AFIC 2013 board tilt falls short

August 10, 2019

An attempt to shake up Australia's biggest listed investment company and encourage it to act more openly and transparently in the interests of Australia's 6 million direct retail shareholders fell short at the 2013 AGM.

After pretty much retiring from public company board tilts in May 2011, a special set of circumstances sparked a nomination for the board of the Australian Foundation Investment Company (AFIC) at the 2013 AGM, which was held on October 9 at the RACV Club in Melbourne.

However, after a patently unfair campaign complete with censored platforms and a dubiously biased voting paper, the tilt fell well short of victory with 16.4% of the directed votes in favour and 83.6% against. Check out the full results online here, although the board has disappointingly excluded the specific figures on the undirected proxies held by the chair which consisted about 20% of the vote.

The AFIC board, led by retiring chair Bruce Teele and his great old mate Don Argus, the former NAB CEO and BHP Billiton chair, published a brief bio in the notice of meeting which can see on page 138 of this ASX release.

Disappointing censorship of platform

Here is the part which they censored explaining the reasons for the tilt:

Stephen was concerned when AFIC voted its Westfield Group shares in favour of the remuneration report at the 2013 AGM, even though 3 members of the Lowy family on the board were paid a combined salary of almost $20 million in 2012. He believes AFIC needs to a take a stronger line on governance issues and excessive remuneration at public companies. If elected to the AFIC board, Stephen says he will strongly advocate for Australia's biggest listed investment company to adopt best practice by publically disclosing its voting decisions across its portfolio of stocks. He will also continue to advocate for renewal of the boards across the AFIC stable of listed funds to encourage the replacement of certain directors with chequered records as chairs and CEOs of other ASX listed companies.

We ended up reading out these censored elements to the 300 shareholders who showed up at the AGM, which was probably the biggest in AFIC's history given it was Bruce Teele's swansong.

The AFIC censorship was a little surprising because when Don Argus was chairman of BHP Billiton, he did publish an edited version of my platform in 2008 which included that he should retire. See page 10 of that BHP Billiton notice of meeting.

And if you want a really good example of an uncensored platform, look what chairman Max Moore-Wilton and his fellow directors sent to shareholders (page 5) when I ran for the board of Macquarie Airports (now Sydney Airport) in 2010.

Was this a fair election?

The AFIC board certainly pushed the envelope in terms of fair play and I told them as much at the AGM.

Look no further than the proxy form on page 142 of the ASX package released for the AGM. Ballot papers in public company elections should be free of partisan direction. The AFIC effort, particularly that column directing voting down the left hand side, is close to the worst treatment I've ever received from a public company in a contested election. Click here to see how it looks for shareholders who choose to vote online. The big bold AGAINST in red type is another abuse of process by the board.

The company secretary was also requested to supply a copy of the share register as soon as the board determined that they would oppose the nomination. Two weeks later, nothing has been provided and they were trying to charge $1700 for it. Eventually we settled on a $250 fee for details of the 5000 largest shareholders.

This charging tactic used to happen in the early days of my tilts but practice improved through the years and companies like Macquarie Airports happily provided a spreadsheet of their full register in a usable form for free.

Here are examples of absolutely fair ballot papers from past runs at public company boards over the last decade:

AMP 2003
AWB 2009
Centro Retail 2008 (p15)

And here are examples where some direction from the board crept onto the ballot paper, starting with the worst first:

NAB 2009
Gunns 2005 (p8)
WA News 2007
Rio Tinto 2011
Woolworths 2006 (p182)
Alumina 2008
BHP Billiton 2008
MAP 2010
Woolworths 2010
Santos 2011
ASX 2008
WA News 2008 EGM

Incoming chairman Terry Campbell was given a copy of the AMP 2003 after the AGM as an example of how it should be done.

Why AFIC should work with ASA

AFIC is Australia's largest listed investment company. The big 3 LICs were capitalised as follows in June 2013 when this tilt was being contemplated:

AFIC: $5.58 billion
Argo: $4.04 billion
Milton: $2.284 billion

In my view, there is a logical synergy between LICs and the Australian Shareholders' Association.

We should be working together on a range of issues. However, when AFIC's help was sought on the Westfield remuneration issues, they weren't interested in getting involved and voted in favour of excessive Lowy family salaries.

Similarly, as ASA went into bat for retail investors over the franking credits issue with Tony Abbott's paid parental leave scheme, AFIC declined to provide public support for ASA's position even through investors were patently worse off.

It would also have been nice if AFIC was more prominent in the debate about capital raisings given that retail investors were collectively diluted out of more than $10 billion worth of value during the $100 billion capital raisings deluge after the GFC first struck.

The investment banking giants scooped about $2 billion out of public companies courtesy of excessive underwriting fees during those GFC capital raisings. Surely, a patient long term investor like AFIC should have been pro-actively underwriting capital raisings during this period to minimise the fee leakage.

Past voting at AFIC AGMs

The two biggest voting blocs at past AFIC AGMs have been held by the Australian Shareholders' Association and the board.

As you can see from the 2012 AGM results, there were 102 million votes so the turnout is about 10% of the 1.027 billion shares on issue.

ASA received 14 million proxies from about 800 shareholders last year, but the board had the biggest bloc given that there was 36 million undirected proxies in total and only 66 million were directed.

All resolutions were passed on a show of hands at last year's AGM and it is surprising that this year's notice of meeting does not specify the board's intention to call a poll, which it should. Indeed, AFIC has bucked the trend of recent years with a majority of ASX50 companies now moving straight to a poll so that all votes, especially undirected proxies, can be counted.

AFIC has the highest proportion of undirected proxies of any ASX100 company, so the board should definitely be calling polls so these can be voted. After I requested a poll on all items, chairman Bruce Teele obliged at the 2013 AGM.

ASA voting and proxy gathering

The ASA published its AFIC voting intentions on September 8 and they supported the nomination with the following commentary:

The ASA recommends a vote for Mr Mayne for three reasons. He has demonstrated a strong belief in better corporate governance and transparency for all Australian companies. He has a comprehensive knowledge of the ASX 200 companies in which AFIC invests. He has demonstrated the ability to work in a cooperative and collegiate manner across various interest groups as a councillor for the cities of Manningham and Melbourne, and additionally as a past director of the Australian Shareholders' Association.

ASA's AFIC proxies were slightly down this year as monitor Geoff Read told the meeting he was representing 12 million shares from about 800 shareholders.

The ASA's voting decision and associated commentary was determined independent of me and I was off the ASA consultancy payroll for the month leading up to the AGM, but then returned for another stint as Policy and Engagement Co-ordinator in October.

Second outside candidate

Another outside candidate, Darren Onley-Fraser, also nominated for the AFIC board and received poor treatment in the voting materials. The overwhelming result shows this was not necessary.

Darren is an emerging corporate raider and shareholder activist in his own right as this recent article in The Australian demonstrates.

Whilst we're not associated for the purposes of this board tilt, we did both work as political staffers for the Kennett Government in the early 1990s but until this issue came along, I hadn't seen him for a decade. We caught up for a lunch, I mentioned the plan to run for the AFIC board and then he decided to do the same without any encouragement from me.

He's a bright lad and I voted my personal proxies from 18 shareholders in favour of his election to the AFIC board. The ASA opposed his election which largely explains how I finished with 16.4% and scored 7.16% in the poll.

Past coverage of AFIC AGMs and Don Argus

I suspect the hostile treatment at the hands of the AFIC board was driven by the two departing directors, Bruce Teele and Don Argus.

This account of the 2008 AFIC AGM explains some of our background.

The Don has never been a fan of some of the truth telling that has gone on, including articles like this one from Crikey in 2011 and this from 2009.

Indeed, imagine how much better off Australia and AFIC would be if AFIC had argued against the disastrous merger of BHP and Billiton in 2001, which The Don drove.

Argus was a common director of AFIC and BHP at the time, which probably explains why AFIC didn't say boo and voted in favour of that awful deal.

DISCLAIMER: it is important to note that these comments were not endorsed by the Australian Shareholders' Association.