 2004? This is an important debate to have begun and we haven't even started yet on the way tax breaks on terminations payments are also rorted by CEOs. Bring it on!
Meanwhile, a tax accountant writes:
The taxing of employee (including executive) shares is a very complex area and not as simple as Stephen Mayne makes out. There are special provisions in The Income Tax Assessment Act 1936 which covers the way they are taxed (Division 13A). Check out this link from the ATO website, covering the taxing of employee shares.
Basically if an employee is paid in shares, (and they do not pay anything for the shares) the value of the shares must be included as assessable income (taxed at you marginal rate) and not included as a capital gain. In these circumstances if the shares are not qualifying shares then all of their value is included as assessable in the year you receive them as other income, not a capital gain.
If there are qualifying shares then you have a choice of 2 concessions.
Concession 1 allows you to defer the income to a later date (usually 3 years) and include the full market value of the shares at that point as assessable income (as other income, not capital gains).
Concession 2 (if you elect in writing) allows you an exemption from including in your income the first $1,000. The rest is included as income in the year you receive it (as other income not capital gains).
24. The timing of Telstra's AGM
Telstra spinner Sue Cato writes:
The 2004 Telstra annual report (Financial Calendar published on inside back page under Investor Information) advised shareholders, media and the like that the 2005 AGM would be held on 20 October. Telstra announced the change of date to 25 October from 20 October on 14 February 2005 via the ASX.
Stephen Mayne writes:
Okay, point taken. The AGM wasn't brought forward recently to pre-empt outside board nominations or for any other reason, as I claimed yesterday. However, every other point from yesterday's item remains valid:
- The notice of meeting and annual report shouldn't have been cynically released just before 5pm on Friday afternoon
- It will be the earliest ever Telstra AGM, when given all that is going the board should have actually delayed it until after the release of Sol Trujillo's strategic plan on October 28 and after the board had settled on 2-3 new directors
- Sol Trujillo has indeed decided to exempt himself from facing a shareholder vote when his predecessor Ziggy Switkowski put himself up for election every three years.
Given that one third of a board must spill every year, under normal processes there would have been a ballot between McGauchie and former CSIRO chief Dr John Stocker to see who joined Livingstone in this year's board poll as both were last re-elected in 2003. It would have been a bit rough on Charles Macek or Belinda Hutchinson to face a ballot given they were only re-elected last year.
However, the board vote that McGauchie face the vote suggests an attitude of "you got us into this mess so you can run the risk of the government voting you off the board."
Full marks to Donald for stepping up to the plate as well. Has Australia had a more combative and gung-ho professional non-executive chairman before?
25. Who wrote that Telstra submission?
An expert on management consultants writes:
The work of Bain International is all over the now infamous Telstra briefing document to the PM.
Bain International have a set of standards around the way presentations are 'built' including font, graph type etc. Needless to say the document "Telstra: The Path Forward" is straight out of the Bain handbook; at least to page 15, then two pages of Telstra standard font etc, then back to Bain for the rest of the document.
One key feature of any Bain work is a purchase of the shares in the company they are working. This purchase isn't by Bain but through an investment vehicle, theoretically to avoid a conflict of interest but considering Bain work directly with the CEO's of the companies. It would be very interesting to know if they have now or previously purchased shares in Telstra; or are waiting for the bottom of the bad news.
Stephen Mayne writes:
This would not be at all surprising given that Sol has brought Bain in to be his hard-nosed management consultants reviewing every facet of Telstra's business. The Telstra cardigan set haven't made an aggressive statement to government in years, so the business wouldn't have that sort of capability in-house.
This makes it quite amusing watching normally reticent Telstra mouth pieces suddenly getting all bolshie after years of mealy mouthed statements. How must Kate McKenzie have felt fronting Friday's Senate hearings because her boss Phil Burgess has been sent to purgatory for his statements about not putting his mother into Telstra stock. Go to page 66 of Friday's transcript to see how McKenzie handled herself playing all tough after years of not saying anything too provocative at all.
27. Tracking the remuneration report voting
By Stephen Mayne
The most exciting feature of the forthcoming AGM season will be seeing how shareholders deal with the new non-binding votes on remuneration reports that were introduced as part of CLERP 9.
Given that executive pay has sky-rocketed in recent years, don't be surprised if a couple of companies actually see their reports get rejected by shareholders. The $4.5 million "retirement benefit" for outgoing Fairfax CEO Fred Hilmer will be censured and Roger Corbett's fantastic farewell package from Woolworths has also raised plenty of eye-brows.
Just because a company is performing well doesn't mean that shareholders won't object to excessive pay packets - look at the 19.6% that rejected Rinker's remuneration report on July 18 after the Australian Council of Super Investors (ACSI) recommended a protest vote at the July AGM.
The three dual-listed companies in Australia and the UK - Rio Tinto, BHP Billiton and Brambles - have all been running the gauntlet of non-binding remuneration report voting for a couple of years so we've got enough to get our little table out there:
Rinker: 19.6%
Rio Tinto: 5.28%
Minara Resources: 3.52%
BHP Billiton: 1.82%
Brambles: 0.72%
As you can see, Rinker is the exception to the rule, which is a little surprising given some of the huge pay packets on offer at the three DLC companies.
If we've missed any please email smayne@crikey.com.au and we'll keep updating this as more than 1200 listed companies face up to this remuneration report vote for the first time over the coming 10 weeks.
One lovely irony is that the financial services sector has some of the most excessive pay packets of any industry and many of their fund managers will be deciding on how to vote on other company remuneration policies. And we still don't know what our top fund managers get paid because they are exempt from the "executive" category and don't get listed in the expanded top 10 salary list even if they are paid $50 million a year.
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