2009 AMP AGM Transcript

September 1, 2009

Chairman, Peter Mason: Mr Mayne? Good morning Mr Mayne.

Stephen Mayne: Good morning, Mr Chairman. I think maybe Mrs Smith should sell her shares.
Mr Chairman, I appreciate you've demonstrated a good example today of holding the line and you've shown some strength up here today in supporting an AMP policy and well done for doing that.

I guess my first question is a bit of a criticism of you Mr Chairman for not holding the line in terms of board succession planning at AMP and the reputation of the AMP. I'm just amazed that you allowed Meredith Hellicar and David Clarke to submit themselves for re-election. You endorsed them. The whole board endorsed them for another three years.

Now I would have thought that after both sides of politics completely rejected any forms of donations from James Hardie after the whole Jackson inquiry, after the massive settlement, after the ASIC proceedings, and the whole embarrassment of James Hardie, that the AMP would have realised that putting up the Chairman of James Hardie to be a director of this company for another three years was not acceptable and would damage the AMP brand. It was already quite macabre I think that you had the Chairman of Australia's biggest industrial killer literally as Chairman of our life insurance subsidiary. I mean we're Australia's biggest life insurance company.

Peter Mason: Mr Mayne ...

Stephen Mayne: And not only that I think she was actually the highest paid non-executive director in the country on 407,000 a year.

Peter Mason: I don't think I ... I've heard you and I understand what you're getting at. As you would appreciate ....

Stephen Mayne: I'd like to finish if I could. I just like to finish.

Peter Mason: ... our role as ... I'm come back for further questions but let me respond to this first. Our role on the board of AMP is to look after the interests of AMP and its shareholders. And you know this and you've referred to it. We have a rigorous approach to investigating and determining contributions to the Board by each individual member and indeed we examine with outside help the performance of the board as a whole.

In relation to Meredith Hellicar her performance on the AMP Board was at all times as a very considerable contributor. She made a valuable contribution in all of our deliberations and beyond that. So we look at the position for AMP and in that context I can only say she was an exemplary director.

Stephen Mayne:
Now Mr Chairman I appreciate that boards are naturally collegiate and I appreciate that both of those directors may have been wonderful performers inside the boardroom.

Peter Mason: If you were to see us in action from time to time you'd question the collegiality. We do have vigorous debate from time to time.

Stephen Mayne:
But this is what I can't work out is it's actually irrelevant how they were performing inside the AMP boardroom. It's the damage that's done to the AMP brand by having the Chairman of James Hardie on the board when ASIC ... a judge has just come out and said that she's a most unsatisfactory witness. You could have sniffed the breeze here and just quietly facilitated a retirement.

The same goes with David Clarke. I'm an investor in all ten Allco vehicles, more than $5 billion has been lost. He was the CEO of the company. ASIC is investigating. Huge amounts of losses. You would have seen what happened to Barbara Ward at the Qantas AGM last November when she got a 42% against vote just because she was a non-executive director.

And then you didn't sniff the breeze and you actually endorsed him and put him up for another three years and it wasn't until you realised your shareholders were actually going to defeat him and force his defeat on you that you relented with a two paragraph statement. So it's a chairman's job to facilitate these things and I just think you completely failed in your duty to sniff the breeze, protect the brand of the AMP, and now you've had this unprecedented situation of two directors having to resign out of embarrassment after you as a Board have endorsed them and put them up for election for another three years.

Peter Mason: Mr Mayne, and ladies and gentlemen, of course I appreciate that there are very deep feelings about this matter. I can only repeat that our role is to assess the contribution to the board of the individuals and in both cases their contribution was considerable over a period of time where the company required reconstruction and where we were venturing into territory where we'd never been.

As part of the process of board assessment we take soundings from shareholders, small and large, and let me assure that the soundings that I was receiving in relation to both of them generally speaking were very favourable indeed. Now I don't think there's anything further to be gained by proceeding further on this matter. Did you have another question Mr Mayne? I wasn't sure whether you ... thank you very much.

Stephen Mayne:
Thanks, Mr Chairman. One more on general business. I like to commend the work of Michael Anderson at AMP Capital in the regular reports that are released about AMP's voting, and the fact that AMP is voting its stock against, quite a substantial proportion of remuneration reports or directors increasingly at other companies which you invest in. And I think AMP has led the campaign to clean up the atrocious system of voting in Australia, where votes go missing and there's no audit trail, it just should be an electronic system of voting with a full audit trail and it's a joke that we don't have that. But well done to AMP for leading the charge in trying to clean that up.

Then I look at the main Board, and this issue we've discussed at length today about the composition of the Board and the directors, and I sort of think, gee, here's AMP doing all the great work at a fund manager level, yet at the Board level they don't seem to get it when it comes to governance or Board accountability.

So I'd like to hear you enunciate where the Board sits on driving governance through the market, and where you sit on things like signing up for the United Nations principles of responsible investments, and what sort of a mandate you give the people at AMP Capital to drive their governance. I guess I'm interested in does the Board get it when it comes to AMP's role to drive governance, disclosure, transparency, and good practice right through the Australian markets, not just at the AMP Board level.

Peter Mason: Mr Mayne, thank you for your compliments for the AMP approach to corporate governance. We've certainly endorsed the view that we are an important investor and need to show community leadership, and that's manifested itself in the various ways that you've described. And the simple answer to your question about the UN principles is yes, we have signed up and we do take obligations in the wider community as you know extraordinarily seriously, and have done over a long period. And we do get it. Now, are there any further questions?

Peter Mason:
Thank you, Mr Mayne.

Stephen Mayne:
Chairman, I certainly hope that after we give you approval to issue another 15% we're not going to rush out and do another $1.4 billion placement. I am surprised you're putting this up given that it's already I think more than six months since you did the capital raising. So you only had to struggle through the next six months and you would have had the full 15% anyway. And when companies ask for this approval you instantly think "Oh what are they going to do?"

I've got a specific question about the way you did structure this particular offer which is that you did $450 million placement to institutions and then good on you for at least doing a follow through share purchase plan to us small shareholders.

But initially you announced that the small shareholder purchase plan was going to be capped at 100 million and that was only going to represent 18% of the total capital raising. Now I'll bet you a brick that your retail shareholders represent more than 18% of your register.

So I'd like to register with you today that next time you do a capital raising structure it so you don't propose any form of dilution of retail shareholders as a class. In other words if we're 40% of the stock do a placement and then do an SPP that allows for up to 40% of the issue. To your credit you got 9 million above the 100 million and you accepted it. So you didn't scale back when strictly you could have. So it's not a major issue. But I just .... I prefer uncapped SPPs. So any shareholder who wants to write out a cheque will be accepted.

The Commonwealth Bank got 880 million the other week doing one of those and I just think that if you're doing a deal with the big boys, a placement, then you could give the little guys a chance on the same terms without any caps around that.

And my one other specific question was what was the size of the fees we paid to the investment banking advisers for this particular capital raising? Thank you.

Peter Mason: Mr Mayne, the answer to the second question is I don't know but it was too much and being an ex-investment banker myself I understand where you're coming from. But let me say that you will recall that they were particularly challenging times and that's indeed why we issued the capital. Certainly the principal stance we take as a Board is that we would much prefer to treat all shareholders in exactly the same way, but we felt that with the way things were happening in the market ... and we're pleased we did by the way very pleased with the way we went about it. We found a window in which we could undertake the approach we did and we did it and we were limited then in the subsequent offer we could make to shareholders bizarrely by the Stock Exchange rules not by our own determination to limit the amount that we could offer to our own shareholders.

There is an aberration in the Stock exchange rules whereby they say that those particular special purpose issues are limited to a dollar sum which has been ... was once 5000 only until pretty recently, it became ten, that's where we were and it's gone I think. Has it gone yet to 15,000? They're certainly talking about that happening. But it seems to me to be ... it's counter intuitive that they would limit it at all. So all I can say to you is we are absolutely in lockstep with you in the principal approach. We are bound by firstly in that particular circumstance the market as it was and secondly by the Stock Exchange rules as they are. Thank you.

Stephen Mayne:
Chairman, I think one thing you didn't mention about Richard was I think that he led the team at KPMG which did all the work on the AMP demutualisation in the late 1980s. I think there is an issue ... sorry the late 1990s. There is an issue I think.

At the time it was mentioned that you know the governance issues around a major service provider then coming on to a board. It was very much a sort of a 1980s style appointment. Conversely obviously Richard has a lot of experience from having worked on the demutualisation and he is the longest serving director having been here since March 2000. There's no one else who has got any corporate memory on this Board from the demutualisation process including Craig who only joined in early 2000 as well.

The problem though was that Richard I think quite quickly joined as Chairman of the audit committee and then the 2003 accounts came out declaring that you were worth $18 billion signed off by the auditor Richard, chairman of the audit committee, and your market cap had actually crashed to about 5 billion. So to this day that set of accounts remain the most inaccurate or overstated accounts ever produced in Australian corporate history. It's 13 billion over the odds.

Now you then blew up close to 10 billion in the UK. You wrote off a $5 million loss in 2004. Richard was re elected in 2003 with 81% of the vote in favour. That was considered a big protest in the context of the times and he's been re elected twice since with the usual 99% in favour.

Now we have a set of accounts today which claim we're only worth about 2.12 billion so our net assets are 2.12 billion yet our market cap is close to 10 billion. So as the Chairman of the audit committee right through this process I'd like to hear from Richard as to how AMP went from having Australia's most overstated balance sheet with $13 billion of claimed assets that was over the odds of the market cap to now having one of the most conservative and understated balance sheets where you're missing 7 billion of value which is not in there. How did we go from this journey and when will AMP ever produce a set of accounts that actually vaguely have some sort of a proximity to what the market's assessment of this business is actually worth?

And also is it Richard's intention to serve for how long? Is it a three year term we're looking for here because obviously last year he said he was going. So what is the plan? Now you've just become Chairman of the Life Company which is a big gig. Does this mean you're redoubling and you're here for the long haul or is it just a sort of a year by year thing because you've served for so long?

Peter Mason: Mr Mayne, thank you. I don't intend going back ten years or so but I will say this, under the constitution it is compulsory for directors to retire but they may be re elected on an annual basis. This is common to a number of companies and it is certainly common that directors are reappointed on an annual basis one year at a time. And that's the case with Richard, the appointment is for one year. As you say Richard has a highly valuable corporate memory and he has made a great contribution to AMP and we are very pleased indeed that he's agreed to continue for another year.

Peter Mason: Mr Mayne.

Stephen Mayne:
Chairman, I don't wish to reflect on Nora's capability or contribution within the Board. I'm sure it's been terrific. I also don't know what representations she made within the Board about Board renewal, whether she got ??? by you as to whether there should have been some different handling of the situation with Meredith and with David Clarke.

But I think the fact of the matter is that Nora is Chairman of the nomination committee. So she is specifically charged through the Board's sub committee to handle succession and nomination and I can only say that I think she's failed in that job in approving the nomination of the two candidates, withdrawn candidates, now in question. Now I've no doubt as we've seen ...

Peter Mason: Mr Mayne, ??? reiterate I've said it before each director is proposed with the unanimous agreement of this Board of Directors. There is no responsibility for any one person including me for the nomination of any director we put to this Board of Directors.

Stephen Mayne:
I hear your point.

Peter Mason: And I certainly don't think that there is any avenue for distinguishing Nora who has made wonderful contribution to the AMP Board.

Stephen Mayne: Mr Chairman, I think there is a very specific distinction with Nora in that she is the Chairman of the nomination committee which handles Board succession at this company. Now I think Nora will no doubt get the usual 99% in favour today, but I think for those who've heard the debate today a number of shareholders have spoken. I think that if we as a group of shareholders want to send a message to this Board about what happened with the attempt of this entire Board proposing utterly inappropriate candidates for re election I think the show of hands today ... I think it would be good to send a message to this Board to learn this very important lesson and actually through the show of hands which won't be reflected in the proxies to actually vote against Nora's nomination today just to simply really push that message home to the Board.

Because I have never seen a situation before where a blue chip company has put up two more inappropriate candidates and then had the embarrassment of them actually pulling out because of an impending shareholder revolt and adverse judgement, publicity, et cetera, et cetera, and I think the shareholders today should really punch that message home by voting against the one director up for election today who by dent of that position on the nomination committee is more responsible than any other candidate for that particular failed or poor decision that was taken.

Peter Mason:
Mr Mayne, I'm not going to engage at that level but I'm saying to you I'm afraid you're missing the point.

Stephen Mayne:
Chairman, just a final quick point. Well done for actually putting this resolution to the vote. You didn't have to. I think it is good governance that you've actually voluntarily put it up to the vote. Personally I don't think there's anything particularly offensive in the parameters and it should be supported. I was very interested however in your comments about the tax changes on Tuesday night. I think they're talking about saving 250 million over three or four years. So you're looking at 60, 70, 80 million a year that they're going to save from this and this is directly targeted at CEOs.

I mean the way the system worked was CEOs could structure their pay so that the tax rate they were paying on their share component even in some circumstances got down to as low as 10%. It was a bit of a rort where you can prepay your capital gains tax and then you've got the 50% discount if you hold the stock for 12 months and they've closed off what many people regarded was a bit of a rort. And a logical CEO of course would structure their affairs to turn what really should be income into capital if you can get your tax rate down to you know something in the teens. So it's a logical rational way to respond.

The question is where does the liability lie in Craig's contract now that this loophole has been shut?

So if he reaches all this performance hurdles this legal change will cost him hundreds of thousands of dollars. Is that a liability we're going to wear under his contract? Is there a clause in his contract that says any changes to tax laws the company must compensate or is that going to be something that Craig himself will have to wear? Because clearly the 250 million over three years is going to come from somewhere and I'm curious as to whether it's going to come from CEOs or from the employers of CEOs.

Peter Mason: Thanks for your comments Mr Mayne. As to the contract I'm pleased to say that as with all good contracts once the contract is executed it tends to be put in the bottom drawer and never needs to be resorted to again and certainly in terms of the relationship between our senior executive and our Board we don't get to those things. What matters most is fairness and appropriate remuneration in terms of the market.

So if we along with other companies are obliged to meet the changes that are being instigated at a legislated level we will do that and I have no idea myself what the outcome will be, but that's as much as we know for the time being. I certainly would just remind you though it's set out in the notice of meeting and it was ... and I read this in terms, Mr Tilburn, of legal formality. A reminder that we do have an obligation to pay the Chief Executive a long term incentive payment. That is contractual and disclosed for all of our senior executive.