2003 AMP AGM Transcript edited
September 4, 2009
Chairman Peter Willcox: Good morning. I am Peter Willcox, the Chairman of your meeting today. I have been advised by the company's sect that a quorum is present and so I will now formally open the 2003 annual general meeting of the share holdings of AMP Ltd and welcome you here today.
Joining me on the stage are your Board of Directors and our Company Secretary. They are, starting from your far right, Ian Renard, Lord Killearn, Meredith Hellicar, Sir Malcolm Bates, and the company secretary, Pru Milne and, from your far left, Roger Yates, Richard Grellman, Pat Handley and Andrew Mohl.
The purpose of this meeting is to provide a forum for the shareholders of AMP to request questions and make comments on the accounts and reports for 2002, to elect Directors and to approve or reject a number of other resolutions as set out in the notice of meeting. I would also like to it to be an opportunity for you as owners of the company to express your views to the Board and management and to me to question us.
I would like to conduct the meeting in much the same way as I conduct Board meetings and that is to encourage a pretty free discussion and expression of views as long as it is relevant to the affairs of your company and it respects the views of others. I would like to give as many people as possible who want to speak the opportunity to do so.
To do that it will take some discipline on my part and on yours, and I ask you for that favour. I appreciate the time and effort that many of you have already made to give me your views, through your letters, emails faxes and phone calls. I do read and I do listen to all of your concerns, and I reflect your views when we make decisions in the Board.
Our agenda today looks like this. Firstly, there will be a review given by myself and Andrew of how we got to where we are and what we are going to do about it. Then we will come to the items of business. Item 1 the financial statements and reports. Item 2 will be the election of Directors and the last item will be amendments to the Constitution.
Let me make some brief remarks about item 3 of the notice of meeting, which set out proposed resolutions relating to the equity components of Andrew Mohl and Roger Yates's remuneration packages.
As we recently announced, the Board is no longer seeking shareholder approval at this meeting for those proposed resolutions as we no longer believe it is appropriate to do so in light of the demerger proposal which Andrew and I will talk more about later.
Accordingly when we reach item 3 of today's agenda, I expect the meeting will allow those proposed resolutions to lapse. If necessary, formal motions will be moved to proceed to item 4. Therefore, there will be no discussion on item 3 at that time. However, I am aware that some of you may nevertheless wish to make comments on executive remuneration, and I will give you that opportunity during today's first item of business.
I also plan to use this item for more general discussion of the Company's affairs or the conduct of the Board or of management. I must stress that we are not meeting today to approve or reject the proposal to demerge AMP's businesses. We will hold another meeting of shareholders to do that later this year after you've all received much more detailed information about the proposal and have had a proper opportunity to consider its merits. However, again in item 1, we will answer questions you have at this time about that proposal.
Now to business. I have been Chairman of AMP for 11 weeks after joining the Board last September. I have spent much of that time talking to and listening to the owners of this business large and small. Throughout these discussions, your frustration has been made very clear to me. Understandably, you are upset and, in many cases, angry about the substantial fall in the share price over the past 18 months, about the payouts made to former CEOs and management, about being held hostage to the UK stock market and about the write-down announced in December followed again last week by our foreshadowing further write-downs on a capital regime. You have every right to be disappointed, as I am, about the loss of value that has taken place in this company over the past few years.
Before taking you through what we have done and what we are proposing to do about it, let me answer the questions I have been asked most often. Firstly, what went wrong? Secondly, why wasn't it fixed and who is responsible? As of last week, why is this restructuring with write-downs and a capital regime needed?
First, what went wrong. This is possibly the most important thing I have to say today, because it helps set up the rationale for the restructuring. From your reaction last week we need to do a better job of explaining that. This is not surprising, because it took the Board many weeks and many meetings to understand what was needed and why. Then we had to disclose this decision straight away. It was a lot to digest in one hit and still is. The issue of what went wrong is very complex and I will try to explain it as plainly as I can. As you will see, from what I say, put simply, AMP had too much of your money in the wrong business at the wrong time in the wrong place.
About 10 years ago, AMP entered a market that had hidden structural flaws, with a much higher risk-reward skew than was ever appreciated. What do I mean by that?
Well, all of us have a picture in our mind at AMP who for more than 150 years was an Australian company that could be trusted to take care of the savings of Australians and New Zealanders. It is still that company. Starting with London Life merger in 1989 and in the acquisition of Pearl in the UK in 1990 it started to be another sort of company as well, effectively a British life insurance company. By the end of the 20th century three years ago, following other acquisitions, like National Provident Institution, NPI, in 2000, it was actually more a British life insurance company than an Australian one. Because twice as much of AMP's capital, your capital, was in the UK compared with Australia.
For many years, that was all right. Being a life insurance company was a very good business in the UK. Basically, AMP received money from policy-holders and, in return, guaranteed to make payments to those policy holders over many years into the future. These capital guaranteed products were not priced to cover the risk of those guarantees. Instead, those risks were covered by the huge surplus capital that had been built up in our UK Life funds over the years, particularly in boom share markets. For many years, that was fine. In fact, it was a great business. As can you see from this slide, the UK stock market boomed through the 1990s, tripling in value.
As markets were booming, life insurance companies were writing large volumes of business and earnings were looking impressive. This was all contributing to the accumulated surpluses in our funds. It was a great business because the earnings on that surplus, which was not AMP's capital, went 90 per cent to the policy holders in bonuses and 10 per cent to AMP, to us as shareholders in profits.
Underlying this great business, however, was an unanswered question and a risk. What would happen if stock markets fell dramatically? Well, even then, as long as adequate surpluses remained, any loss in earnings was also taken 90 per cent by the policy holder and only 10 per cent by AMP. A significant fall in the market would temporarily reduce earnings but not be critical unless the surpluses fell below the required minimum level. However, there seemed little likelihood of that since the surplus built up over the boom years was so large. It would have taken a 50 per cent fall in the UK stock market to do that.
Unfortunately, that is exactly what the UK stock market did. Not all in one go, but over a period of two years, as you can see even more closely in this chart, which covers the first few years of this century. When markets fell, those services shrunk to the point where shareholders were required to top them up. In the middle of last year, AMP had to put more shareholder capital in to get back above the required minimum level. 500 million pounds or about $1.4 billion Australian of your shareholder capital was put back in. What made the situation worse was the risk the reward failed. If the market goes up, shareholders get only 10 per cent of the benefit while policy holders get 90 per cent. That makes it a high risk-low return use of that shareholder capital.
To come to the second question, why wasn't something done? I believe because through year after year of the boom in share market the risks weren't obvious and there was no incentive and apparently little need to interfere in a successful business in a competitive industry where this was the norm. As the market fell, there would have been the temptation to agree with the so-called experts that the market would bounce back as it appeared to do, as you can see from the slide, again and again. Also, as you saw from our announcement last week, changing strategy can be very painful. In the short term, it can make you very unpopular.
I have to say that the temptation was for us also not to grasp the nettle. Falling markets led to lower profits for UK in forming for UK Life insurers.
This chart shows the AMP share price behaviour compared with two typical large UK Life insurance companies like ourselves, Prudential and Aviva, which is the combination of Norwich Union and Commercial Union. AMP price is shown in yellow, Aviva in blue and Prudential in white. We and they saw 60 per cent of our share price disappear over this period. So this was not an AMP specific problem or a problem of an Australian company going offshore as such. This was a systemic industry problem that has caught most of the UK Life industry off guard. Few people expected the UK share market to go down so far to go down. Which is why I said AMP had too much of you money in the wrong business, in the wrong place at the wrong time.
So who was responsible. Ultimately Boards are accountable for the strategic direction of Companies.
That is why this Board has accepted that accountability and is taking action to fix these long standing structural problems despite the short term pain our solution involves. We are taking action to ensure this problem does not re-occur.
What have we done.
I joined the Board last September and Andrew became CEO soon after. At that time the Board Agreed with Andrew that there was an urgent need for him to assess our situation particularly in the UK, and to take action as quickly as possible to protect the value of our businesses.
Andrew delivered his initial report on December 5, listing our business units and functional areas. That initial assessment was extremely serious, particularly as it included writedowns on our UK businesses of 1.2billion dollars. This led to the full year loss of $896 as reported in the accounts.
The steps that Andrew and his team took then were the right ones.
To separate our UK businesses that did not contain guarantees from the old business that did.
To stop taking any new customers into the old Guarantee business. To put protections in place to protect form further falls in the UK stock market.
To close the international division. To restructure the Australian business, including the bank, and to reduce the size of the corporate office by a third.
These actions had to be taken quickly and decisively, and they were. By the and of February this year, after the initial assessment and action, I was asked to take over the Chairmanship of the Board and at the same time it was decided to build a new Board. We needed new Directors so we could take a fresh look at our circumstances, and work with the management team of a strategic review of our Group.
We also need to band the injection of fresh thinking with the relevant experience and understanding of AMP that existing Directors had. Which is why I asked a number of those Directors to remain and I appreciate their agreement to do so through a very difficult period.
We set new ground rules for the performance and remuneration of the Board. These steps included in the abolition of remuneration allowances for new Directors and seeking approval at this year's meeting for an effective 9 year time limit for tenure. I will talk more about these changes later on.
The Board had some fires to put out as well. In our first weeks the Board took some action on some outstanding issues, including the termination payout to the former CEO.
We made a decision we believe that was in the interest of share holders
and we are standing firm on that decision. We have paid Mr Batchelor what we considered to be a fair amount in lieu of notice. Since Mr Batchelor does not agree that the payment was fair, he may initiate court proceedings, though he has not done so as yet.
In this as in all matters we are determined to defend your interests vigorously. Some shareholders have questioned the need for any payment at all in the circumstances. I am afraid we are required to honour our legal obligations to our employees, which we believe we have done in this case, painful as that may be.
While the Board was tackling these issues, Andrew and his team began a broader and deeper review of the problem to a void a repeat of problems. They looked at how our businesses worked together to create value and they were consulting with us along the way. As we did you go deeper into our situation we began to realise that while the steps taken in December were right, we needed to go further to protect your interests and create a structure that would be more certain to deliver value over the medium to long term.
We had three fundamental issues to manage.
First, we had to find a permanent solution to share market risks in our UK Life and pensions business. Second, we had to protect the quality assets and brands that you have in Australia and in the UK. Finally, we had to determine how we could create the best value from our businesses and provide investors with a clear choice about which of those businesses they wished to invest in.
First, the UK share market risk. Remember I said that the profits or losses on any surplus of assets over liabilities were split 90 per cent to the policy holder and 10 per cent to the shareholder, to us. Once that surplus had shrunk, the risks moved radically against the shareholder, against us. You must make sure that you do not fall below the required minimum and to do that, you could choose to be largely out of shares or have other protection in place so that there's no risk of further falls or the shareholder, us, we, must put in more capital to bring the assets back up to the required minimum.
The problem with doing that is that if you put more capital in and the market falls, for every dollar the shareholders put in, he or she now loses the whole dollar. But if the market rises, the shareholder only gets 10 cents on the dollar. Again, with the dies loaded against you in this way, the arithmetic says that you have to have more than a 90 per cent probability that the market will go up to justify investing in that dollar. Otherwise, you will make a loss. Even if markets do rise, you have to know they will not fall again and give you the same exposure. Regardless of your views of where the markets are going to, it would be irresponsible of us not to look at fixing this.
That leaves only the other alternative – get out of shares. In practice, that actually means holding only a small amount in shares. As Andrew will show, that one decision to get out and stay out of shares changes all the assumptions used to value our businesses. Even if we did nothing else, this decision alone would trigger a write-down. In other words, it will produce a less risky business but a lower value one. That addressed the first issue – how to find a permanent sluice to UK share market issues. The other issues were how to protect the assets and brands and get most value out of them.
Our review showed us clearly that our businesses were not benefiting by being part of the same group. In some cases they were actually being disadvantaged. Our problems in the UK were hurting our Australian business, what Andrew calls con stage on. Our problems in Australia were hurting our UK business. The UK issues were hitting our share price here, which in turn worried our Australian policy holders, even though they were quite safe. The share price impacts here, then worried policy holders back in the UK. The solution developed by management and the Board was to separate the Australian and UK businesses into two separate listed companies. Under this proposal, AMP shareholders will have shares in both companies and can choose which to hold.
We decided that to attempt to merely tough out the situation, to do nothing, and, as was done in the past, pin our hopes for recovery on share markets improving and never falling again to the same extent, was not an acceptable option. So we canvassed every sensible option we could think of to fix this problem once and for all. The Board firmly believed we needed to take action to reduce the risks the company faced and to deliver a shareholder value over the medium to long term.
The solution, to separate out the UK assets, did not come without a necessary amount of pain. We needed to raise capital to do it. But a painless solution did not exist, not if we really wanted to fix this problem rather than leave it smouldering for you. Believe me, we did look hard. I know it came as a shock to you because, as I said previously, it took us many weeks of work to get to this solution, and it was presented to you in one hit. There have been many questions about the timing of our announcement on May 1. I can tell you that until the conclusion of the Board meeting late the night before we made our announcement, there was no certainty about the course of action we would be taking because we did not want to close out any option until it had been thoroughly examined. The option finally chosen, although the one that was clearly the best, required a significant number of things to be achieved at the same time.
We announced our decision as soon as those were achieved and as soon as we made the decision. It was a complex announcement because a major change in strategy has many implications. For example, on the amount of risk we are prepared to bear in the company, the carrying value of our businesses and the amount of capital needed. But let me be very clear on this important point. It was the fundamental change in strategy that precipitated both the write-downs and the need to raise new equity capital. Andrew will go into that in more detail on both matters.
On the issue of our capital raising, let me say that we made very strenuous efforts to ensure that the vast majority of our shareholders have or will be given the opportunity to participate in either the institutional placement or the share purchase plan. If you do participate, the price you will pay will be at or below the $5.50 that the institutions have paid. At the same time as the capital raising, we repriced the dividend reinvestment plan to $5.50 a share. The 340,000 shareholders who participate in the dividend reinvestment plan will therefore be receiving additional shares as a result of that repricing.
In summary, the past six months and especially the last six weeks have been very difficult because we have been confronting deep-seated structural problems that have been 10 years in the making. We need to solve those problems and do our best to make sure that they never happen again. That is what our restructuring proposal is about. When you strip away all the noise, the facts about our company today are these.
We have a quality wealth management business in Australian financial services, with the largest planner force in Australia. It is a valuable brand and a strong customer franchise. We deal with about one in five adults in Australia. We have a resistant asset management business in Henderson, with about $250 billion in assets under management. We have a UK wealth management business that has some as tract I have assets and the ability to release substantial capital over the medium to long-term, especially now that we have reduced share market risks in that business. This is what we need to protect and build on, and this is what our restructuring proposal will do.
Finally, let me say a few words about Andrew Mohl and his team. Andrew has worked harder and more diligently on your behalf than any managing Director that I have experience of. He inherited businesses, particularly in the UK, with complex structural problems which had no easy solutions, or someone else would have already done them. He has worked closely with the Board to address those problems fearlessly and has avoided the temptation to defer painful decisions or make short-term fixes, which would leave the real problems for others to face in the future.
Before we move on to the formal items of business, I will recap some key points about the Board and the changes we have made. As I was saying, when I became Chairman at the end of February there was a general recognition that this Board needed to be renewed, bringing fresh views in while balancing that with the need to retain some corporate memory and experience in AMP and allow an orderly transition.
To facilitate this, the Board gave me as new Chairman the mandate to build a new Board. Five out of seven non-executive Directors elected to retire over a period of six months. Stan Wallis, Trisha Cross and Paul Mazoudier have already retired. Ian Renard and Sir Malcolm Bates will retire in August. I asked two Directors to remain to help us as we built a new Board. I asked Richard Grellman since he chairs the audit committee and, as events have shown experience and expertise in this highly complex area was and still is critical to us. Richard has been criticised because we have had to write-down the value of our businesses. I have demonstrated in my earlier discussion that Richard didn't cause the write-downs. He and his committee did their job diligently in assessing and reporting on the balance sheet impact of the Board's decisions.
I asked Lord Killearn to stay because he is UK based where we needed knowledge on our problems, and he chairs Henderson. With the demerger proposal, of course, we will be looking for additional Directors who have the qualities needed to serve on the Boards of the two new companies. We will construct from the best Boards upon for these new companies and details of those Boards will be included in the information to be provided to shareholders later in the year as part of our approval process. In the interim, we have some very important and complex work to do in finalising all the proposed details. In particular, we will need to deconstruct our current balance sheets and develop two new balance sheets for two new companies. We also have intricate issues in the UK to resolve to establish the new UK based company. That is why I have asked both Richard Grellman and Lord Killearn to stay on with AMP Board through this very challenging period. I am grateful that both agreed despite the personal difficulties that that involves for them.
In choosing new Board members, I was concerned to find people who had, first, experience in some part of the financial services industry and, second, experience of being senior executives of substantial businesses. I believe we were very fortunate in finding Meredith Hellicar and Pat Handley, both of whom possessed all those qualities. Equally important, both Meredith and Pat have had experience in the sort of turn-around situations that we are working on at AMP. They were appointed within five weeks of my appointment for two reasons. Firstly, we wanted the benefit of their advice as quickly as possible. Secondly, we wanted you, as shareholders, to have the opportunity to vote on their appointment at this AGM rather than wait another year.
As I have outlined in the Annual Report we have also set new ground rules for the performance and remuneration of the AMP Board. These steps include, first, abolishing retirement allowances for new non-executive Directors. Directors will only receive their fees and they will be required to sacrifice one-third of those fees to purchase AMP shares, which they will have to hold until they retire. We believe this will give Directors a strong alignment with your long-term interests.
Secondly, we are seeking shareholder approval at today's meeting to amend AMP's constitution so that no Director will be able to serve longer than nine years unless he or she stands for election each year, a term longer than nine years would be recommended to you only in extraordinary circumstances.
Third, we are designing a rigorous performance appraisal system for individual Directors and for the Board and Chairman as a whole. Finally, we are simplifying the Board structure. The Board now comprises nine members and will be reduced to seven members in August. All seven of these Directors are standing for election by you today. They will be dealt with under item 2 of our items of business. One of those standing for election today of course is me. I know there are some concerns about the fact that I chair both this Board and the Board of Mayne. When I became Chairman of AMP, I removed myself from all other Boards except the Mayne Board so that I now serve on only two Boards. I do not intend to go on to any other Boards while I hold these two chairs.
I would not offer myself for election today if I didn't believe I was able to do the job in your best interests. In addition to the two new Directors standing for election and the Directors retiring and standing for re-election, Stephen Mayne has nominated himself for election. While I enjoy the way Stephen holds Boards to account, I do not believe that he has the depth of experience or the qualifications we critically need on this Board. For that reason, I do not support his election and have stated clearly in the notice –
Floor: Shame on you!
Peter Willcox: You are at liberty to say that–I will use the undirected proxies to vote against his candidacy.
Floor: Shame!
Peter Willcox: Having said that, I believe that Stephen is of greater value to you and, for that matter for us in the role he currently plays, a strident and I think intelligent commentator on Board performance, as you are Jack. You will have the opportunity of hearing from Stephen himself when we get to item 2.
Stephen Mayne: Good afternoon, Chairman. I'm a small shareholder and a proxy holder representing 779 shareholders holding 871,363 shares, which at that point is 0.06 per cent of the company. It doesn't really pack a punch. It would be 77th on the top 100 if it was one group.
Now those cards are on the table, I was wondering if you could firstly clarify an earlier comment you made. You said you had 348 million proxies. I'm presuming that is a combination of directed proxies and open proxies. Could you at this point just tell us what the total shares voted is? That's including yours and everyone else's, and the breakdown between your open proxies and your directed proxies?
Peter Willcox: I will see if Ms Milne has those numbers in detail for you, Stephen. The total number of returned proxies are 364,225,729.
Stephen Mayne: And the breakdown between your open proxies and your directed proxies?
Peter Willcox: I don't have the addition down but I will give it in round numbers, if you would allow me, Stephen. I can hear Prue's calculator going. If you would go on to your next question and let Ms Milne do the addition for you. It's a column of 15 numbers in the millions.
Stephen Mayne: I have a couple and I will rattle through them all. I promise I will be back in my seat in less than five minutes.
Can you give us a specific figure on the UK equity exposure?
There was some talk that the percentage asset allocation to equities at the peak was around the 18 per cent mark in some of the funds?
How high did it get in percentage terms?
There is also a suggestion that the finance committee and the audit committee of the Board wasn't being informed by management about these investment mandates and about the size of the exposure. It might be useful, as you weren't on the Board at the time and as Andrew wasn't CEO at the time, to perhaps hear from Lord Killearn, who chaired the finance committee through these last three years, and from Mr Grellman who chaired the audit committee about the information flow that came from management and about the risk in the equities.
Can you also tell us what your equity exposure is today and what your average exit price is? I think shareholders would be very heartened to have heard Andrew's comment that you have saved hundreds of millions of pounds, that is, it sounds like more than a billion dollars of shareholders funds by not being forced to liquidate at 3250. We're now up around the 4,000 mark. What is our average exit price? Where were we at when we hit the low at 3250; what was the exposure? Where are we now and what is the average exit price in FTSE terms? That gives us a pretty clear indication. It is all very well to talk about hundreds of millions of pounds but it would be nice to get some specific figures.
I want to raise an issue of Sir Malcolm Bates as he is not a Director up for re-election today. Sir Malcolm, you have been on the Board chairing the UK operation since 1996. I think you are the highest paid non executive Director of an Australian company who is not the Chairman. You got $370,000 last year. When you retire in August, you are due to take a $1.2 million retirement payout. Unfortunately you've only got 5,000 shares, which is a very small shareholding. I would estimate that since 1996 you have probably been paid about $2.5 million. And being based in the UK and Chairman of the UK operations, specifically Chairman of Pearl, you have presided over an enormous destruction of shareholder funds.
My question to you specifically, Sir, is whether you will follow the lead of Carolyn Hewson and Stan Wallis and forgo accepting your $1.2 million retirement payout in light of the circumstances the company finds itself in?
A very specific question: why is Marc de Cure still with the company? He was fired by Paul Batchelor. He was the CFO since January 2000. People inside the AMP I have spoken to have argued that he argued against derisking out of the UK. He argued that we should maintain the level of risk, we shouldn't exit, we shouldn't follow the lead of the Commonwealth Bank which got out and according to their CEO saved their shareholders $4 billion by getting out a couple of years ago from the Colonial Life business they had picked up.
Why has he been resurrected by the new CEO, Andrew Mohl, as head of strategy? I understand he does a good job of selling assets. But there is a question of accountability here. He was the CFO; he was Paul Batchelor's CFO and he kept our exposures in the UK. You have brought him back. That sends a message to the Board that isn't very good on accountability.
One other issue relating to a former Director, Mr Mazoudier. Mr Mazoudier was the head of the Minter Ellison legal team that advised on the demutualisation so obviously Minters were paid millions in fees to tell AMP to demutualise. He then became of Chairman of GIO and joined the Board about three years ago. He decided to accept his $220,000 retirement payout, unlike say someone like Patricia Cross who deliberately got out of the Board before she would have been triggered for her payment.
I would like to find out about the circumstances of the retention of Caliburn as one of the advisers on the demerger. Mr Mazoudier is on the advisory committee of Caliburn. Can you tell the shareholders whether he was involved in any of the decisions to retain Caliburn and also if you know the basis on which he's paid by Caliburn? There is some suggestion that there could be a success fee coming his way based on the AMP mandate, which I would submit is completely inappropriate. There should be no success, particularly when you have advised AMP to demutualise, you have helped set the place on fire as a Director and then you are getting a success fee for cleaning up the mess with an advisory outside advisory firm. Can you explain the basis of his involvement in Caliburn?
Thanks for your time.
Peter Willcox: Stephen, in a moment I will ask Andrew to see he can answer your questions on the equity exposures. I suspect they are going to be rough answers since we didn't have notice of your question on those. I don't propose to have anybody else but me speak on behalf of the Board since I am Chairman of the Board and spokesman for it. There is no suggestion and never has been any suggestion that the audit committee and the finance committee were not kept fully informed throughout this process.
As regards Sir Malcolm Bates and Paul Mazoudiers' retirement, I think there's been a lot of misinterpretation of Directors retirement allowances. Directors retirement allowances are actually part of their compensation. They were introduced for many companies in Australia before there was a superannuation regime. It was a mechanism whereby Directors deferred part of their fees until they retired. Typically the arrangements were approved by shareholders and contracts were entered into between the companies and the Directors. The difficulty that has arisen with them, I think, is that after that initial approval, companies tended not to disclose annually the accruals that were building up so that, when Directors retired and payments were made and disclosed, it came as a surprise. If the companies weren't doing well, it came as a nasty surprise.
There is a second reason to question why they should be in place. That is now we have a superannuation regime. In the past, I myself have retired from Boards and benefited from those retirement allowances but I have come to the view that for those reasons and because of the views of shareholders, they're no longer appropriate. That's why we've changed them here. As regards Directors who made decisions on the basis of contracts solemnly entered into between themselves and the Board, I don't think that one should suggest that they shouldn't take what they're entitled to. They could've done other things with their time. My view is that it's entirely a personal decision of the Directors whether they choose to give up something they are entitled to or not. I certainly wouldn't ask them to.
As far as Paul Mazoudier was concerned he was not involved at all in the decision to appoint Caliburn. As I understand it, the Caliburn advisory council is not a Board. It meets four times a year. I am reading this now because it's been given me and its purpose is to give Board advice over macrobusiness issues etc. Members of their advisory Board are not privy to client matters and members of the advisory council do not share in profits of the business or receive any form of payment or financial return other than a fee a fixed annual fee. Andrew to you want to make any comments on the equities?
Andrew Mohl: If you go back several years, we had what's called an equity backing ratio between 70 and 80 per cent. That includes equities and property. In the case of two of the entities the ratio now is around 10 to 15 per cent.
In the case of Pearl, we expect that ratio to come down somewhere to around 15 to 20 per cent. We have been selling equities all the way down and the final selldown currently probably from around 35 to 45 per cent in the case of Pearl is under way as we speak. Those transactions have taken place over a matter of years at prices substantially above current market levels, so it is very difficult I couldn't tell you what the average price is. My point in the case of Pearl, the use of the derivative meant we were in fact protected when the market was very weak and we're now in the process of selling when the market is around 20 per cent higher.
Peter Willcox: The question I didn't address of Marc de Cure. Mark is here because we think he's a very valuable contributor to the company and to Andrew's team. Andrew is the managing Director of this company. It is his prerogative to select executives that he thinks can serve him best and produce the best outcomes. Andrew do you want to make any point?
Andrew Mohl: I would like to just I know you have published this on your web site. It is simply not true that Marc was contra to the derisking. The finance function had done considerable work that indicated that the risks that were being taken in the UK were excessive relative to the capital that we had invested. The simple solution that we had, which we are following, was either to reduce the risks or to increase the amount of capital that has been invested.
Marc came back to work for AMP at my request. He has played a principal part in the development of this strategic solution, the package that we have brought forward on 1 May. He's also been heavily involved in the run off business of GIO, the reinsurance business that now is in much better shape than it was previously as well as the sale of the bank.
Peter Willcox: I said I would give as much time as you wanted on each item. We've been going nearly four hours on item 1. I feel that shareholders have had a reasonable opportunity to ask questions and make comments on the financial statements. I think you've made some pretty telling ones. I was going to propose that we close that item and then I would ask for a motion to move that we adjourn for lunch.
Mr Lauritson: Mr Willcox, Mr Chairman, I'm very much opposed to the idea of attacking someone simply because they are there. I as the original mover of the motion to put Lord Killearn back on the Board stems from the fact that I have a lot of trust in you and Mr Mohl.
You have stated without any equivocation that you want this gentleman on the Board. I think that should be good enough because when you come to think of it you and Mr Mohl have been put in an absolutely impossible position in many respects. You are expected to show some sort of fantastic leadership and it may or may not come, but you have said that you want this gentleman on the Board.
Now, as far as I know, he has done nothing wrong. We are getting various people getting up and shouting and roaring against the poor man and he's got to sit there and take all this flak, but I can't see him doing anything wrong. But it's because you two gentlemen want him on the Board that's where he should be and that is the reason I'm using my right as the original mover of the vote, of this motion, to ask all the shareholders here to think very carefully about all the members that are up for election.
If the Chairman wants these people on the Board, if Mr Mohl wants these people on the Board, they want them for a reason and the reason is this: that we are really in deep trouble. If anyone can get this company out of trouble it will be Adrian Mole, Andrew Mohl, sorry. I have read too many of his books.
With all due respect, Mr Mohl and Mr Willcox, I think it is you two controlling the Board as it is now that will put the company back on its feet. We have had a lot of problems in the past. I am one of those people who says 'Well, okay, we have had problems; let's move on.' If you want this gentleman on the Board put him on the Board. If you want
Mr Yates on the Board put him on the Board. If you want Mr Handley on the Board put him on the Board.
I would like to say this is the reason I am going to support everyone who is up for election except Mr Mayne. I am going to finish now. I will say this, Mr Mayne is a very courageous, very intelligent, very well educated gentleman. In my opinion he is scrupulously honest. I will repeat that, he is scrupulously honest. He is a very lovable fellow, but the poor man couldn't run a two-bob chook raffle at the RSL. Sorry.
Stephen Mayne: Good afternoon, Mr Acting Chairman, I would like to lodge a bit of a protest against Peter's decision to gag all of the candidates. It is very undemocratic. This is a public company. I certainly haven't seen a chairman do this before where there has been repeated requests for Directors to speak. We are dealing with an unprecedented situation here, Chairman. We have seen $10 billion lost and we have seen two people who have been involved in that intimately. You haven't been.
You weren't there. They are up for election. This is a public company and you are shielding them. You probably agreed with them that you would protect them, you would take the rap for them but it's very undemocratic and that reflects very poorly on you. As a result I'm going to invoke my open proxies of 427,000 against your re-election because you are being so undemocratic. I was going to vote them in support of you. I think you are actually doing quite a good job.
The other point I would like to ask is, I think this meeting should now be told the proxy position before the debate. I would like to see all the proxies for this resolution now. I thought the Chairman was going to show them after the debate on each director, in other words we would have been shown Lord Killearn's proxies by now, because we have already had the debate.
But it seems the strategy is to wait until we have had the complete debate and then be shown the proxies. I would like to put it to a vote now that we be shown the proxies for all the Directors now, specifically with the Chairman, I want to know how many open proxies he holds, that clearly he is going to vote in favour of his own re-election today.
Sir Malcolm Bates: I hand back the chair momentarily to the Chairman.
Peter Willcox: I am prepared to take a small point on whether you would like to see the proxies now. The reason I chose not to do it and put it at the end I didn't want to stifle any debate.
Stephen Mayne: You have already stifled debate.
Peter Willcox: Stephen, I have promised not to interrupt you when are you speaking if you will give me that courtesy. This is a serious point. There are 940,000 shareholders. Today there are let's say 1,000 here. I have to represent the will of all of the members here and elsewhere. But you are the ones that chose to come out in the rain, come and spend hours here today. I appreciate those of you who have stayed after lunch.
I meant what I said when I take your views seriously and I want you to vote on the directors. The problem is showing the proxies is that as has been anticipated, I hold enough proxies to carry most motions but I don't want that to stifle the debate. I want to hear your views. I don't want it to deter you from voting because it isn't just whether a director gets elected or not that's important, it's what your views are and how well he does in that election. I am not going to force some director down your throats.
You are the owners of the company if they fairly scrape in. The mood of the meeting as well as the conversations I had elsewhere are against them. So having said that, it's your meeting. If you want to see the proxies before you discuss the merits of the candidates, I am prepared to do so as Mr Mayne would like me to do so. Why don't I simply ask you, do you want to see all the proxies that have been voted for and against all of the directors now or at the end of the debate on them? All those in favour of seeing them now, please raise your hands? Those against. I think there is a majority against.
Stephen Mayne: Chairman can I get you to take one more straw poll, I would like to see the proxies after the debate on each individual director but before the end. There is some difference. The reason I say that part of this debate today needs to be about the size of the open proxies and the voting system the board has adopted that has made it a fait accompli with the chairman controlling the vote in his back pocket. If we don't see them and we can't ask the directors questions, we are really flying blind as a group of shareholders. As a compromise I propose you already show us the proxies on Lord Killearn. After the debate about your resolution, once there is no more questions you show us the proxies for your vote and so on and so forth.
Peter Willcox: All right. Let me put firstly let me correct something you said, Stephen. I don't control these proxies. They were given to me by other shareholders who are not here, who have the same rights as the shareholders here. I am duty bound to vote them in the way they have asked me to. Would you like all the motion I am going to put is that we show you the proxies after the discussion on each director. Those in favour? Those against? Carried. Lord Killearn. I because I was planning to show you them all at the end of the debate, I don't have a slide so I will have to read them to you, if that's all right.
The technology says they are going to be able to load and show the votes for this is a summary of proxy position at 10 am this morning. On 13 May which is Tuesday when we closed. Lord Killearn had received 272,866,943 votes for, 67,902,000, 752,000 against and 22,158,406 open.
Stephen Mayne: Chairman, the Stock Exchange rules you have to show the abstains and you also need to break down the chairman's open proxies with the other open proxies. I hold 400,000 open proxies but you hold 22 million or something. You have put them all in the one group up there. You have showed one figure of 22 million which combines the proxies that I hold and the proxies you hold. The most important issue here how many votes that are undirected that you hold that you will be voting in favour of the incumbents without allowing them to talk and against me. That's the figure you haven't shown. I assume it's the vast majority of that 23 million. You actually need to tell the shareholders.
Peter Willcox: Stephen it's around 99% I hold. I am duty bound to vote for Lord Killearn. In some ways it's an academic debate because even if I voted them all against Lord Killearn, he would still have a large majority for. So it's an interesting legalistic point but I wouldn't like to take up too much of the meeting's time on it.
Mr Tilburn: I do think that with the exchanges that have been going on between two or three shareholders Mr Mayne and yourself I do think the acting chairman, Sir Malcolm Bates has not had the formal opportunity to put the voting for you or against.
Peter Willcox: That is correct. The acting Chairman who handed chairmanship back to me to determine this point on the poll. I think we've now determined. We're going to show the proxy results for each director at the end of the discussion. I will now hand the Chairmanship back to the deputy chair.
Stephen Mayne: I would like to speak briefly against Mr Grellman's re election partly because I am forced into doing that by the voting system that the Board has adopted whereby they declare there is no vacancy. I would submit it's actually a shareholders decision. If they want to increase the Board from eight to nine, that should be their decision. AMP Constitution doesn't allow it. It forces any external candidate to run a negative campaign against one of the Directors because the Board has declared there is no vacancy. In assessing the board you have to make a decision as to who is the Director least deserving of being re elected in 2000 in 2000 I argued against Ian Renard.
Today it is clear can you tell Mr Grellman does bear the most responsibility of the directors still sitting here today for what has happened. Reason for that is pretty straight forward. An audit committee is there to keep an eye on management. It's separate from the Chairman. The head of the audit committee is the second most important Director. It is all about the reliability of the numbers coming up from management, testing management, being across the true financial position of the company.
Now what's happened at the AMP in the last eight months is the most speck lack tar example of audit committee failure in Australian corporate history that I've ever seen. You have had in November Andrew Mohl comes out and says looks like $1.2 billion write off. In January, $1.46 billion.
Where was the audit committee in that period September through November and suddenly discovering 400 million through January and then discovering 2.6 billion more in May, albeit due to a different strategy? It was almost like the November to January blow out was almost the greatest sin than the subsequent blow out because we have had a different strategy. I am saying to the Board there is a culture in Australia whereby shareholders don't vote against Directors.
Gerry Ellis the man who lost $10 million of BHP, elected to the board of Pacifica. The institutions are run by the same people who run this companies. They have this great cosy club. There is no separation of church and state between the people who represent the shareholders and the company who run the companies. They are the same group of people. They self perpetuate they always get 98% of the vote. My argument is this is a clear can you tell case where for the first time in Australian corporate history a top 20 Director whose recommended by the board should be voted for. Because it sends the message that the shareholders won't tolerate $10 billion of losses also specifically in Mr Grellman's case there was audit committee failure in what happened over the last eight months.
Mr Grellman should know about Pearl. He sat there. I have heard from AMP insiders. He sat there in meetings with Mr Batchelor and Mr Trumble during the demutualisation process discussing whether the true risks of the capital guaranteed products in Pearl should be disclosed or how much disclosure there should be of those risks in the demutualisation documents. It's a subject he has been involved with and across for a number of years yet clearly in that period last year, he wasn't across it. The audit committee wasn't across it. It was a blatant failure of audit committee process. That's why I am saying today the shareholders should vote against Mr Grellman.
In part because from my point of view I am forced to run a negative campaign also on the merits of the case there has been a audit committee failure. We have some corporate memory. Marc de Cure the CFO still with the company. Lord Killearn, Ian Renard and Malcolm Bates will be there until August. There is enough corporate memory in the management ranks. Andrew Mohl's Directors have an average five years experience with the company.
There is enough corporate memory it doesn't matter if we lose Richard Grellman yet it does matter if the market Australian market the AMP share holders say to Richard Grellman you've lost 10 billion. You've had a failed audit committee. We'll put you back on with 80%. It says we don't care. You can lose what you like we'll give you another three years no matter what. For those reasons I am strongly arguing against a vote for Mr Grellman today.
Peter Willcox: Thank you, Stephen. Just one correction there was no additional writedown between December and February. It was a total writedown fore shadowed in December was the 900 plus the 400 your point sorry 1.2 in total. Your points were noted. There are no further questions, there is no further discussion on the motion for re election, I close the debate concerning that motion. I declare the motion for re election will be determined on a poll to be taken at the end of all other business at today's meeting. Could we have the proxies? I am sorry I have closed the motion on Mr Grellman.
Mr King: Mr Chairman, I rise to support Mr Grellman's re election.
I do so mainly on this ground that I think that you've made a very good case today for your own leadership of this board. You've also made a very good case for the board that you want and clearly when you became chairman in February, quite a number of board members have left. But the two you chose to stay on included Mr Grellman. To me that carries a great deal of weight. We need in the next few months, in the next six or 12 months, to support you fully and I think that if you think that the experience of Lord Killearn and Richard Grellman, you desire to keep that, then I think it's very important that we support you in that.
I would hope despite what Mr Mayne has said that in you deciding that you wanted Mr Grellman to stay on, you would have had regard to those things that Mr Mayne addressed at the last few years and in your wisdom you decided that you wanted to keep all the financial skills, all the skills that Mr Grellman has had in his lifetime. Mr Chairman I urge the meeting to support you and therefore the re election of Mr Grellman.
Mr Tilburn: I was very taken with the strong and critical remarks made by Mr Mayne, two speakers back: If anybody body has any good ears in this audience they should have taken on board 110 per cent of what Mr Mayne said.
In this country unfortunately, even the Prime Minister, John Howard, doesn't tap people on the shoulder and say, "Go, like bloody Hollingworth, go." Mr Grellman should go, GO and you even though you're new should say go because Mr Mayne spelt it out that according to his investigations and he knows a lot, Mr Mayne, this is the worst performing chairman of an audit committee in the corporation history of Australia in the last six to eight months. I am opposed 110 per cent.
The previous speaker who is wishy washy that he knows a bit about figures. He knows bugger all about figures to help us lose $10 billion. You should have have had the Genghis Khan sword to say out go Mr Grellman and not have had him up for re election. Vote against this man and show that the rank and file are disgusted with a man who can contribute to $10 billion loss of our funds. Thank you.
Peter Willcox: The next candidate for election Stephen Mayne who has been nominated in accordance with AMP's Constitution for Stephen's election. I would like to invite Stephen to introduce himself to the meeting. I would also like to say, Stephen, that I have acted as scrupulously as I could in giving you a fair opportunity to stand for election to this board.
You, like all the other directors, were treated same until you've seen these numbers come up here, I've not even shown any of the proxy results to any of the other directors. I have no made no attempt to campaign against you. I will not vote open proxies I have to tell people. The floor is yours.
Stephen Mayne: Thanks for the opportunity chairman I would like to put on the record I had a meeting with the chairman about a week and a half ago over about an hour and a half which was very cordial and constructive. I appreciated the opportunity.
I decided to run for the AMP board after the January announcement of additional writedowns which caused the stock to tank and my view was representative of the clear audit committee failure which I talked about before. I have put together a bit of a platform. Ironically a fair bit of what I've suggested has been adopted by the company. I actually do apart from the democratic approach that the Chairman has taken of this meeting I do support the CEO and the Chairman.
I suggested they give Batchelor no more than $2 million and tell him to see him in court and they came out and did precisely did that. I told them to sell Stanbroke. I am not saying they copied it. It was coincidental they announced the sale of Stanbroke a couple of weeks ago. I was on the record we should demerge Australia from the poison that is the UK and three or four weeks later they came out and did that. So standing here today not actually putting a platform which is not much different the company is adopting. We are at one with most of the key policy and strategy issues.
Offer we differ on the situation of Lord Killearn and Richard Grellman. The other thing I was running on, which is most important, the need for an independent inquiry what happened in the UK. The precedent what the National Australia Bank did with homeside. They got a New York law firm to do an independent inquiry to report back to shareholders and the Board as to what happened.
When you lost double what happened with HIH, I think an independent inquiry into the UK is not too big a thing to ask for. I am not saying HIH style royal commission, I am simply saying you appoint someone independent of the Board. Tell them go through all the Board minutes of all the various subsidiaries of the UK plus the Australian operation talk to the executives, talk to the management and report back to the shareholders on who was responsible for what because we still are a bit up in the air. Haven't even let some of the key players talk today.
Not been able to get some satisfaction whether the audit committee was demanding things off the management, whether the finance committee wasn't being told about the investment mandates as some people are suggesting. We are a bit in the dark. I am running on a platform which says independent inquiry too fill in the gaps. Can't sneeze at $10 billion loss, you have got to show you are serious about it and report back to shareholders a vote for me is a vote for that.
I would like to comment briefly on the voting system. The Chairman has been reasonable in some respects but the reality as I stand here today is I have to get a primary vote of 90 per cent to get on the Board. Now I will get I believe the Board probably won't tell me, a majority of shareholders who vote, that is the 50,000 people who send the proxies back will vote in favour of me. But to get on the Board I have to get 90 per cent of the vote because the Board has declared there is no vacancy.
Now this is the standard mechanism used by boards to EEP outsiders out. It is the shareholders right want to increase the size of the board by one. Constitution is Maximum of 16. At the time there were only five ongoing directors spectre of Board saying no vacancy.
Only got five and saying there is no vacancy. The reason they do that, the simple majority isn't enough for the outsider to get on the Board. The outsider has to knock off one of the insiders.
The history of Board elections in Australia, insiders typically get 97 per cent or above. In the case of Lord Killearn and Richard Grellman they have got primary votes of 80%. For me to get elected , I need to get 90% because the Chairman will use his 6% of votes the open proxies, all 22 million of them, use them to load up Killearn and Grellman votes and to further reduce my vote.
So I think that voting system sir Joh Bjelke Peterson would be pretty proud of a system whereby you don't get elected even if you get 88 per cent of the voters in favour of you. I think the Board should consider reviewing the Constitution which locks you into the position on the no vacancy.
Also the system of collecting open proxies. When you received your form, ladies and gentlemen, if you just sign it and send it back, the default mechanism was that it goes to the Chairman. That's how the Chairman gets 22 million votes. I collected proxies, 160 shareholders sent them to me. I was effectively voting against myself in some respects. They sent it back just signed and nothing else. That goes to the Chairman. The Chairman uses that against me. The system should be if you want to the chairman to have an open proxy, tick a box or write “The Chairman”. It shouldn't be the default mechanism where if you do nothing you give your votes to the chairman and they can be used against the outside candidate such that we have the situation today where 89 per cent is not good enough.
Now a shareholder spoke earlier I wasn't going to reflect on my personal experience. I am not putting myself as any sort of insurance guru who is going to run the AMP. I am putting myself as a change agent and as an accountability mechanism. We're putting up a platform that shareholders can endorse. If you want an independent inquiry you should vote for me. I am not saying I could run the AMP. I did have a year working at the Age writing about insurance. I was press secretary for Jeff Kennett in his government specifically responsible for the government insurance schemes. I have had some experience. I am running a business which employs 8 people and turns over about $400,000 a year. It is a successful internet business. I am not a “can't run a raffle in an RSL” I am not saying I am the answer.
I just finally like to reflect on the fact that an outsider has never been elected to an Australian company Board whereas it's happing in the US, in the UK and in Hong Kong. There will be a day when shareholders actually do elect on outsider but you have to actually tackle the institutional club. Today there are three institutions who could have actually got me elected. The three largest shareholders in the AMP, MLC controlled by the National Australia Bank, Colonial controlled by the Commonwealth Bank and QIC controlled by the Queensland government. About 100 million shares between them if their shares had come for me against the two incumbents with all those responsibilities for what happened I might have had a chance of getting elected. It reflects on those institutions that they are voting for directors who have such poor performance. I think the small shareholders should think about that.
Start speaking out publicly about the system of secret voting in Australia. No institution has to tell you how they are voting. In the US they are moving to a system starting from 1 January next year, all mutual funds have to disclose how they are voting. It's an open process. Maybe something think about in Australia as long as there is no sunlight on the directors club, you are going to get loads of institutions sure Richard Grellman, 10 million is gone. You were chairman of the audit committee that all right have another three years. I think that's a regrettable state of affairs. I know it won't make any difference. I think shareholders should vote for me to oppose the election of Richard Grellman just to send the message to the AMP Board that small shareholders don't think that's an acceptable situation.
Peter Willcox: Thank you, Stephen. I have undertaken to Stephen to review our proxy form and of course we will be looking at our Constitution for the two new Boards, assuming that you approve the demerger. Is there any more discussion on Stephen's nomination? The Company Secretary reminds me that I haven't yet actually moved Stephen's election. I thought I had. Could I ask someone to move Stephen's election please? Thank you. A seconder please? Thank you.
Mr McMurray: Thank you, Mr Chairman. I just want to add a few comments to Stephen Mayne's address in support of his candidature. I would like to point out Mr Mayne does have a clearly articulated reform platform. He's a rigorous campaigner for greater disclosure, accountability and transparency. I think he's the potential to be an extremely worthwhile and effective change agent. It should be noted Mr Mayne is not seeking to disrupt the board in any form but rather work constructively with them. We and will resign once key forms of the demerger has been approved. It has been said many times ago that perhaps the severity or scale of it is starting to lose an effect. AMP has destroyed billions and billions and billions of dollars of shareholder value. This is unparalleled in Australia's corporate history. I would strongly encourage shareholders today to vote for Mr Mayne and against Mr Grellman to send a message to these cosy boardrooms around Australia. These Boardrooms need to be made more accountable. There is no greater exponent of this than Mr Mayne.
Mr Lobb: Mr Chairman many of us shareholders, our retail shareholders, would like to see one of our representatives on the Board because we do not feel that the people sitting on the stage represent us. That is why we favour a representative such as Mr Mayne on the Board. The Australian Shareholders Association there needs to be an AMP shareholders association that represents those of us who have suffered at the hands of the incompetent series of management of this organisation.
Peter Willcox: Any more discussion on Mr Mayne? If there is no more discussion or the motion to elect Stephen main I now close the debate concerning that motion. I declare that the motion for Stephen Mayne's election will be determined on a poll to be taken at the end of all other items of today's meeting. Do we have the proxies for Mr Mayne?
I now put the motion that Steven David Mayne being eligible to hold office and having been nominated in accordance with clause 65 of the constitution of AMP Limited is elected a director of AMP Limited.
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