1999 Fairfax AGM transcript

July 9, 2008

Here is an edited transcript of our exchanges at the 1999 Fairfax AGM.

Stephen Mayne: I've got a few questions. The first one relates to the cost cutting program. You talked after the last Annual Meeting about seeking an additional sixty million in cost savings on the top of the forty million that we got from Project Hercules. I gather there's been a little bit of stress and strain in implementing that at an editorial level without impacting potentially on the quality of the products. Is the sixty million in cost cutting still the stated plan and goal of the Board of Management and if it's not sixty, what is the quantum now?

Chairman Brian Powers: I don't being honest recall the precise statement that we were looking for sixty million of additional cost savings. What we set about to do eighteen months ago now was to make sure that this Company was run as efficiently as possible. It was our opinion and judgment that there was considerable cost that could be taken out of this business and that not only it wouldn't hurt the products, in some ways it would make more focus and sharper and we'd be a better company.

A public number that was floated around was always a forty million dollar target. In cost savings it's always very difficult to count exactly what that target means. As I mentioned earlier, we went into last year with 18 million dollars of contracted increase in costs. We took our normal cost increases that we incurred on prior years, our costs would have gone up 80 million dollars last year. In fact in our core business, they were down slightly last year. So, is that a zero cut in costs or an eighty million cut in costs?

Similarly, this year you're seeing very much the same thing, we are containing costs. Broadly speaking in the core business, with the exception of newsprint, we're using more newsprint and in some areas we're offering more product, our volumes are up materially in advertising in the last year, so that uses more newsprint.

So we achieved the forty million, I'm not familiar with the sixty million but there is an ongoing commitment to making sure that we don't waste any of our shareholders' money and we operate as efficiently as possible. I think any time you change the way, as Mr Hilmer said, you re-engineer the way you do business, that requires great effort and great sacrifice by the staff. As I said, I'm very proud of the way our staff reacted to that. These things don't happen easily and I think the staff got behind it very well and I think the products look better than ever today.

Stephen Mayne
: Just a question on the structure of the Board. Last year you said at the AGM that you were hoping to get a director with newspaper experience and you also said you were hoping to get another director from Melbourne, because Sir Rod Carnegie was the only perspective we were getting from Melbourne. Why hasn't this happened? And why does a company which is basically a newspaper operational company with a growing internet business need to have three merchant bankers on the Board? It's not as if we're going out doing big takeovers at any time.

Also, you talk about the importance of our independence and the need for our unparalleled quality to continue. The cross media ownership laws stipulate that it's illegal for ....

Brian Powers: Excuse me, can we do one question at a time?

Stephen Mayne: It all relates to the whole Board. . .. it talks about that television owners can't own newspaper groups, so in this instance, for instance Kerry Packer and PBL can't exercise and control influence over Fairfax. Therefore, why is it that we have three directors including yourself, Mr Chairman, who have had direct and overt business connections with PBL and the Packer camp over the years, that being yourself, Sir Rod Carnegie and David Gonski. Also, I'd like to hear from an independent director on this point, probably from the Deputy Chairman.

Also, in relation to your position, you said last year you were expecting to spend about three months a year in Australia. How has that panned out and how have you found chairing the company from largely the US, what time have you spent here and has it been a good function in relationship to the rest of the Board?

Also, just lastly, you've talked about the code of conduct for journalists. The former editor of The Age has claimed that it was excessive influence of the former Premier which led to his demise, and you've talked about the negativism of the paper, which I think is a reference to that. Do you have a Board policy for politicians who attempt to influence editorial, like if you get a call from the PM or a Premier, do you have a policy, does the rest of the Board have a policy, of referring those queries and complaints to the editors, or do you act on them yourself?

Brian Powers: OK, I think I've got most of those questions, if I missed any you can tell me.

On the Board, about expanding the Board to include someone with newspaper experience, I said that was ideal and we spoke candidly when we hired Mr Hilmer, ideally someone's going to have thirty years of newspaper experience and also going to have all the skills that Mr Hilmer brings to the table. It was impossible to find that for the chief executive, and I think we made a very good choice there. Again, to find someone who's got senior business experience on the newspaper side and is not affiliated with one of our competitors, is very, very hard to do. Ideally we would have someone who's a really experienced newspaper person sitting on the Board as a non-exec, we don't have that. We've looked in Australia and haven't been able to find one. A Melbourne director, I hope we will in the next three months put a Melbourne director on the Board.

I'd like to say something about the Board. The Board is, and I'll include your reference to my time and conduct in that also. The Board over the last eighteen months that I've been here, I can't speak before that, has functioned as well as any board I have been associated with. I've chaired nine or ten public companies over the years, of varying sizes, several of them larger than this. This is probably the most active board I've been on in terms of participation in board meetings and willingness to offer opinions, and availability for when the Chief Executive wants to tap their resources.

So, if it's a case of Mr Hilmer calling Mr Wills, who's as good a marketer as Australia has seen, about something we're thinking of doing, that's a great resource. The directors not only are willing to spend their time, which a lot of times they're not, I think equally importantly management welcome them in that. So, I think the Board is functioning very well and I have to some extent not been in a rush to expand the Board, while I think we would benefit substantially with another Melbourne director and another woman director, being candid, and we will see to that certainly before the next AGM.

In terms of my time, I probably spend something between 30 and 35 per cent of my time in Australia on Fairfax business. I've made nine and ten trips here, I've met with Mr Hilmer when he's been overseas and I've met with several of the people in the interactive business when they've been overseas. Would I be more effective if I was here, yes. How much more effective I don't know. I think I'm the second largest individual shareholder in this Company so I would probably have as much interest as anybody else. To the extent that I'm not available, there's a very active participation by everybody else. And the Board's working, whatever chemistry makes boards work is very hard to define, the Board is working.

After I answer a couple of your other questions, I'll turn you over to Mr Pinshaw, the Deputy Chairman as requested, and let him answer.

The cross media issue, you made reference to the fact that three of us have had direct ties to Mr Packer. It raises a broader issue, but I'll come back to the specific one. This company for many, many years stood in opposition to any loosening of the cross media laws. This company has done most things right for its entire history. I certainly felt from the outside and I feel more strongly from the inside that that has been a disservice to this company. There's really two reasons for that. If you look, the internet has opened up competition to our business. There's more new sources with classified sites which we will beat, the competition. We've lost a natural barrier to entry against our business in the form of technological changes.

Now, as Mr Hilmer said, we have a product that's very highly valued that we deliver today by print and for the next fifty years we'll deliver very successfully by print, but there's other ways that we can deliver that and it can be adapted to other delivery mechanisms, the internet is one, the broadband is going to be another. Why we have lobbied very hard to have access to the broadband spectrum, and everyone thinks that if the cross media laws change we're going to be bought by someone. That's the victim mentality that for some reason has developed in this Company, probably because you've gone through a receivership.

I don't believe, you can't tell from the news reports, how much money News Limited make from their media business in Australia, but if you look at everybody else, and I would like to wager that our operating income will be higher than any other media companies in Australia this year. We are not a victim, we leave Seven and Ten for dead in terms of performance and profitability, and I think PBL is probably, with a combination of television and magazines, somewhere in our vicinity. So, if in fact Seven or Ten were available, I'd like to have the freedom for this Company and this Board to consider whether we should buy them and whether we should own them, as we look towards convergence down the road. It's that negative, victim mentality that has driven the fact that we're threatened by it.

The whole new feeling in this Company, the Chief Executive and the Board and throughout, is that we're as good or better than anybody else in media in this business and we're not going to be victimised by competition. As a matter of fact, not only in cross media but more importantly in broadband, we aggressively arguing for the right to compete. Our hands are tied by some regulations that are getting into business areas that are natural growth to ours.

Ties to Mr Packer? I think as is well known, I ran his business for five and a half years, Mr Gonski occasionally does work for him, I'm not sure who the third one with direct ties is.

Sir Roderick Carnegie: I think me because I've got an interest in Hudson Conway.

Brian Powers: Mr Packer was an investor in his company at one point in time, maybe still, I don't know. It's an issue the ABA looked at and found out there was no legal issue, I don't think that there's any question on this Board that anyone of the three of us conducts their affairs in any way other than one hundred per cent best interests of this company.

You asked something about the code of conduct? Clearly, and I'm going to put politicians in a special class. Any time a complaint is put to a member of this Board, the practice is to refer it to Mr Hilmer and I think he ninety per cent of the time refers it directly to the Publishers. I don't think any politician from either side thinks they have any influence whatsoever over the editorial content. Do I encourage, if I get a complaint from someone, whether it's a politician or anybody else and I think there's any validity to it, I encourage people to look at it. We do make mistakes but none moreso with a politician than anybody else. I can't imagine a more independent environment that fosters independent journalism than we have here at Fairfax.

Mr Pinshaw: I'd endorse what the Chairman said about the way the Board functions, I've sat on a number of public boards for a period of time and this is far and away the most constructive and the most focused on improving shareholder value of all the boards that I've sat on. In terms of conflict of interest, again the Board follows good corporate governance procedures in the sense that whenever there is a perception that there might be conflicts, the directors identify them and where appropriate remove themselves from the meeting. In the time that I've been a member of the Board I have yet to observe any conflict or potential conflict with Mr Packer who is generally regarded, albeit a shareholder, as a competitor in many instances. With the three people identified and anybody else, I've seen no actual or perceived conflict of interest in evidence.

Stephen Mayne: I want to speak against Sir Rod's re-election. We've talked earlier about the fact that we only have one view coming out of Melbourne from a Board level. Now, I think it's inappropriate that it's only one, and it's inappropriate that it's only Sir Rod for the following reasons.

Before Bruce Guthrie was sacked as editor, Rod actually stood up at a business meeting and asked him a question about why The Age was perceived to be so negative. Now this is quite an extraordinary turn of events for a director of a company to publicly stand up and question the editorial stand of his newspaper in his town. Now, before he was sacked, there was an array of writs that were hit on The Age, a couple came from Spring Street from Government, and came from Lloyd Williams, the head of the casino, and the strategy I think here was to undermine Bruce Guthrie and all of the writs were served up to the Board and the Chief Executive at the time, Bob Muscat.

So, what happened then was that Bob Muscat came down and had a meeting with Lloyd Williams, the head of Crown Casino. Now we know that Sir Rod is the Chairman of Hudson Conway, which was the largest shareholder at the time in Crown and the manager of Crown, and he's a close friend of Lloyd Williams. Now, at this meeting Lloyd Williams actually showed Bob Muscat a video which showed Bruce Guthrie being critical of Jeff Kennett.

Now, my question is Sir Rod is not the person, given his involvement in the Crown Casino, and given what a big story that is, he's not the person to be having representing this company in this town when we're trying to run an independent newspaper. The fact that Lloyd Williams was directly involved in the lobbying to have Bruce Guthrie sacked and that Sir Rod stood up at a public meeting and questioned the editorial stance of the editor, demonstrates exactly why he shouldn't be there.

Further, I'd move onto the question of Rod's performance in other roles. His chairmanship of GIO, his managing director's position at eRA, all ended on not the most positive terms. His position as chairman of the Victorian Commission of Audit was cut short. So, for all those reasons, I'm speaking against the re-election of Sir Rod and I'd like you to make some comments on that.

Brian Powers: I am much more concerned about how someone performs on this Board. On that basis I and I believe all my colleagues think that Roderick makes a valuable contribution. I think he is in a lot of ways one of the most sophisticated business thinkers in Australia, on issues which are very important to shareholders. He talks about corporate governance issues, I think he's at the forefront of raising and debating them. He is a strong advocate that quality of journalism is what this company needs.

Whether or not it was appropriate for him to arrange for an editor to see someone, my personal view is that you should always confront your critics, you learn from it, they at least feel they've had a fair go. I'll have to speak to Mr Hilmer, he'll then decide whether it's appropriate, but by and large we encourage our editors to meet with people who have complaints. I think it's very fair and we might learn something from it. So, by and large, I think Sir Roderick has been a valuable member of the Board and a very active participant. He has run the second largest company in this country, he had been a consultant before that, I think we're very lucky to have him. Any other questions?

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