A huuuuge day for Australian corporate governance

February 2, 2010

Dear Mayne Reporters,

Sorry to hit you with two editions in 8 hours but it's hard to think of a bigger day in corporate governance terms for quite a while. In the space of 7 hours we had tears from a reforming chairman, a CEO handing back part of his bonus and the Millionaires Factory eating humble pie.

Macquarie Group opened the batting by voluntarily disclosing all of its management agreements for the listed funds. Fairfax's Michael West has neatly explained why this is so important and it was also referred to this morning.

The great Asciano revolt

But that was just the beginning. Staying in the infrastructure space, the Asciano AGM at Crown Casino was a belter with plenty of anger directed at the board for presiding over a huge destruction of shareholder wealth over the past year.

The Australian's John Durie set the scene nicely today with this piece in his widely read column:

Asciano boss and major shareholder Mark Rowsthorn's pay packet is a key agenda item at today's annual meeting as shareholders debate his sweetheart options deal and the company's overall remuneration policies. Rowsthorn can vote on the remuneration report, which in any case is but an indicative vote, but not on the options grant, given that he is the direct beneficiary.

The complaint against the options hurdle is that it is based on earnings before interest and tax performance when interest at $380 million last year was a key driver or, more to the point, non-driver, of earnings. Rowsthorn, as an executive director of Toll, which spun off Asciano last year, is being asked to take the blame for the debt-laden structure that looked brilliant early last year but, when the credit crunch hit mid-year, looked decidedly ordinary.

Then there was the $103.7 million loss on the failed Brambles play, all of which raised questions about just why Rowsthorn received 70 per cent of potential bonus payments when most of his colleagues received much less. The 2.2 million options in question come at an exercise price of $4.24 (against yesterday's close at $2.70).

Rowsthorn can collect early on these long-term rewards in the event of a change of control and, of course, the company is rumoured to be under attack. He is also on a generous termination award of up to 18 months' pay.

Proxy adviser Risk Metrics appears to have recommended against both the Asciano remuneration report and the options issue and this caused quite a revolt as they attracted against votes of 32.4% and 23.87% respectively.

In fact, Asciano was so chastened by its revolting shareholders that CEO Mark Rowsthorn voluntarily agreed to surrender $750,000 of last year's short term bonus when it comes to bonus time in 2008-09.

When 39-year-old chairman Tim Poole announced this, I immediately got up and suggested that Rowsthorn vote his 10% stake against the remuneration report, which would have seen it defeated with 188 million votes in favour and 196 million against.

The meeting finished at 1.30pm and the company finally published the poll results at 4.45pm. Sadly, Rowsthorn did not take up our suggestion to withdraw his votes in favour of the remuneration report.

Tight security and the Fromberg connection with the young chairman

Asciano ran a ridiculously tight meeting with a huge intimidating red backdrop behind the board and microphones places strategically away from where shareholders entered the Crown Palladium to discourage questions. Indeed, they also banned visitors, something very few respectable companies do.

About 20 shareholders come up afterwards to engage about the woeful performance, but no director ventured forth for a chat.

I'm feeling a little bit bad about attacking Tim Poole for being a "babe in the wood" with not enough experience to chair a major public company with a tiny board of just four directors.

After all, we have a common tennis history. Way back in about 1982, Tim was the first person to play Tasmanian Richard Fromberg, who went on to make a semi-final at the French Open, on the Australian mainland.

Poole got flogged 8-0 or 8-1 at Heathmont Tennis Club in Melbourne's east and as the 12 year old second seed, I got cleaned up in the second round 8-2 by Fromberg who went on to easily win the tournament.

It might have been an ice-breaker to bring this up, but the destruction of value, poor governance, excessive debt and lack of accountability made the whole situation far too serious for any light-hearted banter.

Whilst Poole is a nice guy with plenty of experience in the infrastructure space, based on today's performance he really shouldn't be chairing a major public company. Too many questions went unanswered and you got the distinct impression he is way too close to Rowsthorn and could never bring himself to sack the guy.

Asked to explain the relationship, Poole said he had worked with Rowsthorn on many joint infrastructure investments although none of them had come off. It is time for the institutional investors to muscle up and demand the appointment of 2 or 3 new independent directors who are not old associates of Poole and Rowsthorn.

After all, this whole remuneration bungle and promise to repay the $750,000 bonus out of a total package worth $3.7 million came with Poole as chairman of the remuneration committee.

And Poole hasn't yet been strong enough to force Rowsthorn to surrender his guaranteed 18 month pay out if he is sacked. Asked about this issue, he simply said the contract was struck when Asciano was separated out of Toll. A strong chairman would have fixed that by now, especially giving the growing odium surrounding big payouts for poorly performing CEOs. And there haven't been too many worse than Mark Rowsthorn over the past couple of years.

Asciano audio highlights

Whilst recording devices were banned and bags searched, at least Asciano webcast proceedings so we can bring you these audio highlights. Numbers 5 and 6 are the most enlightening if you get a chance:

1. If the shares are so cheap, why isn't the CEO buying and how much does he owe on the 10% stake?

2. Who do we owe this $5 billion to?

3. Can we have a conventional meeting?

4. How did Macquarie go from adviser to predator?

5. "CEO gives back bonus after shareholders revolt", plus Rowsthorn should vote against remuneration report

6. Big spray at lack of board accountability after various debacles and explain the Poole-Rowsthorn relationship

7. Why proceed with these unpopular options when the CEO already owns 10% of the company?

PacBrands vs Asciano - compare and contrast

The contrast with Tim Poole's chairmanship today with Pat Handley's very impressive performance at Pacific Brands yesterday was stark indeed. We've now edited down all the exchanges from PacBrands and particularly recommend the first few, Pat's hedging explanation at number 10 and his defence of the Babcock & Brown gig at number 6.

1) How have sales been in the last month?

2) How China dependent are we?

3) Are we suffering any supplier pressure and is the shipping crisis affecting us?

4) How much pressure are we feeling on the retailing side?

5) What is the ratio that we are nearest to in terms of debt covenants?

6) How are you managing your time commitments and are you committed to Pacific Brands in the long term?

7) Who are our big five banks? Is it fair to say we paid too much for Yakka?

8) Are we getting the benefits of lower interest rates?

9) How much are we spending on advertising regarding Macquarie Radio?

10) How have we played the currency collapse?

11) What are you going to do with the base director's fees?

12) Why hasn't the CEO ever been elected?

Tears at AWB EGM

We finally got to the end of the reform road at AWB today when the old monopoly wheat exporter and world record kick-back payer adopted a new and more conventional constitution without the notorious farmer gerrymander.

Outgoing chairman Brendan Stewart is one of the hard men of agri-politics so it was staggering to see the Queensland farmer break down and cry whilst delivering his final thank you speech after 91% of the shares were voted in favour of the move.

Unfortunately, they've only released Brendan's formal meeting speech to the ASX, but that was pretty lively too.

When you consider the abuse that Stewart copped at all levels as he pushed through the governance reform program, his tears were understandable as he thanked everyone from the pro-reform directors, to the new management team and his long-suffering family, who have clearly paid a heavy price.

New chairman Peter Polson led a standing ovation after the big man cried and then gave an impromptu speech repeating the praise.

During the formal debate I asked a couple of questions about board election processes under the new constitution with an eye to potentially having a crack at the board at next February's AGM if they haven't delivered on these promised new directors by then.

My only quibble was the adoption of the "no vacancy rort" which allows the board to declare there is no vacancy for a challenger if they don't like the candidate.

Whilst Stewart was condemned by The Mayne Report for his belligerent attitude and lack of accountability at the 2007 AWB AGM, you have to hand it to the guy for turning around after the Howard Government was defeated and driving through the reform program against huge opposition.

Stewart proudly declared that all 152 recommendations by the KPMG governance review have now been implemented and actioned.

He deserves a good send off at tomorrow's night's farewell dinner.

That's all for now.

Do ya best, Stephen Mayne

* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.