More bureaucrats, Mike smith, ISS spin, RACV goldmine, John Safran

10. Another 10 scapegoated NSW bureaucrats


By Stephen Mayne

While it's hard to remember the names of any NSW Labor ministers who have been sacked in recent years, the list of scapegoated bureaucrats is impressively large. We have another 10 names today, on top of the 10 from yesterday. All 20 names are on the site here, but keep the tips coming to smayne@crikey.com.au to see if we can get to 30:

Ron Bruce: sacked from his State Rail position in charge of the Tangara train project a few days after the Waterfall inquiry.

Jennifer Collins: sacked as general manager of the Camden and Campbelltown Hospitals but since exonerated by ICAC and now running an unfair dismissal action.

Robyn Henderson: sacked as head of the Department of Women whilst on holidays in Portugal.

Major General Horrie Howard: Director General State Emergency Service. "Retired" not long after the April 1999 hailstorms debacle but was given a couple of board positions.

Howard Lacy: terminated as CEO of State Rail when Michael Costa became Transport Minister in 2003.

Jan McClelland: sacked from the Department of Education and Training following Andrew Refshauge's move from Planning.

Jock Murray: sacked as director general of Transport under Carl Scully.

Bob Smith: Director general of the Department of Land & Water Conservation (DLWC) from 1995-96 and at the same time DG NSW State Forests, removed by then Minister in 2003 when department merged with Planning and there were some timber supply issues.

Brain Steffen: sacked as Director-General of the NSW Ministry of Energy and Utilities in February 2004 by Frank Sartor.

Arthur Smith: former deputy CEO of State Rail, sacked a few days after the Waterfall inquiry.



20. What Mike Smith wouldn't stoop to


By Stephen Mayne

The Age's Melbourne Magazine had yet another profile on the paper's former editor turned PR man Mike Smith this month, focusing on his role advising Steve Vizard and various other colourful clients over the years.

The glossy photo featured Smith in front of several framed newspaper articles, so we asked the spinner just how many frames he's got spread around the office and what's in them:

I have about 30 frames in my office. They range from a few inexpensive prints of my favourite artist (Monet) and some old shots of Melbourne streetscapes....to front pages of big stories in my time at The Age (The Age tapes, police raid on The Age, the fall of the Berlin Wall etc) to stories about some of my clients (some of which I have helped generate, some not)....and a few certificates of appreciation from charities I have helped.

And what about the idea that Smith is the most profiled spin doctor in recent Australian history. Just how many have there been?

Profiles in The Age? I can remember a couple of others in the past 10 years, but they were principally about the company I used to work for, rather than purely a personal profile. I remember a piece in The Australian Media Section a few years ago. I remember a personal profile in an independent Melbourne magazine when I became editor of The Age. I don't seek them, but I don't run away from them either.

The most interesting comment from Smith in this latest piece of wonderful publicity for his work was the line he drew in terms of clients he wouldn't act for: "I wouldn't take on a murderer or a violent criminal or the tobacco industry."

Gee, so the tobacco industry is worse than Mexican fugitive Carlos Cabal, Japanese whalers, Brian Quinn and Steve Vizard. To Smith's credit, some of his more unsavoury clients came when he was working for the global Webber Shandwick empire and had budgets to meet. These days he can be more discerning running his own firm but he could hardly reject Vizard when he is close friend and indirect shareholder in his Inside Public Relations business. This wasn't pointed out in the profile.

Similarly, Lucinda Schmidt's piece revealed that Smith interviewed Douglas Wood for the Channel Ten special, but not that the firm which handled Wood, Profile Talent Management, is part of the sprawling Communicate Group empire put together by Vizard and his great mate Shaun Levin.

No wonder Smith said Vizard has got "a terrific story to tell at some stage" – he's still tied up in the former funny man's corporate interests.



28. ISS spin and the governance debate


By Stephen Mayne

After buying Melbourne-based Proxy Australia in June, the world's biggest proxy advisory firm, Institutional Shareholders Services, is cranking up the PR as it flexes its muscles like never before during the current Australian AGM season.

Visiting global ISS CEO John Connolly gave interviews to all the papers yesterday as you can see from the coverage in The Australian and the Herald Sun. Crikey didn't get offered an interview and there is one obvious question it would have been nice to ask: how on earth can ISS claim that News Corp has a majority of independent directors?

I only belatedly listened to the News Corp AGM again last night and full marks to Rupert for leaving the full exchange online. During the debate about independent directors, News Corp's group general counsel Lawrence Jacobs piped up that ISS rates News Corp as having a majority of independents and this largely took the wind out of my sails.

Of course, this is a complete fiction yet somehow both the New York Stock Exchange and ISS have allowed Rupert to get away with claiming that someone like Ken Cowley, who has been on the payroll since they launched The Australian together in 1964, is an independent director.

I haven't seen the ISS report making the claim but in Crikey's view this is a black mark against ISS, although it does appear to be kicking a few goals during the current AGM season in Australia.

It is fair to say that not all companies are enjoying being told what to do by the likes of ISS and the cowboys appear to be concentrated in Perth. Consolidated Minerals CEO Michael Kiernan spat the dummy and resigned after his incentive scheme was withdrawn ahead of imminent defeat and Jubilee Mines executive chairman Kerry Harmanis launched an almighty spray at governance do-gooders during yesterday's AGM.

Check out both his address and the proxy votes here. Sadly, the media largely ignored the proxies which showed a substantial protest against the remuneration report, incentive scheme and options issue to a director. In fact, all three resolutions were in the balance due to a large number of open proxies, yet the Jubilee cowboys declared they all passed on a show of hands when a poll should have been called. No wonder Jubilee Mines shares tanked another 19c to a five-month low of $6.11 this morning. The governance is appalling.

ASIC was right to clamp down on pharmaceutical research company Novogen for doing exactly the same thing, although its remuneration report was actually defeated on the proxies. ASIC issued this press release yesterday after forcing Novogen to write to shareholders and correct the record and apologise for not going to a poll. I was particularly interested by this ASIC concern:

Novogen issued a release to the market that was potentially misleading to shareholders in that it presented the 'no vote' as a proportion of the whole issued share capital, rather than as a proportion of the number of votes reflected in proxy forms lodged prior to the meeting. This had the effect of reducing the apparent 'no vote' from approximately 70 per cent (of directions in proxy forms lodged) to 12.5 per cent, creating an entirely different perception of the level of disapproval of the remuneration report.

That's exactly what Rupert did in New York when I asked him to spell out the actual votes – he declared that only 5.5% of the shares opposed the directors, when it was about 15% of the actual shares voted.



29. Memo Fairfax: look at Knight Ridder fiasco


By Stephen Mayne, candidate for the Fairfax board

As Fairfax journalists and critics continue to lambast the company for its latest cost cutting moves, perhaps they should consider what is happening at US newspaper giant Knight Ridder.

The company's largest shareholder, Brian Sherman's Private Capital Management, has written this extraordinary letter to the board demanding that they sell its newspaper chain due to the bleak outlook for the industry.

"In light of limited revenue growth across the newspaper industry and the difficulties the Company has faced in realising the fair value of the Company for its shareholders, we believe the Board should now aggressively pursue the competitive sale of the Company," the letter from the 19% shareholder read.

"In our view, the actions taken to date have not adequately addressed a number of significant issues facing the Company, including (i) continuing consolidation among traditional sources of print advertising revenue; (ii) the redirection of advertising dollars to other media; (iii) the Company's unexceptional operating margins; and (iv) the Company's lack of a nationally read paper capable of being leveraged in the online market."

Ouch, that's got to hurt. The problem is, who would buy it? Even the Murdoch family dumped their direct newspaper stake in Queensland Press last year in exchange for more News Corp shares, which now relies on newspapers for less than 15% of earnings.

Fairfax journalists are planning a concerted attack on the board at the AGM on November 18 for failing to come up with an adequate strategy to deal with the internet threat. However, is there a newspaper company in the world that has got it right?

Some problems don't have an obvious answer and Fairfax is indeed facing severe structural challenges. They could start buying internet businesses "willy nilly" like News Corp, but this has done nothing for its share price either.



30. How the internet is cutting everyone's lunch


By Stephen Mayne

The New York Times published this excellent piece yesterday examining in detail the issue of major media companies being sold off by investors who are fearful of the digital revolution spawned by the likes of Google and Yahoo.

To some degree it validates Rupert Murdoch's claim at the recent AGM that News Corp's share price weakness is part of a broader "bear market" for media stocks over the past year and has nothing to do with the poison pill or other governance concerns at the company. Check out the 12 months graphs for Time Warner, Viacom, Disney and News Corp for evidence of that.

However, reporters Geraldine Fabrikant and Richard Siklos also repeated the criticism of News Corp's "willy nilly" purchases of internet properties in recent times by Sir Martin Sorell, the global head of advertising behemoth WPP.

It is interesting that feared US corporate raider Carl Icahn yesterday successfully bullied Time Warner into lifting its buyback from $US5 billion to $US12.5 billion. The stock rose 33c to $US17.90 on Wednesday in response but then fell back 24c to $US17.66 last night, suggesting investors are looking for more than buybacks to regain the faith.

Time Warner has a market capitalisation of $US81 billion, so even after the record buyback, News Corp will still be well shy of claiming the "world's most valuable media company" prize as its recent slump has sent its market cap back below $US50 billion. Compare that with Google's value of more than $US100 billion after it powered $US6.57 higher to another record high of $US385.95 overnight.

Time Warner is also planning to spin off 16% of its cable operation next year to unlock value, the reverse approach to News Corp which bought back the 20% of Fox Entertainment that it didn't own for 356.5 million non-voting shares earlier this year. These were worth $8.34 billion when the offer was first launched but only $6.95 billion on today's price of $19.50.

John Malone controls 18% of the votes at News Corp, yet he hasn't been successful in persuading Rupert to expand his $US3 billion buyback when the company could easily afford to spend up to $US10 billion. Maybe that will change at the September quarter earnings release on November 10, the same day the company faces its angry institutional shareholders in a Delaware court over the broken poison pill promise.

The damage being caused by the internet to some old world businesses extends far and wide. Look at the turmoil hitting travel booking company Flight Centre. The stock plummeted 79c to a six-year low of $10.50 yesterday, although it recovered 31c to $10.81 this morning as its market capitalisation snuck back above $1 billion.

Chairman and founder Graham Turner shocked investors at last week's AGM when he revealed a 21% decline in first quarter profit to $23 million with the threat from the internet being the major cause. The stock has tanked from $14.25 on hearing the gloomy news as more and more people book their flights online directly through the web.



31. How the RACV hit a gold mine with the NRMA


By Stephen Mayne

One of the good things about running for a board is that information starts to flow your way, often from the most unexpected quarters. Without breaching any confidences, Crikey can reveal that the RACV absolutely made the right decision to pool its general insurance operations with the NRMA five years ago.

RACV Insurance was a slowly poisoned duck quacking loudly prior to its sale. It was sub-scale and capital constrained – thanks to being a mutual. The RACV models showed that 25% of the Insurance Manufacturers of Australia (IMA) joint venture with the NRMA would have been fair value. However, they ended up getting 30%, partly thanks to Nick Whitlam's blunt arrogance.

Prior to demutualisation, the NRMA had spent $100 million trying to crack the Victorian market and all they ended up with was a 9% share at the dodgy risk end of the motor market and even less in home insurance. Buying RACV with equity in the IMA joint venture allowed Whitlam and the NRMA to crow that they had won but many regarded it as a phyrric victory.

The next move is for the RACV to take the big step and demutualise, getting out of insurance and crystallising a huge profit in the process. The board has looked at this on occasions in operations called Project Molly and Project Molly II.

The Project Molly scenario sees RACV exercise its pre-emptive right to sell its shares in IMA. This would almost certainly be to IAG in exchange for a minimum 10% stake in IAG which would be worth $1 billion. Not bad for an asset that had an optimistic value some seven years ago of $200 million. It's still in the RACV books at just $158.34 million

Assuming that the entire RACV is actually worth about $1.7 billion, that would be a very tidy average windfall of $10,000 each for the 17,000-odd RACV Club members if they were able to share in this booty exclusively and the poor second cousins known as the 1.3 million regular roadside service members were given no entitlement.



37. John Safran, churches and big business


By Stephen Mayne

John Safran has a new chat show on religion debuting on SBS this month called Speaking in Tongues, and last month The SMH's Spike column had a taste of what it's about. Crikey will be a guest for an interview to be recorded next week about business and the churches.

That's a nice broad canvas, but what to say? Just how big a commercial operation are the churches running? Which is Australia's richest church? Who has the biggest investment portfolio?

What about the arrangement that sees Hillsong running the Gloria Jean's coffee chain as you can see debated here on John Quiggin's blog? Is that appropriate for a church?

Property deals are another very interesting area. The Masons are selling Melbourne's iconic Dallas Brooks Hall for apartments and the Sisters of Mercy have just received a very big price for their East Melbourne hospital site overlooking the Fitzroy Gardens.

How does the church balance its commercial interests with faith, education and the provision of healthcare, charitable or retirement services?

The Crikey army is hereby enlisted to assist. All tips and thoughts to smayne@crikey.com.au and we'll tease this one out over the coming weeks.

Copyright © 2022 The Mayne Report. All rights reserved

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