2015 tilt at Macquarie Group board

June 24, 2020

Stephen Mayne is running for the board of Macquarie Group. Here is a summary of the issues ahead of the July 23 AGM.

The nomination for the board of Macquarie Group was motivated by two recent capital raisings that Australia's biggest investment bank was involved in which treated retail investors unfairly.

Whilst the board refused to name the clients involved in the notice of meeting, here is the full text of what was submitted to be distributed to all Macquarie Group voting shareholders:

"Stephen Mayne, 45. BCom (Melb). GAICD. Stephen is a Walkley Award-winning business journalist who has worked for a range of newspapers, including The AFR and The Age, where he was banking writer. He is also Australia's leading retail shareholder advocate and spent three years with the Australian Shareholders' Association from 2011 until 2014, serving as a director and then later as Policy and Engagement Co-ordinator.

Stephen was also the founder of www.crikey.com.au, Australia's best known independent ezine and currently publishes the corporate governance ezine www.maynereport.com. He is a serving City of Melbourne councillor where he chairs the Finance and Governance Committee and is deputy chair of the Planning Committee. He has the time and experience to serve constructively as a non-executive director of Macquarie Group.

Stephen was motivated to nominate for the board after observing the way Macquarie Group and some of its ASX-listed clients treat retail shareholders in capital raisings. For instance, Macquarie limited its recent share purchase plan for individual retail investors to just $10,000 and only offered a VWAP pricing discount of 1%, which is below both market practice and past Macquarie practice. Macquarie has done numerous institutional placements since it listed in 1996, but has never raised equity capital in the fairest way possible through a renounceable entitlement offer which treats all shareholders equally.

Similarly, Macquarie has been involved in under-writing numerous capital raisings of ASX listed companies which have led to either retail dilution or inferior outcomes. Two recent examples include Slater and Gordon where non-participating retail investors received just 1c for their rights, whereas institutional investors received $1.38.

Similarly, Macquarie was sole under-writer to the recent GUD capital raising where retail investors were limited to just 16% of the $94.3 million offer through a capped SPP. (The SPP cap was later expanded from $15m to $26m after $55m worth of applications).

After retail investors suffered billions of dollars of dilution during the capital raisings associated with the global financial crisis, Australia's pre-eminent investment bank needs a director who will strongly advocate for fair treatment of Australian retail investors.


As was outlined in this Crikey piece on June 4, the Macquarie board was given an opportunity to negotiate the nomination away when the following written offer was sent to the bank ahead of a June 2 meeting in Sydney with chairman Kevin McCann. Here is an extract from the letter, picking up after some commentary about the "fit and proper" barriers to entry the board was proposing:

Perhaps a more fruitful line of inquiry for Macquarie to examine relates to the circumstances in which I would be prepared to withdraw my nomination for the board before the Notice of Meeting is printed and distributed to shareholders.

Ultimately, my goal is to improve the lot of retail shareholders in Australia and use shareholder activism to try and achieve greater accountability and transparency amongst ASX listed companies.

I'm quite open about the leverage for governance reform which can be applied to companies courtesy of creating a contest for directors at the AGM and am considering using this method as a negotiating tool for the establishment of small but worthwhile precedents in the period ahead.

Therefore, below are the circumstances in which I would be prepared to withdraw this nomination. There are a range of alternatives for the board to consider, but I will only withdraw if Macquarie agrees to implement proposals which total 5 points on the following tally board:

Governance improvements sought from Macquarie Group

Five points
Macquarie agrees to appoint Stephen Mayne to fill a casual vacancy on the board at some point in the financial year ending June 30, 2016. The board would still be free to oppose Stephen's re-election at the 2016 AGM if it believed the circumstances warranted this at the time.

Four points
Macquarie makes a public statement that it will use its best endeavours to encourage ASX-listed investment banking clients to raise new equity capital by now of a PAITREO structure in order to best protect the collective interest of Australian retail investors.

Three points
Macquarie will amend its constitution at the forthcoming AGM to lift its maximum number of directors from 10 to at least 12 but preferably 15 or, indeed, the Rio Tinto model of having no upper cap.

Three points
Macquarie undertakes to broaden its disclosure of voting results after its AGM by reporting the numbers of shareholders which directly voted or directed proxies for and against each resolution.

Two points
Nicholas Moore stands for re-election at the 2015 AGM and Macquarie publicly commits to nominating future CEOs for election on the normal three year election cycle.

Two points
Macquarie Group undertakes to conduct future equity capital raisings for its own purposes through a PAITREO structure, subject to market conditions at the time.

One point
Macquarie commits to include pictures of its directors and Key Management Personnel in the annual report.

If I was a Macquarie director seeking to take the governance high road, not set an unusual precedent and simultaneously avoid distracting contests for board positions at the 2015 AGM, I would agree to the board expansion and the CEO standing for election to satisfy the 5 point criteria.

Both would be unremarkable resolutions at the AGM and supported by the usual 98%+ of shares voted.

If such an agreement could be reached, I would also be prepared to commit not to make any public reference to this negotiating process before September 1, 2015, thereby allowing the AGM and its aftermath to pass without any mention of this agreement.

Long-serving lawyer chairman plays hardball

Unfortunately, rather than make some modest governance concessions, Macquarie, in particular chairman Kevin McCann and company secretary Dennis Leong, have decided to play process hard ball every step of the way.

Look no further than the way the blatantly biased ballot paper is constructed on page 26 of this ASX announcement.

It's one thing to say what you like in the notice of meeting and explanatory memorandum, but the ballot should be as neutral as possible, as the law requires for all political elections.

As an example, look at the fair ballot paper produced by AMP for its last contested election at the 2003 AGM.

This is what the ASA wrote about ANZ when it produced an unfair ballot paper in 2013:"The ANZ board has produced a partisan ballot paper which will ensure Mr Barrow receives an even smaller vote than otherwise was likely. Boards are quite within their rights to recommend against outside candidates, but any commentary or reflections on that candidate should be contained in the notice of meeting, not the proxy form itself. Incumbent and external candidates should not be treated differently on the ballot paper in terms of resolution numbering. ANZ has clearly distinguished Mr Barrow from the internal candidates and also excessively highlighted the board's against recommendation right next to the voting box."

Macquarie clearly did not determine the voting order for this contested election by lot and instead have tried to create an impression that there are two categories of election. The first is for the board-endorsed incumbents (items 2a and 2b) and the second, with its own box, is item 3 for the uninvited outside interloper who gets a big bold AGAINST next to his name and yet another reminder within 3cm of the "for" box that he is "Not Board Endorsed".

Use of "no vacancy" tactic

Rather than agreeing to lift the maximum number of directors in its constitution, the Macquarie board instead decided to play the no vacancy card, which will probably make it statistically impossible to get elected, even with 100% of the directed proxies in favour.

This was a common tactic in some of my early tilts until the Rudd Government changed the law so that companies could only declare "no vacancy" if shareholders have given specific approval to have the flexibility of picking any maximum number of directors they like.

Most companies operate well within their maximum number of directors, so the "no vacancy" card has not been played against me since the 2009 tilt at the Ten Network Holdings board.

In my opinion, the proxy advisers and major shareholders should let Macquarie know that "no vacancy" is poor form, especially when there was already such a small prospect of being elected anyway, especially with the unfair ballot paper.

Proxy advisers and institutional investors have recently taken a hard line on companies which attempted to lower their maximum number of directors as an effective barrier to entry.

When Suncorp proposed reducing its maximum number of directors from 13 to 10 at the 2013 AGM, the resolution was withdrawn after a big protest vote.

Now the scenario has indeed happened at Macquarie which proxy advisers warned about with Suncorp, namely that an outside candidate has nominated and shareholders have been denied the opportunity of adding an additional director to the board.

Given that several major Australian boards operate with more than 10 directors, why is the Macquarie board refusing its shareholders the choice of doing likewise, even if only for a brief period?

Ten is one of the lowest caps in the Australian market, as this soon to be completed list tracking constitutional board ranges demonstrates.

Macquarie's unique constitution

Macquarie adopted a new constitution in 2010 which inserted the following "fit and proper person" clause in article 9.7:

A person is only eligible for appointment or election as a Voting Director if:

a) the person provides all information and consents the Board reasonably requests to determine if the person is of appropriate fitness and propriety to be and act as a Voting Director by reference to the Fit and Proper Policy and is not disqualified or prevented by law from being a Voting Director, and

b) is assessed by the Board as being of appropriate fitness and propriety to be and act as a Voting Director by reference to the Fit and Proper Policy.

The constitution also included some unique flexibility in terms of board size in article 9.1 which reads as follows:

"Subject to this Constitution the Voting Directors may, by resolution, increase or reduce the maximum or minimum number of Voting Directors (but until so increased or reduced the maximum number of Voting Directors is ten and the minimum number of Voting Directors is five)."

Read it carefully. This means the board can unilaterally lift the maximum and reduce the minimum that shareholders have set. And that is precisely what happened in February 2014 when Nicola Wakefield-Evans was appointed to the board, lifting the total number of directors to 11.

The numbers then fell back to 9 in July 2014 when Helen Nugent and Peter Kirby retired after the AGM, but they then hit the soft cap of 10 again in November 2014 when Gordon Cairns was appointed to the board.

Lo and behold, when I nominated in May 2015, the Macquarie board clearly declined to repeat the resolution they passed to accommodate Nicola Wakefield-Evans 15 months earlier and instead declared there was "no vacancy" as you can see on pagfe 6 of the notice of meeting which reads as follows:

In accordance with the Macquarie Constitution, the Board currently has a limit of 10 Voting Directors and there are only vacancies for two Voting Directors to be elected at the meeting.

Accordingly, the Board has resolved the following process to determine which of the three nominated candidates will be elected to fill the two vacancies:

a) a separate resolution will be put for each candidate standing;

b) voting on each resolution will be conducted by a poll;

c) only those candidates who receive more ‘For' votes than ‘Against' votes will be considered for election as a director and will be elected (subject to them being eligible in accordance with Macquarie's Constitution) if vacancies exist;

d) if the above process would result in there being a greater number of Voting Directors than the maximum number of 10 currently permitted under Macquarie's Constitution, those eligible candidates with the higher number of ‘For' votes will be elected, such that the total number of Voting Directors does not exceed the maximum; and

e) if there are eligible candidates who have an equal number of ‘For' votes, then the one with fewer ‘Against' votes will be elected.

So, I've got to more than one of the incumbents. At last year's AGM, the five incumbents up for elected received between 99.42% and 99.85% of the vote in favour, as you can see in these voting results.

Setting new precedents on "fit and proper"

The Macquarie board have also set a new benchmark in terms of obstructionism for an external candidate.

Sure, the Macquarie constitution has a "fit and proper" test for directors, but there is nothing in the Corporations Law or the ASX listing rules which mandates this.

When Woolworths and the Commonwealth Bank proposed all sorts of bankruptcy, background and police checks ahead of last year's board tilts, I politely declined to participate on "red tape" grounds but did assure them I had no blemishes on the record and my life is an open book, including this full record of public company board tilts without police checks.

CBA and Woolies seemed satisfied and didn't insist on the checks when sent this Peter Costello column in the Murdoch tabloids about excessive and repetitive red tape for directors.

Macquarie insisted that I fill in 32 pages of forms which took about two hours. They have been ringing people asking "would you employ him again" when this is not a regular job application, but instead a decision for the shareholders to make in a contested election context.

Indeed, the notice of meeting still reserves the right to not even put the resolution to the vote if the board isn't satisfied I've passed their arbitrary "fit and proper" test.

Stephen Mayne voting recommendations

Item 1: Financial Statements


Performance has remained strong over the past year.

Item 2a: Re-election of Peter Warne


After a 20% against vote at last year's ASX AGM, Mr Warne was sent a clear message about an excessive workload but is yet to address this as he chairs two other public companies (OzForex and ALE Property Group), whilst also serving as a director of NSW Tcorp.

That said, Mr Warne is a good director and we are forced to make this recommendation by Macquarie's use of the no vacancy rule, which denies shareholders the choice of supporting all three candidates.

Item 2b: Election of Gordon Cairns


Considered a likely successor to Kevin McCann as chairman after he did precisely that at Origin Energy. Would need to review his workload if appointed to the Macquarie chair.

Item 3: Election of Stephen Mayne


The independent reviews have been positive at City of Melbourne after almost three years as chair of the finance and governance portfolio. Knows Macquarie well dating back to when was the banking writer for The Age and have also attended and asked questions at 10 Macquarie AGMs.

Item 4: Remuneration Report


Stephen Mayne wrote the ASA's Voting Intention report for Macquarie ahead of last year's AGM and hasn't changed his view this year. Here is what was published by ASA in 2014:

Whilst the author of this report coined the phrase “Millionaire Factory” for Macquarie Bank back in 1997, after many years of debate at AGMs we have come to accept the contribution made by the bank's unique remuneration arrangements to its success.

There is no other Australian listed company with a greater element of profit-based or at risk remuneration. Equally, there is no investment banking CEO in the world with as much restricted equity bonus payments as Nicholas Moore. He must wait up to 7 years to collect his annual STI and even then it comes as stock.

And after the excessive focus on short term cash bonuses was phased out with the retirement of former CEO Allan Moss in 2008, Macquarie's remuneration arrangements have continued to positively evolve in recent years.

The record high 21.44% vote against the 2007 remuneration report was a catalyst for change and last year's 97.9% in favour was the second highest on record behind the 98.43% vote in 2012.

ASA commends Macquarie for abandoning any vesting of executive long term incentive schemes at less than 3 years and maintaining a market-leading hold back of equity bonuses for as much as 7 years. This includes the unprecedented situation of CEO Nicholas Moore having more than 70% of his declared 2013-14 incentive payments withheld for 7 years.

There is clear alignment with shareholders with meaningful equity holdings at both board and management level. Indeed, Mr Moore currently owns 1.455 million ordinary shares worth approximately $87 million, more than any other non-founder CEO in the Australia market.

In addition, he owns a further 647,252 restricted shares which will fully vest unless he leaves Macquarie. Based on a $60 share price, these are worth almost $39 million.

Mr Moore's total reported pay in the year to March 30, 2014 was $13.1 million, up 48% on the $8.82 million reported in the previous year. Only $818,731 was base pay with the rest based on performance, which has been excellent over the past year.

ASA is also pleased that Macquarie has introduced a formal director equity scheme which ensures compliance with ASA's new policy that a new director should hold shares worth one year's worth of cash fees after three years on the board.

Item 5: Nicholas Moore incentive grants


See explanation above.

Item 6: Lift NED fee cap from $4m to $4.6m

Decide after AGM debate

There hasn't been a lift in the cap for 5 years but not sure this 15% increase is needed when the board is already operating at the maximum size of 10 and there are plans to reduce this.

Item 7: Refresh placement capacity


ASX50 companies should be raising capital through PAITREOs which treats all shareholders fairly, including retail. Macquarie has never done a pro-rata raising, instead preferring placements which don't respect the property rights of existing shareholders.

If shareholders vote this proposal down, Macquarie will still have the flexibility to do a $1 billion-plus placement and then the full 15% capacity will be refreshed by early next year.

Send the board a message against placements by opposing this resolution.