Telstra, Corbett, Turnbull and director resignations
July 14, 2008
Here are Stephen Mayne's stories from the Crikey edition on Monday, September 2, 2005.
1. How did the government lose control of Telstra?
By Stephen Mayne, small Telstra shareholder and twice failed board candidate
Telstra chairman Donald McGauchie is supposed to be a mate of the Government. There he was leading from the front during the 1998 waterfront dispute, a performance which was rewarded with a plum position on the Telstra board. Fast forward seven years and McGauchie is commander in chief during an American invasion of Telstra which has sparked a war with the government and severely frightened the horses.
As stock after stock soars to record highs, particularly in government licenced sectors such as banking and media, Telstra is on the slide due to the enormously inflammatory remarks by Sol Trujillo and his team, this time with regulatory chief Phil Burgess who told hacks he wouldn't tell his mother to buy Telstra shares.
This has sent Telstra shares down another 8c to a 10-month low of $4.59 this morning. While the cancellation of the buyback and all this trash talking is spooking investors, it also demonstrates the power of the Telstra board and management. Since Trujillo was appointed in June, Telstra shares have slumped from a peak of $5.17, meaning the public have dropped $3.5 billion and the government $3.6 billion as Telstra's market cap has dived from $63 billion to $56 billion. Over the same period, shares in Singapore Telecom, owner of Optus, have remained steady.
It's difficult to know who to back in this war. Whilst you don't want even more government patsies running Telstra, the business is already way too powerful and needs to be kept in check. Telstra arguing for less regulation deserves as much sympathy as Qantas or the bank cartel crying poor. However, by inflaming the government and scaring investors, Telstra will find itself on a cycle of more regulation and a lower share price, but that then hits the government's balance sheet as they attempt to maximise sale proceeds from T3.
The government now has three weeks to decide whether to perform a board coup at Telstra's November AGM or hang on for a rollercoaster ride with Australia's new George Trumbull. If the board really has signed off on Telstra writing an inflammatory anti-government letter to its 1.6 million shareholders, stand by for a government that prides itself on discipline and loyalty to use its majority stake to install more compliant directors. However, time is short because the notice of meeting with all board candidates must go out by the end of September.
After recent departures, Telstra only has six non-executive directors left. Catherine Livingstone will be facing re-election as will either John Stocker or McGauchie. The Government could vote the two incumbents off and install as many as 10 new directors at the AGM if it wanted to reassert itself, but can you imagine the press frenzy that would surround such a move?
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3. Turnbull's statesmanship lesson for cocky Cossie
By Stephen Mayne and Hugo Kelly
Who would have thought that a man previously regarded as Australia's most arrogant, aggressive and litigious investment banker would be giving our Prime-Minister-in-waiting lessons in humility?
So it was on Jon Faine's ABC Victoria program this morning when Malcolm Turnbull declined to criticise Peter Costello. "I learnt a long time ago, Jon, that demeaning people only ends up diminishing you," explained Malcolm.
To understand how far Turnbull has come you only have to go back to that 1991 Good Weekend hatchet job by John Lyons, featuring a menacing cover photo of a power-suited young merchant banker on the make, glowering over a headline that read: "Malcolm Turnbull: 'Humility is for saints'."
"I'm not sure that I'm really suited to the democratic process," said Turnbull at the time. Lyons reported that only 20 minutes after finishing the pleasant two hour interview, Turnbull was on the phone to his Herald colleague Ian Verrender calling him a "f*ck face" – six times – for some perceived slur in that day's paper.
Nick Whitlam was quoted: "With Malcolm, everything is a full-frontal, confrontational battle. He's a genuinely nasty person." And former Labor Senator Diamond Jim McClelland said: "He's a turd. He's easy to loathe, he's a sh*t. He'd devour anyone for breakfast..."
Fast forward 14 years and Malcolm is on the BRW Rich List, in parliament and has just caused Peter Costello's political stocks to take a tumble because of his silly ridiculing of Turnbull's admirable tax plan.
Turnbull behaving like a statesman shows just how far the lad has come. Who would have thought that Malcolm would ever be able to give anyone a lesson in humility? Is it all a great act or has Malcolm really changed?
And before everyone gets too excited about the Turnbull express and his prospects of being the next Treasurer, it is worth remembering that his vast financial interests in areas subject to Treasury regulation should preclude him from landing the job.
If Malcolm is serious about becoming the next Treasurer, he'll need to liquidate most of his investments and put them in a blind and global investment fund. If that starts happening, Cossie should be really worried.
23. Roger Corbett's obscene stream of cash
By Glenn Dyer and Stephen Mayne:
How much is a good CEO worth? Millions would be the answer while in the job, of course. But what about when they leave and beyond? John B Fairfax resigned from the Westpac board last year over concerns about the retirement deal for CEO David Morgan, and the $4.5 million golden goodbye to Fairfax CEO Fred Hilmer raised eyebrows earlier this week. Fairfax is now in danger of having its remuneration report voted down at the forthcoming AGM under the new regime of non-binding votes.
Given Fairfax's mixed performance under Hilmer, this is understandable. But what sort of reaction will Woolworths get given the far greater largesse for CEO Roger Corbett and the company's fantastic returns for shareholders during his reign. As John Durie wrote in today's AFR, Corbett's farewell package, comprising another year of work and then a five year consultancy, is a bridge too far.
The Woolworths board and chairman James Strong have simply failed any test of competence and good governance in awarding Corbett this multi-million dollar stream of cash. The package could total more than $20 million if the company performs like it has in the past couple of years, which will come on top of his shareholding worth more than $54 million and a minimum dividend stream of $1.7 million a year (fully franked).
Taking all this into account, by the time Corbett's long association ends with Woolies in 2011 he will have received options and shares and payments valued at close to $100 million. His net worth would exceed that of David Murray, who is about to leave the Commonwealth Bank with around $28 million.
That's mind boggling. In 2003-2004 Corbett received total pay and bonuses valued at $4.14 million. The base pay was around $1.75 million. That base pay has been lifted to $2.5 million "through to September 2006 under the 'extended service agreement" revealed yesterday.
We still don't know how much Roger was paid in 2005, but it will be more than $5 million (plus another $3 million long term incentive payment and a higher short term bonus, it would seem.) The final sum could be well over $9 million. Besides the $2.5 million, he'll be entitled to a short term bonus of 130% of his base salary, or $3.25 million, then there will be a long term incentive payment of a "maximum" in any one year of $3 million. How much is enough?
Instead of copping the options deal agreed to at the annual meeting last year, the Woolworths board has unilaterally decided that Corbett won't be getting the two million "very much in the money" options agreed to at that meeting. These are exercisable at $12.94. Woolies shares closed at $16.38 yesterday so those options were worth well over $6 million on a gross basis and around $3.5 million after tax. Wasn't that enough and what's the explanation?
The board said that Corbett's last LTIP award was in 2000 and covered the period up to 2003. "The board reviewed the achievements by the CEO against the LTIP criteria in relation to the period to June 30 2005 and decided to give Roger the maximum amount of $3 million for the first period of the new LTIP." That was for the year to June 2004. He could get another $3 million for the year to June this year and a $3 million for the year to 2006!
And to make sure Corbett doesn't work anywhere else for five years from September next year, he will be paid $600,000 a year by Woolworths as a consultant, which is now getting close to obscene. That's another $3 million. However, it should be remembered that Woolworths were bitten when Corbett's predecessor Reg Clairs went off to join the David Jones board and Strong's predecessor as chairman, John Dahlsen, joined the board of The Warehouse Group after losing a power struggle with Corbett in 2001.
No other major corporate has recently faced their immediate past CEO and chairman joining competitors and the company is clearly determined it won't happen again, even if it means Corbett will be looking over the shoulder of his successor. If Corbett is so good, why not just get rid of the pretence and make him chairman until 2011?
And it's not that Corbett isn't already very wealthy. In fact, the man is a multi-millionaire from his successful time at Woolies. He has 3.341 million shares that will earn him gross (and full franked) dividend income of $1.7 million this year. So taking into account that his salary and dividends could total close to $10 million for 2005 (plus another $3 million for 2004) and well over $10 million for 2006. He will get $3 million on leaving and another $3 million over five years plus another $8-$10 million in dividend income over the same period of time.
Starting from 2005 Corbett could be paid upwards of $40 million over seven years, depending on dividends and the performance of Woolworths. These are gross figures, tax has to be paid. But add in the 3.3 million shares worth well over $54 million at yesterday's close of $16.38 and we could be looking at someone who has grossed around $100 million from just being an employee at Woolies, admittedly one who rose to the top and helped drive a fundamental change in one of the country's major retailers, with considerable shareholder benefits.
Obscene is the only way to describe it because it now looks like Corbett could yet join the prestigious Crikey Revised Wealth (CRW) list.
25. Time for some honesty in director resignations
By Stephen Mayne
Crikey is giving a presentation at the big industry super funds conference in Cairns next week, so apologies if the contributions are a little sparse on Tuesday and Wednesday. It is meant to be a 45 minute overview of corporate governance developments in Australia over the past year as you can see from the program here.
However, one major theme will be developments in the way the directors' club works and this includes a call for more honesty surrounding director departures. For instance, John Cassidy announced his resignation from the board of Hills Motorway on October 13 last year, just one day before he was facing a re-election ballot for another three year term. The ASX statement explained the departure as follows:
"Non-executive director of The Hills Motorway Ltd, John Cassidy, today announced his decision to retire from the Board due to his commitments to his family business and other responsibilities including his role as Chancellor of the Council of the University of New England. Mr Cassidy notified the Hill Motorway Board that he would withdraw his nomination for re-election at tomorrow's AGM as he did not believe he could continue to serve in the best interest of the Hills Motorway Group and shareholders due to other commitments."
What really happened here was that proxy adviser Corporate Governance International recommended a vote against Cassidy because of his previous role as CEO of Abigroup, the construction company which built the company's M2 Tollroad in Sydney. Several institutions followed the advice and it quickly dawned on Cassidy that he would become the first board-endorsed director of a major Australian company to fail in a re-election bid.
No-one wants that title so instead he decided to resign the day before the meeting, but the public explanation didn't explain that Cassidy was actually forced off the board.
The bottom line is that when directors walk, they should also talk - and honestly. When Carolyn Hewson quit the AMP board in December 2001, she had a chance to blow the whistle on the disaster that lay ahead. Instead, we got this garbage from AMP and it was only the insiders who knew that serious trouble lay ahead for what was then still our biggest fund manager. The episode caused much debate amongst company directors as you can see from this article.
The same occurred when Roger Corbett won a power struggle against his then Woolworths chairman John Dahlsen in early 2001. The mealy mouthed ASX announcement by the retailer was full of platitudes when it should have stated that the chairman disagreed with the CEO on strategy and was departing after a board debate.
In this era of continuous disclosure to keep markets fully informed, surely it's time we got some honesty with director departures, even if it might cause a little bit of embarrassment to the suit who has been punted.
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