Too often, the NEDs have fled
January 29, 2009
This story by Michael West appeared in SMH on November 13, 2008
To be taken seriously, non-executive directors must start earning their keep and stand up to executives.
WHAT'S the difference between a non-executive director and a shopping trolley? You can fill them both with grog and shove them around but you can't make a shopping trolley go where you want.
It's an old gag but a goodie. In defence of the "independent" or non-executive director (NED), we rarely appreciate the good they do. If executives try to push through a rash deal or a hideous related-party transaction the independent director won't be feted in public for thwarting it.
But we do see the shockers.
And perhaps the biggest of the modern era was the decision by the board of Allco to approve the $260million buy of Rubicon (see story earlier this week).
Despite presiding over this exercise in shareholder sadism, two former Allco executives, Rod Eddington and Barbara Ward, were rewarded with the chair of ANZ bank and a board seat on Qantas, respectively.
And along with Bob Mansfield they sat on the Allco related-party transaction committee that greenlighted Rubicon, not to mention $45million cash for Allco directors David Coe and Gordon Fell, who held Rubicon shares.
The Allco NEDs could have forced them to take Allco scrip alone. They will say there was an independent report that found it was fair. But what is the point of a NED if the buck passes to a consultant they hired with shareholders' money?
NEDs and executives are the labour hired by shareholders who own the company. They are paid well to act for shareholders.
A NED in a top-100 company takes $120,000 for 12board meetings and a chairman $350,000. The pay has doubled in five years as they complained of more responsibility and legal risk. The latter failed to appear except at James Hardie.
Eddington and Ward are said to be fine people; people make mistakes and both may serve admirably in their new roles. But the appointments beg the question: what does one have to do to get tossed out of the club?
Former James Hardie director Meredith Hellicar is on the AMP board despite presiding over the most bitter transaction in recent memory: the separation of James Hardie that left asbestos victims without funding.
Transurban chairman David Ryan was chair of the audit committee for ABC Learning. He remains despite a 34% vote against his re-election and a 59% thumping of Transurban's remuneration report.
The poster girl for non-executive forgiveness, Elizabeth Nosworthy, was on the boards of Ventracor, Commander, Babcock and Brown and Babcock and Brown Infrastructure yet was promoted to the chair of Babcock - albeit a role that would not have met with spirited competition from the Australian Club.
The notion that performance in one company has no bearing on performance in another is not logical. If it were, then HIH chairman Ray Williams should be a shoo-in for QBE.
It seems that NEDs accept responsibility for success but deny it for failure. This is reinforced by the institutional donkey vote, although that is becoming more discerning.
Still, they know they can front the annual meeting and pick up 96% of their vote for
re-election with not even a meaculpa. Errors of judgement are one thing; we are talking here about serious failures.
Apart from the odd protest vote there is no measure of performance and no way to censure. The financial media is reliably timid at criticising the powerful, especially the likes of Eddington, a News and Rio director. He has had a long and successful career. Running Cathay Pacific and British Airways qualifies him for the ANZ chair but his chairmanship of JPMorgan is a conflict.
NEDs greatest failure is their inability to stand up to executives on pay. Executive pay rose last year despite falling shareholder wealth.
It should be noted that directors face their employers (shareholders) only once a year. This annual meeting season there were at least two cases where chairmen suppressed reasonable dissent. Shareholder activist Stephen Mayne, despite questioning the boards of Toll Holdings and Seven Network in an entirely reasonable way, was suppressed by Kerry Stokes and Paul Little (acting for chairman Ray Horsburgh).
At the Seven meeting, Mr Stokes told Mr Mayne to sit down and even sooled security guards on him for making entirely sensible inquiries that were in the interests of shareholders and free speech. Pathetically, the media company can't even get around to webcasting its meeting.
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