Dear Mayne Report recipients,

After four days off over Easter the fun and games will recommence tomorrow morning. It has been an interesting time for reflection after one of the most dramatic periods on world markets that we've ever seen.

Tonight's edition includes some sobering news for the Millionaire's Factory. Listed funds such as Macquarie Infrastructure Group cannot possibly survive in their present form whilst trading at a 43% discount to NTA. The shoddy governance and conflicts of interest simply don't wash any more and it is time for the so-called independent directors to rise up and do something about it - if indeed they exist at all.

This was a view put to Eric Mayne, chief supervision officer for the ASX, over lunch last Thursday. Eric Mayne and ASX spinner Matthew Gibbs are clearly embarking on a media offensive as this KGB interrogation on Business Spectator from March 1 demonstrates. Whilst Eric's comments were off the record, I can reveal that The Mayne Report put the case for strong reform, including in these four key areas:

* ending the no vacancy rort that keeps insiders off boards;

* moving to a system of direct voting which removes the undirected proxies rort that entrenches a board's voting power;

* making it easier for shareholders to put up resolutions at AGMs; and

* doing something about out of control director dealings after this shocking report by research house Regnan.

Who knows where it will go, but it was a good to get an audience with someone who really matters.

We've got some other interesting items about the WA News board fight, a push to reform how AGMs operate, an old ASX AGM transcript that will be of interest to Eric Mayne given the current debate and the audio of this exchange on executive chairs with Sir Rod Eddington from last Wednesday night's forum. There's plenty of meaty reading so click through for the full edition.

Do ya best, Stephen Mayne

* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.

Here's a prediction: One of the longer-term implications of the global credit crisis and the recent spate of Australian corporate collapses will be an end to the Macquarie Bank business model of listed funds that pay huge fees to third party managers.

The British comedians known as the Long Johns have nailed the sub-prime mess better than most. They highlight the crazy conflict of interest of having Wall Street bankers and US mortgage brokers profiting from loan volumes without having any interest in loan quality.

Unfortunately for the likes of Macquarie Group and its various impersonators - only Babcock & Brown will survive because MFS and the Allco stable are gone for all money - this is similar to what happens with the likes of Macquarie Airports, Macquarie Infrastructure Group and Macquarie Communications Infrastructure Group.

Macquarie Group has generated enormous fees snapping up infrastructure assets all over the world for its funds, but most of these listed vehicles are now trading at large discounts to net asset backing. This reflects the fee leakage and the governance problems with the model. Why buy into something where the management have a financial incentive to gear up and pay top dollar for even more assets?

When criticised about this fundamental conflict of interest, Macquarie always hides behind the independent directors who sit on these listed funds and must approve all fees and related party transactions.

So exactly who are these independent directors that supposedly regularly knock back millionaire factory proposals for the listed funds to keep buying assets? The first and biggest fund is the tollroad giant Macquarie Infrastructure Group. I tried to run for its board in 2005 but received the following rejection letter:

Dear Mr Mayne

Thank you for your letter of 5 September 2005 regarding your consent to nomination by Ms P Piccinini, for the board of Macquarie Infrastructure Group (MIG).

You have taken a keen interest in MIG and its progress over the last few years, so we assume you are aware that MIG is a Macquarie Bank Group externally managed fund comprising two Australian trusts and a Bermuda mutual fund company, Macquarie Infrastructure Bermuda Limited (MIBL). The responsible entity for the trusts is the Australian based, Macquarie Infrastructure Investment Management Limited (MIIML). MIBL is advised by the UK based Macquarie Investment Management UK Limited (MIM UK).

On the basis that you may not have the documents handy, we enclose a copy of the MIG 2004 Annual report, where information on the structure is set out in the Corporate Governance Statement commencing on page 39. We also enclose a copy of the Notice of Meeting and Explanatory Memorandum relating to MIBL, which was approved at the security holder meeting on 30 November 2004.

You will see that the directors of MIIML are appointed by the shareholder, Macquarie Bank Limited and three of the four directors on the MIBL Board are appointed by either MIM UK or MIIML acting in the interests of investors . Additionally, because of its Bermudan status there is a requirement for some of the directors on the MIBL Board to be Bermuda based.

The one director on the MIBL Board who is retiring by rotation this year is Mr Jeff Conyers, an appropriately qualified and experienced Bermuda resident. Mr Conyers is entitled to stand for re-election and proposes to do so. He will be put forward by the MIBL Board as the candidate for the fourth existing directorship.

Should you wish to seek election to the MIBL Board, we are advised by our Bermuda counsel that, as you would be seeking to add an additional director to the Board, your nomination will need to satisfy Bermuda legal requirements (which are very similar to Australian ones). Under these requirements your nomination must be supported either by shareholders holding 5% of total voting rights or not less than 100 shareholders.

As your nomination by Ms Piccinini to the board of MIG cannot be progressed, we are copying her on this email and will also mail this response and enclosures to Ms Piccinini. We look forward to hearing from you or Ms Piccinini.

Your faithfully
Christine Williams
Company Secretary
Macquarie Infrastructure Investment Management Limited

This sort of excessively complex structure is not going to survive in the new governance environment that is coming. MIG is listed on the ASX and given that the bank only owns 12.13%, it should have a clear majority of independent directors. It doesn't.

Here is an assessment of how the current MIG board stacks up:

Mark Johnson: chairman, co-founder of Macquarie and only retired as a director in 2007.
David Mortimer: claimed to be independent NED but used to have an office at Macquarie and was the TNT CEO who retained the bank to advise on its takeover in the late 1990s.
David Walsh: former Mallesons partner well known to Macquarie, which also appointed him as a NED when it floated Dyno Nobel.
Nicholas Moore: Macquarie CEO
Paul McClintock: can't fault the independence of John Howard's former cabinet secretary.

I reckon McClintock is the only clear cut independent. Macquarie Group has recently lifted its MIG stake from 11% to 12.13% with net purchases of 27 million shares as the overall stake rose to 290 million shares. But that means it should have one out of five directors at best.

However, MIG shares have performed dreadfully in recent times. The company claimed in its most recent profit statement to have net assets of $4.59 a share, yet on Easter Thursday it closed at a miserable 4-year low of $2.62 - a massive 43% discount.

That discount represents concerns about debt, governance and the overall smell that surrounds the business model.

If MIG's independent directors were genuinely independent, they would start investigating the idea of sacking Macquarie Bank as manager and internalising the process, replicating the more successful Transurban model.

MIG's institutional shareholders should immediately move to appoint a clear majority of genuinely independent directors, not people like David Mortimer and David Walsh who have multiple Macquarie relationships.

The Ontario Teachers Pension Fund, one of the most supportive institutional investors the Macquarie machine has harvested over the years, has just sued MIG in the NSW Supreme Court, so the salad days of passive funds just handing over huge mandates and fees might be coming to a close.

Kerry Stokes and the Seven Network have gone out of their way to avoid directly criticising the editor of The West Australian, Paul Armstrong, in their battle to clean out the board of WA News. This might explain why Armstrong is playing the battle relatively straight.

Based on all the other CVs of the candidates distributed in the notice of meeting, I'm the only one who has expressed concern about Armstrong and the board is to be commended for not censoring the following line in my platform: "He also believes the company should replace The West Australian's editor, Paul Armstrong, to stabilise the newspaper after an erratic period of mixed performance."

This approach has already yielded the support of someone speaking for three small shareholders and almost 10,000 shares when the following email arrived last week:

I am only a small shareholder in WA Newspapers but as a West Australian, I have an interest in a getting a decent local newspaper which we don't currently have. However I like what I know of crikey.com and support your desire to replace the editor, so was wondering if you could offer any advice on like-minded directors or proxies to vote for and how many replacement directors should we vote for? In other words, do you have a "ticket" to recommend? Sorry to be so lazy but I haven't got time to research any of this myself.

Name withheld

The reply went as follows:

No tickets as such but the standout external candidate is Steve Harris, who has run both papers in Melbourne. I think Stokes and Gammell should be supported and you should vote in favour of removing the incumbent directors. I'll be at the meeting so am happy to be your proxy if you like.

Best wishes, Stephen Mayne

Response from shareholder

Dear Stephen,

Thanks for your assistance. I've taken up your offer to act as proxy. I attach scanned copies of our proxy forms. The originals will be sent to Computershare early next week. The shareholding is as follows: Details withheld

Name withheld

So there you go. One small step for mankind. Kerry Stokes will ultimately decide which two additional candidates will join him on the board at the April 23 meeting. Three of the nine outsiders are not electable, but it will be a tricky decision to choose between the other six as all have something to offer and relevent experience. This remains the biggest outstanding question, along with Stokes's ambitions in regard to the chairmanship.

Given this extraordinary comment by WA Premier Alan Carpenter after last year's WA News AGM, it will be very interesting to see if any Labor-affiliated industry funds or government funds can be prodded into backing the anti-Armstrong candidate.

Confidential moves are afoot to reform the way Australian public company AGMs work. I'm involved but can't talk about it due to the Chatham House rule. However, the following stats provide the most compelling reason for doing something about the current system.

ASX200 companies attracting 300 or more shareholders to AGM

2001: 35.7%
2003: 34.3%
2005: 27.9%
2007: 11.1%

Attendances have plummeted in recent years because too many nutters dominate the meetings, people are too busy to attend during working hours and everything is decided by proxy voting before the meeting is held, so the gathering becomes what would be called a "dead rubber" in Davis Cup terms.

There's also some truth to the claim that attendances rise during bad times as investors strive to hold boards to account. The extraordinary stockmarket boom since the lows of March 2003 means that investors have had little to complain about. That will all change in 2008 and I'm really looking forward to AGMs such as ABC Learning, Allco Finance Group, Centro and MFS.

We've been slowly emailing companies asking them to send through transcripts from past AGMs for a book project. The likes of Rio Tinto and Macquarie Bank have obstinately declared they are "not available" and Fortescue Metals claims to not have any records. However, some companies are obliging and what follows are the edited down versions of the three most interesting transcripts that we've got so far.

John Fairfax 2002: the last half on board conflicts and composition was very interesting when you look back today.

Brambles EGM 2001: a really good insight into the combativeness of BHP-Billiton chairman Don Argus as he attempts to land Rio Tinto.

ASX 2000: the debate about monopolies, regulation and conflicts or interest resonates loudly given all that has happened in 2007-08.

We've also packaged up our favourite AGMs audios here.