Working over conflicted billionaires and departing chair at lively Ten AGM

December 17, 2010

Greetings from Melbourne Airport after a remarkable AGM of Ten Network Holdings at the Sydney Casino this morning.

After all the tumult of the past few months and with Bermuda-based billionaire Bruce Gordon and media scion Lachlan Murdoch looking on, it was incredible that shareholders didn't seem interested in getting on top of the enormous issues that will confront the company with four billionaires now separately represented on the board.

The various conflicts of interest engulfing Ten were first laid in this lengthy piece for the Fairfax websites on October 25 when the better half was suggesting this was a lost four hours of campaigning time for the Victorian election.

Perpetual lets Packer and Rinehart get set

The Perpetual Investments conflict courtesy of KKR trying to buy the biggest institutional owner of Ten whilst simultaneously owning 48% of Channel Seven has since disappeared as the man who runs Perpetual's Australian share portfolio, James Packer backer John Sevior, has seemingly sold out of Ten completely to billionaire mining heiress Gina Rinehart.

Assuming that Gina was indeed inspired to buy into Ten after hearing James Packer praise cash for comment shock jock Alan Jones as Andrew Bolt alleged a few weeks back, Gina potentially represents the third representative on the board that the casino mogul demanded from the moment he first bought in.

How an 18% stake warranted 30% of the board seats is hard to fathom, but James Packer very much looks like he'll be calling the shots at Ten from now on.

How close is the new chair to James Packer?

After long-time Packer family associate Brian Long was unveiled as Ten's new independent chairman this morning, my opening question to the board today was as follows:

Raise your hand if you believe Brian Long is independent of the Packer family

Burger mogul Jack Cowin was overseas on business and the three billionaires plus Bruce Gordon's lawyer don't join the board until Monday, but the seven directors up on the casino stage today all dutifully raised their hands. Yes, it seems, the former Ernst & Young auditor of PBL who was even called in by the Packers for some advice the night before One-Tel went under, is indeed completely independent of James Packer.

Whilst James Packer has now indeed succeeded in sacking Nick Falloon twice, the outgoing executive chairman of Ten sounded very sincere when saying that he recruited Brian Long to the Ten board in June and they had known each over the years when both were working on PBL matters. Long is also regarded as one of Australia's best auditors.

Thanking Nick Falloon for a solid 9 years

That said, it was remarkably graceless of Long to allow the meeting to close without anyone at board or management level publically thanking Falloon for his efforts over the past 9 years. Even this statement announcing Long's ascension to the chair this morning failed to thank Falloon.

After sparring with Falloon over numerous issues during the course of the 75 minute meeting, I did give him a nice send off during the final remuneration debate and thanked him for an excellent contribution to the television industry over more than 20 years.

The late Kerry Packer certainly appreciated Falloon's talents but his son never shared the admiration and wasn't even good enough to front up today.

All resolutions were comfortably passed with more than 95% of the votes in favour, although the remuneration report did attract 30 million against votes which might have had something to do with the millions of extra bonus payments that the executives received direct from former controlling shareholder CanWest last financial year.

Billionaires talk to journalists but not shareholders

As the Herald Sun noted in this afternoon's web account of the Ten AGM, Lachlan Murdoch was happy to give a few quotes to journalists before the meeting but didn't say boo to the assembled shareholders in the Star City ballroom.

Ten's largest shareholder Bruce Gordon did the same, even suggesting to reporters that Gina Rinehart doesn't have enough media experience to be on the board during his pre-AGM door stop.

However, when it came to getting Mr Gordon on his feet during the formal proceedings to answer obvious conflict of interest questions about his ownership of Channel Nine in Adelaide and Perth, he declined to take the bait and was actively protected by chairman Nick Falloon.

This was very different to last year when Gordon responded to my comments with a speech to shareholders and suggested he would like board representation. This was laughed off at the time given the obvious conflicts, but how things have changed over the past year. However, at least it won't be Gordon himself representing his $300 million-plus investment which is now only worth about $200 million.

No room for a CEO or a representive of small shareholders on the board

You can hear Bruce Gordon's effort last year in this account of the 2009 Ten AGM when our board tilt wasn't well supported but did strongly push home the point about how retail shareholders had been shafted through a discounted institutional placement and no follow through share purchase plan.

Indeed, so unpopular was last year's Ten tilt that the sub 1% result was even worse than the Victorian election result and was the second worst corporate election result of all time behind Westfield Holdings in 2000.

However, we did all manage a laugh today when I asked chairman Falloon why there was suddenly vacancies for four billionaires to score board seats when last year shareholders were told there was no vacancy for me.

Indeed, Ten invoked the old no vacancy rort in 2009, declaring it was maxed out with seven directors even though the constitution says it can have between 3 and 11.

The really strange thing about the appointment of Gina Rinehart to the board is that it leaves no room for management on the board. Ten will have 11 non-executive directors and if it wanted to do what every other ASX100 company does and have a CEO on the board, it would have to remove one of the NEDs.

There is also very limited head room in the fee cap for directors such that Nick Falloon said it had not yet been agreed what Brian Long would be paid. I suggested the billionaires all work pro-bono - ironically, this would free up more cash for their chosen independent chair without seeking shareholder approval.

Supporting the push into news

The Walkley Awards are on in Melbourne tonight so it was perhaps appropriate to commend Ten for its bold new investment in news programming at a time when the funding of journalism is under severe pressure thanks to the internet.

James Packer is widely tipped to oppose the strategy so the board was given a solid run down on why quality news programming matters.

Seven and Nine hate what Ten is doing because attracting those viewers during the 6pm news is vital for keeping them throughout the evening.

It's always fun getting directors to raise their hands at AGMs so I asked directors who supported the news push to do precisely that.

Nick Falloon's arm went straight up but there was less support than the earlier board vote on Brian Long's independence. This will be a key issue to watch going forward, along with the question over whether the board will restrict management's ability to bid for sporting rights.

These are the two issues where conflicts of interest are quite stark given that the Packer and Murdoch families don't want Ten competing with Fox Sports for sports rights.

Audio highlights from the AGM

Here are all the edited audio highlights from our exchanges today. There should also be something on ABC Radio's PM program and I'll be chatting to 774 ABC Melbourne's Drive host Lindy Burns at 5.20pm:

How independent is Brian Long and has competitor Bruce Gordon been signing off on all these new directors?

Is there board support for Ten's sports channel and how will the conflicted Fox Sports directors be treated?

Your bold move into an expanded news and current affairs format should be commended.

Could director Paul Gleeson comment on any association with our new major shareholders?

Why wasn't Nick Falloon up for election and does David Gordon have any associations with the three billionaire families on the board?

What is director Dean Hawkins' historical and ongoing associations with our major shareholders?

What does director Christine Holgate think about how Ten shafted retail shareholders by failing to do an SPP after a placement?

What promises has the new chairman made to get the top job and why isn't their room to have a CEO on the board?

James Packer got it wrong - congratulations to Nick Falloon for a job well done

Transcript of debate about Brian Long's re-election

When the new chairman was up for re-election, it provided the only opportunity to extract some answers. Here's a partial transcript of what happened:

Stephen Mayne: What has the board resolved to pay our new chairman?

Nick Falloon: As of yesterday, Mr Long accepted the invitation of the board to become the chairman. We're seeking advice at the moment for the rem committee of the board, that will be put in place in the new term.

Stephen Mayne: How much headroom do we have in the current approval of non executive director fees?

Nick Faloon: Not a lot currently.

Stephen Mayne: So are some of our billionaires acting pro-bono?

A question for Brian, I'm a local Manningham councillor, a council in the suburbs of Melbourne, we're meeting soon to elect a new mayor. There's always promises made, deals done to get into any leadership position. Just ask Frank Lowy and the World Cup bid, ask any politician, ask anyone who's reached a prestigious, powerful leadership position in any institution - promises are made.

Brian, what promises have you made to the four shareholders who represent 42% of this company, who have clearly supported you into the job - on what grounds?

Brian Long:
Absolutely no promises. I've spent 30 years and longer working in the profession, and what I hold highest of all, is independence, objectivity and reputation. I've made no promises.

Stephen Mayne: What do you know about the media industry?

Brian Long: Well, I thought you mentioned earlier in the meeting that I had some experience in working with PBL organisation, I have, and a number of other, as professional services provider, a number of other media companies - Fairfax, Hoyts, PBL etc.

Stephen Mayne: As a non executive chairman, are you comfortable leading, the only ASX100 company that I'm aware of, that won't have an executive director?

Brian Long: I think Stephen I was to be the chairman yesterday. The full board, including the four new directors, have not met yet, and all matters to do with board composition is a matter for the board, which they will discuss in the normal course. So that is a future consideration and I don't have a view I'm prepared to give right now.

That's all for now.

If anyone missed yesterday's admission of defeat in the Northern Metro tilt, here is the link to the email edition sent at 5.30pm last night.

Do ya best, Stephen Mayne

* The Mayne Report is a multi-media governance website published by shareholder activist, local government councillor, Crikey founder and political candidate Stephen Mayne with regular email editions. To unsubscribe from the free emails click here.

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