Transurban shareholder revolution - chairman almost defeated

February 2, 2010

Dear Mayne Reporters,

Wall Street might have just closed 2.5% lower, but you need to know that history was made at last night's Transurban AGM when chairman David Ryan, who spent four years chairing the ABC Learning audit committee, was almost defeated.

The proxies were 401.7 million in favour and 301.85 million against (57%-43%), but the results of the poll results this morning showed an extra 190 million shares backed the chairman from the floor, which was presumably one of the big Canadian funds. That said, this is a major revolution as no other major Australian public company chairman has suffered such a protest.

Check out this list tracking the biggest "against" votes endorsed directors have suffered. Whilst Peter Kerr from Tattersall's and John Cassidy from Hills Motorway both resigned the day before their meetings to avoid the ignominy of defeat, Transurban is a much bigger company and David Ryan was the chairman.

Ryan clearly knew he was in trouble before the meeting, but the formal text of his address released to the ASX at 4.56pm last night included nothing of his opening gambit when he complained of press attacks about ABC Learning, defended his integrity and declared he wouldn't and couldn't talk about his experiences at the teetering childcare giant.

My opening gambit asked the very simple question as to how Ryan could possibly manage the affairs of a $6.6 billion tollroad giant when he was margin called out of his entire ABC Learning stake. If his personal portfolio and risk management was so lax, why should we trust him with Transurban?

To try and bring this issue back to Transurban, the question was posed by asking how and why he retained his 57,000 Transurban shares through the ABC Learning margin call process when he presumably could have sold these shares to avoid or reduce the ignominy of the margin call.

Ryan suffered acute embarrassment when he became the first respected mainstream member of the directors' club to cop a margin call, as you can see from this announcement by ABC Learning back in March.

This development earnt the Transurban chairman a prominent spot on our list of executives and directors who have been margin called as follows:

David Ryan: the ABC Learning director had to reveal that his entire 249,101 shares were swept away on February 26, 2008, at the knock-down price of $1.895 – fetching a rather miserable $472,000 for his lenders on a parcel that was once worth more than $2 million.

Indeed, we crunched all the numbers on Ryan's portfolio back in June and his exposures look hard to explain. Unfortunately, he refused to engage on this issue last night.

When it came to Ryan's election, John Curry from the Australian Shareholders' Association got up and spoke against on the basis that he was overburdened trying to save ABC Learning as the new chairman, having replaced Sally-Ann Atkinson earlier this year.

My pitch was far less diplomatic, spelling out the complete shemozzle that unfolded at ABC Learning and then calling on the other directors to take matters into their own hands and ensure Ryan was quickly shown the door following the unprecedented protest vote.

Big vote against remuneration report

Making matters worse for Ryan, the Transurban remuneration report attracted 282.68 million proxies in favour and 230.62 million against as investors took aim at the ridiculous $16.6 million paid to former CEO Kim Edwards last year, along with the excessive $3 million sign-on fee for new CEO Chris Lynch.

The final poll result was even worse as one of the big Canadian funds voted against from the floor to leave the result at 282.68 million shares in favour and a whopping 413.34 million votes or 59.5% against.

Whilst Lynch is indeed a quality recruit after the former BHP Billiton finance director missed out on the top job at The Big Australian, the ridiculous payout to Kim Edwards cannot be justified no matter how you spin it.

The three largest shareholders in Transurban are as follows:

Canadian Pension Plan Investment Board: 14.09% or 172 million shares
Ontario Teachers' Pension Plan Board: 12.85% or 156.77 million shares
Capital Partners Pty Ltd: 9.67% or 118 million shares

Clearly one of the big Canadian investors held its votes back until the poll because the proxy turnout on the remuneration report was only 513.3 million shares or 42% whereas an extra 190 million shares or 703.5 million in total (a 57.6% turnout) were directed by way of proxy on the resolution dealing with the re-election of chairman Ryan.

Whatever happens in the poll, Transurban will feature in the top 10 remuneration report protest votes.

Media coverage of Transurban revolution

Despite the protest vote against David Ryan being well signalled in this recent column by The Australian's John Durie, most media outlets weren't able to get organised to cover the Transurban AGM which ran from 5.30pm until 7.30pm last night at the RACV Club.

Admittedly, Transurban didn't make it any easier by refusing to webcast the meeting, a clear change of policy from recent years and no doubt influenced by the coming protest votes.

Sky Business Channel was still just reporting the formal addresses on the profit outlook at 10.15pm and Lateline Business failed to cover the story.

The Australian and The Age were initially just reporting the AAP version of the chairman's ASX-released speech, but John Durie did well to get this accurate comment into today's paper. The AFR mentioned the "vocal opponents to the re-election of chairman David Ryan" and "indications" that the remuneration report was in trouble, but didn't report the proxies disclosed to shareholders.

Let's hope we get some more coverage of this landmark vote in tomorrow's papers because widespread media exposure of these historic events are important aspects of the accountability mechanism. The big question is to ask David Ryan precisely why he is still hanging around.

What this means for the director's club

Dean Paatsch from proxy advisory firm Risk Metrics first publicly signalled a focus on director elections in an interview with The Mayne Report back in April.

Asked what would be his highest priority if made Prime Minister for a day, Paatsch said "refreshing the talent pool of Australia's directors is, I think, an urgent priority."

He called for "a New Deal between investors and directors" and just six months later he has delivered because it was Risk Metrics which recommended its clients vote against Ryan. They did so in spades.

For far too many years Risk Metrics and fellow proxy adviser CGI Glass Lewis have been getting ignored when rightly urging shareholders to vote against individual directors. With such a sea-change at Transurban, one of the next targets will be Barry Cusack at McMahon Holdings after his outrageous performance with Owen Hegarty's $8.4 million golden parachute from Oz Minerals.

Ironically, it was probably the larger-than-average foreign presence on the Transurban register which delivered such a protest, but the company will be under intense pressure to heed the message.

Ryan can't possibly survive past Christmas, but the fact that he even tried to score another three year term indicates the entitlement culture than infects the directors' club. Transurban is a company that has been retrenching dozens of staff whilst its own chairman refuses to do the honourable thing.

Former corporate undertaker and KPMG CEO Lindsay Maxstead is one of Transurban's newest directors and he gave a very polished speech last night, such that he would probably be a suitable new chairman.

We'll be back with more this afternoon following the Consolidated Media Holdings AGM with James Packer at Crown Casino, but that's all for now.

Do ya best, Stephen Mayne

* Disclosure: The wife and I were guests of Transurban in their corporate box at the MCG during the 2006 Commonwealth Games.

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