2019 tilt for the AFIC board

October 7, 2019

Stephen Mayne is running for the AFIC board. Here is a summary of the issues at hand.

The AGM of AFIC, the $7.5 billion Australian Foundation Investment Company, will be held on October 8 at Federal Square in Melbourne. For the second time in its history there will be a contested board election.

The notice of meeting for the AGM was released on August 28. After some back and forth, the directors agreed to publish most of what I submitted.

The only censored bit was one element of the multi-pronged platform: namely that AFIC should publicly release its voting record on its major holdings in ASX-listed companies. If the board had agreed to do that, I would have withdrawn the nomination. Sadly, they declined, but this does not make the candidacy a single-issue platform as I'm also campaigning on issues such as moving on long serving directors and AFIC being far more assertive in the capital raisings debate.
On the voting disclosure issue, surely Australia's biggest listed investment company can emulate the work of most industry funds by disclosing its own voting record. Here's an example of how Australian Super does it.

I ran for the AFIC board on a similar platform in 2013 and got nowhere, but was pleased with the 16.7 per cent vote. Check out this comprehensive wrap of all the issues that emerged in that tilt.

The AFIC board ran a very unfair election in 2013 with a censored platform, a highly partisan ballot paper and no disclosure of the chairman's undirected proxies which comprised about 31 million of the 146.5 million votes cast against my election.

Unfortunately, despite a firm request to play more fairly in 2019, they have repeated the production of a highly partisan ballot paper where board recommendations in bold are listed right next to the voting ballot boxes. (See p112 of AGM pack.)

The AFIC network ran a solid proxy solicitation campaign in 2013. That lifted the turnout to 17.2 per cent or 179 million of the 1042 million shares on issue at the time.

However, the turnout slipped back to just 95 million shares at the 2018 AGM. When you consider that AFIC still refuses to automatically call polls on all resolutions, the turnout was even worse as no more than 65.8 million proxy votes were directed for or against any resolution last year and the 28 million undirected proxies (largely votes held by ASA and the chairman) were never even voted.

Here's hoping the governance, voting, turnout and procedural issues are all handled far better at this year's AGM on October 8. If you're available, make a diary entry to come to Zinc at Federation Square for the proceedings which will kick off at 10am.

This will be the 49th public company board tilt in 20 years and also the first time that a full board has interviewed the challenging candidate, albeit just for 10 minutes on August 14.

I suspect this invitation to present came after a one hour session two days earlier with two members of the nomination committee, AFIC chair John Paterson and veteran director Catherine Walter, where I asked how the full board could have unanimously rejected the 2013 AFIC board tilt when most of them had never met or heard from me. Surely directors should do their own due diligence.

Lo and behold, the 2019 notice of meeting says that the full board unanimously opposes the nomination, but at least they'd all given me a hearing.

There are a few governance issues at AFIC, the biggest being the long service of some of the directors which, on some measures, leaves the board without a clear majority of independent directors.

The ASA has a measure that no longer treats directors as independent after 12 years of service. Have a look at the current directors. This is how they line up in terms of tenure, starting with the 4 directors who arguably are not independent, mainly due to tenure reasons:

John Paterson: the chairman joined the board in 2005.

Ross Barker:
served as CEO from 2001 until January 2018 and then rather than retiring to give his successor some clear air, transitioned across to be non-executive director.

Catherine Walter: the longest serving director who first joined the board in August 2002.

Mark Freeman: took over as CEO in January 2018 after a long stretch as chief investment officer but is also a voting director.

Rebecca Dee-Bradbury: the former CEO of Mondelez in Australia joined the AFIC board in May 2019 and will be up for election at the AGM.

Graham Liebelt: the former Orica managing director joined the board in 2012 and remains independent.

Peter Williams: the former managing director of Equity Trustees joined the board in 2010.

David Peever: endured a torrid run as chairman of Cricket Australia and the former Rio Tinto Australia boss joined the AFIC board in November 2013.

There are 5 items up for voting and the board have decided to run the gauntlet and seek an increase in the fee cap for directors from $1 million to $1.25 million. The last increase back in 2007 caused quite a protest with 63 million proxy votes in favour and 20.6 million against. It will be interesting to see what happens this time.

Finally, here is the full unedited version of the platform which was submitted:

Stephen Mayne, 50, BCom (Melbourne) GAICD

Stephen Mayne is a Walkley Award winning business journalist, shareholder advocate and occasional politician with board experience. He served 4 years as a councillor at City of Manningham and a further 4 years (2012-16) at City of Melbourne where he chaired the Finance and Governance committee. He has served two stints on the Australian Shareholders' Association board and also held the position of ASA Policy and Engagement coordinator in 2012-14, a role which involved being a public spokesman on behalf of retail investors.

Stephen is Australia's best known shareholder advocate having asked questions at more than 500 AGMs and commented on thousands of occasions in media and public forums about the financial and governance arrangements of ASX listed companies within the AFIC portfolio. He has questioned, interviewed or met with hundreds of public company chairs, directors and senior executives over the past 30 years and also owns the world's biggest small share portfolio (almost 500 stocks worth less than $25,000) which has enabled him to participate in almost 300 capital raisings over the past decade, acquiring insight and knowledge which will be benefit to AFIC.

Professionally, Stephen worked for The Alliance for Gambling Reform for two years until July 2019, an experience which aligns with AFIC's commendable policy to avoid investing in gambling stocks.

He is currently freelance writing for www.crikey.com, a business he founded in 2000, Alan Kohler's Eureka Report under the Investsmart.com brand and his own website, www.maynereport.com.

If elected to the AFIC board, Stephen 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, something it has declined to do when asked in recent years. This is standard practice at most industry funds.