Telstra, Fairfax, spindoctors, bank regulators and withdrawn resolutions

3. Telstra pulls a swifty by bringing forward AGM

By Stephen Mayne, foiled wannabe candidate for Telstra board

Did the Telstra board pull a swifty on the Howard Government and potential board candidates by rushing out the 2005 annual report and notice of meeting just before 5pm on Friday afternoon and bringing forward the AGM to October 25.

I was about to lob a nomination for the board on the assumption that the AGM would be well into November this year because the board would want to give shareholders time to digest the strategic review, which is tentatively scheduled to be publicly announced on October 28. Alas, we're now destined for an AGM that can't canvass strategy!

Given the record number of vacancies on the board, the Howard Government should have been looking to complete new appointments in time for them to be included on the notice paper for the AGM. Alas, the board is apparently having no truck with the government foisting new directors on them - even though Crikey hears new appointments will be happening "sooner rather than later".

It is now too late because Telstra is having its earliest ever AGM and only one outside candidate, sacked Telstra employee Merv Vogt, has got a nomination lodged on time. We knew that former Cochlear CEO Catherine Livingstone would be up for re-election on the annual three yearly cycle, but controversial chairman Donald McGauchie has also put himself on the line as the second of the six incumbent non-executive directors facing a ballot, which gives the government a chance to vote him off the board.

Interestingly, the government can't do this to new CEO Sol Trujillo because he has taken up the exemption offered to managing directors and declined to subject himself for re-election every three years. Ziggy Switkowski, like the majority of major company CEOs, did subject himself to election and the government voted its stake in favour of him every time. Was Sol and his chairman worried that the government would vote both of them off the board?

Given all the chaos inside Telstra, it is amazing that they have produced their earliest ever annual report and also stacked on an extra 48 pages by producing the biggest ever annual report in Australian history with 413 pages to plough through. Sadly, my crappy Telstra broadband connection hasn't enabled me to open it in a readable format this morning. Check out the notice of meeting and annual report announcements here.

The following table shows the Telstra AGM and notice of meeting dates over the last eight years and includes the number of outside candidates that have successfully nominated. Given all the chaos inside Telstra, you would have thought a larger field would have nominated and that government would have taken the opportunity to replenish the record small board since last month's departure of the two directors closest to John Howard, Tony Clark and John Ralph.

Year	AGM date	Notice date	Outside candidates
2005	Oct 25	Sept 9	1
2004	Oct 28	Sept 13	4
2003	Nov 11	Sept 30	3
2002	Nov 11	Sept 30	4
2001	Nov 16	Oct 1	6
2000	Nov 20	Oct 4	5
1999	Nov 12	Oct 5	2
1998	Nov 6	Oct 2	0

In what looks like a highly inflammatory move by the gang of six, they have also proposed a resolution to increase the maximum payable each year to non-executive directors by $680,000 to $2 million, although this is partly just compensating for the phasing out of retirement benefits and most of the directors will suffer a net negative from the change.

Several media outlets missed this story on Friday night, but you can check out the AAP coverage here.

If the government wanted to punish chairman McGauchie and the gang of six they could vote against the pay rise but this would only serve to make it even more difficult to attract reputable new directors who the market will embrace through the T3 process.

The Telstra board has finally shown some independence after years of being stacked by government patsies, so the forthcoming AGM at Darling Harbour on October 25 will be a fascinating affair to attend. Crikey will be there as the flight back from the News Corp AGM in New York arrives in Sydney at 7am that morning and the connector to Melbourne doesn't leave until 2pm in the afternoon. Hasn't that worked out well?


5. How does the ANZ CEO get by on $43 a year?

By Stephen Mayne

Peter Costello says he's against cutting the top marginal tax rate because of the political problems that come with giving millionaires a big break that would run into tens of thousands of dollars a year. But this overlooks the huge windfalls for millionaires which were delivered by the halving of the capital gains tax rate six years ago.

Take ANZ CEO John McFarlane. Last year he was on a base salary of $1.8 million – but he only took $43 of this in cash. That's 82c a week, so there's no danger of the cheery Scotsman breaking out of the tax free threshold based on his annual cash salary.

The rest of his salary was taken in the form of shares which, if held for more than 12 months, can then be taxed at half the top marginal tax rate of 47 per cent. With an overall salary package of $6.5 million last year, after equity based incentive payments on top of equity base pay, it would be very interesting to know how much of this went to Canberra.

McFarlane has been playing this game for years. Check out the ANZ's recent August 9 announcement to the ASX, when he exercised another 500,000 options at about $16 but sold most of these at more than $21 a share, pocketing almost $10 million, about $2.5 million of which is clear profit.

That left the battling CEO with 1.819 million ordinary shares and options over a further 3 million ANZ shares – a total equity play of 4.819 million over stock which, at today's price of $22.72, is worth $109.5 million. McFarlane's gross profit on this play is estimated at about $40 million.

The tax reform debate which is raging right now should pick up the example of McFarlane and ask exactly how much he will receive from this and how much will go to Canberra. If he is able to shift the entire amount onto his CGT bill at 23.5% tax then it is an absolute scandal.

The Federal Government is being leached of hundreds of millions of dollars a year by this sort of aggressive tax planning which sees CEOs and the like taking huge proportions of their salaries in capital, rather than cash salary.

Remember all that moaning a couple of years ago about Australia's tax laws making it difficult for expat CEOs to stay for more than five years? Well, John McFarlane is certainly showing the government how it's done and might yet finish his contract in September 2007 as a member of the BRW Rich List.

Next time Peter Costello gets together with McFarlane and his Village Roadshow friends to watch a pre-release film, maybe they should have a bit of a chat about the way capital gains tax laws are being exploited. And the group of friends would collectively know plenty about salary tax planning, given that sacked Village director Peter Ziegler is suing the company for $148 million over some aggressive scheming which went wrong.


13. Shuffling at Jackson Wells Morris

By Stephen Mayne

There's movement aplenty at PR and lobbying outfit Jackson Wells Morris.

After five years as a director and shareholder in JWM, the PM's former chief of staff Grahame Morris has taken up a lucrative offer from PricewaterhouseCoopers and is in the process of moving his family back to Canberra to be chairman of its newly created Office of Government Services, which is all about winning government contracts.

Former Labor man Keith Jackson and loyal Liberal John Wells established Jackson Wells back in 1992 and they added the Morris name to the firm when he joined in 2000 and will be keeping it despite his departure. Morris, who picked up a $250,000 a year gig with News Ltd when he first left the PM's office in 1997, has departed the JWM board but will apparently retain a portion of his equity in the business.

Meanwhile, John Howard's former flatmate Michael Baume has been appointed to the JWM board, along with Nick Whitlam, who sent the outfit large amounts of work when he was chairman of the NRMA.

The JWM board now comprises three non-executives - Whitlam, Baume and former Labor Senate President Kerry Sibraa and the firm's four remaining principals - Jackson, Wells, Trevor Cook and Kelley White. Check out the full and interesting line-up of staffers and directors here. Former Coalition political advisor Bob Lawrence is the other recent addition.

John Wells explained the role of directors as follows: "Supplementing their Board role, Michael and Nick are also advising JWM clients on projects within their areas of interest. In this capacity they work with former Senate President, Kerry Sibraa, who was appointed four years ago."

A Crikey tipper reckons Whitlam is a chance to win contracts off his old mate John Della Bosca, the Minister for Everything in NSW, whose wife Belinda Neal ran some of Whitlam's election campaigns at the NRMA. Such cynicism!


22. Supine banking regulators in back office merger

By Stephen Mayne, anti-cartel obsessive

Australia has long had one of the most lucrative banking cartels in the world, largely because Federal Treasurer Peter Costello, the Reserve Bank, the ACCC and various other ineffective industry watchdogs sit back and do nothing as extraordinary consumer gouging gets worse and worse, year after year.

Given the tripling of industry profits since the Commonwealth Bank was fully privatised in 1996, bank rip-offs alone are as good a reason as any to be wary of allowing Telstra to be fully privatised. Bank customers used to get looked after when there was more competition and some government ownership – now they are blindly ripped off by a rapacious industry that sees the average Big Bank CEO worth almost $40 million.

Word now reaches Crikey that there is to be some rationalisation of the myriad industry ombudsman schemes in the financial services sector. The argument goes that consumers will be less confused and the whole arrangement will cost the industry even less.

Recently the long serving banking ombudsman Colin Neave, who is adored by the banks for rarely making a decision against them over his five year term, has entered into the spirit of co-operation by instigating a backroom merger with the Financial Industry Complaints Service (FICS), headed by Alison Maynard. The two have moved into the same premises in Melbourne's North Fitzroy. Will they share data? Can they be taken to the nice same local eateries by banking industry lobbyists and executives?

As we've just discovered from Telstra, millions of complaints against the telco have been filed over the years but the public numbers have been heavily massaged. The same goes with the banking industry, which is the most complained about sector in the economy, but none of the regulators ever bother to take any serious action to protect long-suffering consumers.

It really is a bit sad that the Federal Government rarely comes under any pressure for the conduct of these businesses that they directly licence and regulate. Why doesn't some enterprising shock jock ever ask Cossie or the PM if they regard any new or increased bank fee to be a bridge too far?

This latest 50c fee for internet transfers by the Commonwealth Bank can't possibly be justified, but they just went right ahead and did it while the regulators sat back and twiddled their thumbs.


23. Fairfax accepts Crikey's board tilt and platform

By Stephen Mayne, accepted candidate for the Fairfax board

The directors of John Fairfax have accepted Crikey's nomination for the board at the 2005 AGM so controversial new chairman Ron Walker will now face the first contested election of his life since being Lord Mayor of Melbourne in the mid-1970s.

The company has also accepted the proposed platform which will appear on the notice of meeting as follows:

"My Mayne, aged 36, BCom (Melb) is a business journalist who has worked for a range of newspapers, including The Age and The Australian Financial Review. Mr Mayne was the founder of www.crikey.com.au, Australia's best known independent ezine. Mr Mayne believes the Board of Fairfax required a director with direct journalism and internet experience, who is independent of the major political parties."

That is obviously a crack at the board's lack of media experience, plus Ron Walker's status as the former Liberal Party Treasurer who raised an estimated $175 million over ten years.

Fairfax have been good enough to provide a list of its top 40 shareholders but this is where the problems start in corporate elections because it doesn't detail the beneficial owners and claims the five largest shareholders are as follows:

National Nominees: 17.61%
JP Morgan Nominees: 15.79%
Westpac Nominees: 15.79%
RBC Nominees: 7.29%
Citicorp Nominees: 5.98%

This is complete garbage because the real shareholders are allowed to hide behind nominee companies. How on earth can an outside candidate canvass major shareholders for support with this system? In political elections you are provided with a full list of voters on a disk.

Fairfax are trying to charge $340 for a list of their top 200 shareholders, many of which are hiding behind nominees. If Ron Walker is committed to a free and fair corporate election, he needs to follow the AMP lead of 2003 when the insurance giant provided Crikey with a list of their 200 largest beneficial owners free of charge. We look forward to his co-operation!



24. The handful of withdrawn listed company resolutions

By Stephen Mayne

Australian shareholders have historically had an appalling culture of rarely proposing resolutions of their own to be voted on and accepting whatever company resolutions boards dish up for approval at the annual general meeting.

When a resolution does run into trouble, rarely does it actually get defeated because the company usually withdraws it when the proxies are running badly.

There are only a handful examples of this happening and, in chronological order, they are:

Southern Cross Broadcasting: Announced the withdrawal of a resolution to increase retirement benefits for directors at 5.51pm on a Friday, October 26, 2001 as you can see here.

John Fairfax: Withdrew a proposed change to its constitution regarding proportional takeovers in 2001 but the losing proxy count was still released here. It was a special resolution requiring 75% approval and Fairfax only had 64.5% of the proxies in favour.

AMP: Withdrew its ludicrously generous and complex incentive schemes proposals for new CEO Andrew Mohl and current HHG CEO Roger Yates before the 2003 AGM after angry shareholders vowed to vote them down given the billions that had just been lost in the UK. Check out the backdown announcement here.

News Corp: I still think the rejection of Rupert's proposed options issue without performance hurdles for six executive directors at the 2003 AGM was the trigger for the move to America. The Sun King said it was Australian institutions who objected and it must have been some sort of "crazy misunderstanding."

Hills Motorway: John Cassidy resigned from the board one day before facing a re-election ballot at the 2004 AGM because it was clear the proxies were running against him. This is the only time in recent history than an endorsed incumbent director has been booted off a board.

Fleetwood Corporation: A proposal to issue options to executive directors was withdrawn at the 2004 AGM due to opposition from shareholders, although the company blamed "the inadvertent omission of some technical information required by the ASX."

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