Telstra AGM 2000 transcript

STEPHEN MAYNE: I am here as a proxy holder for my wife and about 120 other shareholders. There are two issues I would like to raise. The first one is your role as chairman. I guess I am a little bit concerned about your relationship with Kerry Packer. When you were the chief executive of Optus, I think it was you who negotiated for the Packer organisation to take 15 per cent for about $300 million, a deal that was never actually eventually consummated. I think it was Packer who persuaded Optus to fund the super league wars, I think when One.Tel was set up which James Packer was an investor in, they started off as an Optus reseller when you were the chief executive of Optus. A company called CTS Technologies, which I think you are an investor in, James Packer is being elected as a member of their board next week.

I am also concerned that Kerry Packer has so publicly backed John Howard in 1996 and then as soon as John Howard was elected Prime Minister you were appointed to review the ABC, and then all of a sudden you get shunted in very quickly to become chairman of Telstra. Within weeks of you taking over as being chairman of Telstra we seem to get into negotiations to buy PBL for $10 billion cash, which would have been, as people have widely reported, Kerry Packer's second Allan Bond deal.

Given your long history with Mr Packer, I was deeply concerned that you could so prominently push such a ridiculously priced proposal, I think it was reported to be $18 a share, and the stock price in PBL is now back to about $13 per share, so I would like you to explain to the meeting how you see your role as effectively executive chairman, from what you read in the press, and maybe hear from John Ralph, who is probably Australia's best respected independent chairman, on how he sees the role of your position as chairman.

I also note that having read in the press the three directors who oppose the proposed PBL takeover were John Ralph, Mr Roberts and Steve Vizard, and then all of a sudden Mr Roberts and Steve Vizard have left the board and there has been absolutely no public explanation as to why they have left the board.

The second issue I would like to cover is Ted Pretty's position as effectively Ziggy's deputy. Ted came across as effectively a lawyer and a deal-maker and a friend of Ziggy's from Optus days. It seems that much of what he has touched has not worked out for Telstra. The ABC content deal fell over. We proposed buying Ozemail for $300 million, and I think the same business today would probably be for sale for about half that. We have dropped $100 million on paper in Solution 6 and Sausage Software.

Ted Preddy put together the proposed merger between Solution 6 and Sausage in which Telstra was going to sell a whole lot of its assets into the combined group for an effective price of $9.70 Solution 6 shares. I bought some Solution 6 shares two weeks ago for 90 cents. It seems that we have been doing some crazy deals here.

CHAIRMAN MR MANSFIELD: Can I trouble you, you are well over your three minutes and it would be a pleasure to answer your question.

STEPHEN MAYNE: Just 30 seconds more. I sold out of Keycorp at $9 a share and two weeks later we turn around and buy 50 per cent of the company for $13 a share. We then renegotiate it down to $11 a share and Keycorp is trading at $8 a share, so we are already $100 million on paper out of pocket. These are all the deals Ted Preddy has been put in charge of.
It is my view that given what has happened here that maybe it would be better if Ted was given opportunities to explore career opportunities elsewhere.

MR MANSFIELD: Mr Mayne, let me start by saying that you are making a lot of assertions and you shouldn't always believe what you read in the press. I don't deny that I know Kerry Packer and James Packer, in fact Kerry Packer and Rupert Murdoch happen to be partners of Telstra in the Foxtel arrangement, and the chief executive and myself meet with them as and when necessary in order to represent the best interests of the shareholders of Telstra.

I have never done a commercial transaction with Kerry Packer, whether that is viewed as success or failure is in the judgment of others, not myself, but the assertions you are making I absolutely repudiate totally. I respect them as business people and whenever I deal with them it is with the total interest of Telstra shareholders in mind. In all the assertions you make, I absolutely stand against them and have no problem doing so.

In relation to your question on Ted Pretty, again I will ask Ziggy to make some comments on this, but I can assure you that the issue of Telstra trying some different things, as they did in these acquisitions that were made on a conservative basis and if you take the totality of those transactions right now, we are still ahead on a net position as against the individual situation with each stock individually. It is a position that I wasn't involved in those decisions but I certainly think it is good for Telstra to be trying things and looking at different avenues of growth, providing it is done conservatively and providing it is done in a way that does provide opportunities for the future.

We are all very smart in hindsight and obviously we have learnt from this experience and the Keycorp transaction being 51 per cent ownership reflects the lesson we have learned about controlling these ventures rather than being minority shareholders.

DIRECTOR MR SWITKOWSKI: Most of the dot com investments and decisions that were taken by the communities in Australia in 1999 and 2000 now in retrospect look decidedly shaky. But as the chairman said, we made a number of investments, formed a number of relationships, and I can reassure the shareholders that we are ahead, we are ahead on all of those investments, only some of which involve Mr Pretty, all of which involve me and I am therefore ultimately accountable for all of them.

The fact is that between Computer Share and Solution 6 and Sausage and Keycorp, which is incorrectly described by Mr Mayne as being reduced in value because the accounting of that is done differently, the fact is that the net impact upon Telstra shareholders has been positive. The numbers at the end of the day are in fact quite small but the principle is quite interesting. We have learnt a lot in the last year or so. We have changed our processes and modified our own attitude to some of these investments, but all along we have reaffirmed our focus on the core business and that is reflected in the underlying performance of this company.

MR MANSFIELD: Mr Mayne, if I could address one final comment in relation to supposed press reports on voting splits in the board, I can assure you there is nothing evident at all around the board table along the lines of the factions that have supposedly been written up in the press. The board operates very effectively.

The board operates, by the way, in a very, very required manner and I can illustrate this best where we schedule nine board meetings a year, last year we had 18 and I would like to suggest that by the end of this year it will be even more than that. This company is in the middle of some pretty challenging times and I am delighted to be the chairman of a board that is willing to apply themselves as earnestly as they have demonstrated in order to try to pick the right way forward for the shareholders of this company and at the same time deliver the record profits that we did in last year's result.

STEPHEN MAYNE: Chairman, as you know, I am a candidate for the board today. I guess, firstly, I would like to welcome the three government-backed additions to the board, in Sam Chisholm, Catherine Livingstone and John Fletcher. I think they are all very highly regarded in the business community and should give Telstra some much needed international perspective. I guess I have just got a few issues around that.

I originally nominated myself specifically to stand against Steve Vizzard, who in my opinion had some pretty serious conflicts of interest in personally bidding for an AFL club internet rights and also his involvement with virtual community, where he was actually trying to underbid Big Pond offering ISP and computers to union lists. So I guess when he resigned a couple of weeks after I nominated, I was delighted to see that there had been some change.

There are a couple of other issues I think we need to deal with. You have mentioned that you don't know how the government is voting. I would like to request that if the government is here, if a representative from the government is here, that they speak to the meeting and tell the meeting how they are going to vote. If they haven't told you, I would like to hear from them to see what they have got to say and why they are backing who they are backing.

I read in the Australian a couple of days ago that the government will be backing those three candidates I have mentioned and John Ralph, but there is actually a fifth vacancy on the board today. I have actually stood for about eight or nine boards over the past few weeks and invariably what the directors do to keep external candidates out is that they only have as many vacancies as there are incumbents that they want to get back on to the board. So if this had applied to Telstra, there would have been only four vacancies, because clearly there are only four candidates that the board wants to get elected and the government wants to get elected. Why is there a fifth candidate? Is this because Steve Vizzard resigned and because Chris Roberts resigned and Cecilia Moar resigned?

I think it is also probably important that the board tell us why those three directors resigned. There has been no public explanation anywhere as to why those three candidates resigned, and I think we need to hear how it was decided that the new candidates be put forward. Was it a government decision? Was this board told, we would like Mr Fletcher, Ms Livingstone and the third candidate to join the board or did the board go to the government and say, we would like to see these people?

Because you have now got the situation where 11 of the 12 directors up there have been appointed since the election of the Howard Government in 1996. Only Elizabeth Nosworthy predates the Howard Government. If you look at the Commonwealth Bank board, you have still got a majority of directors on that board who are pre-1996, so clearly what has happened here is that the government has come in and they have handpicked their candidates. Now that we have got 11 of their 12 candidates up here. I guess the problem with that is that they only own 50 per cent of the stock, yet they appoint 100 per cent of the candidates.

I actually wrote to the government suggesting that they allow the rest of the shareholders to choose for themselves if they want that fifth vacancy filled by one of the five candidates who put their own names forward.

I read in the Australian that there has been a cabinet decision that the government is actually going to vote against those five candidates, yet there has been no explanation as to why, none of us have had any communication with the government, in fact I certainly haven't had any communication with Telstra as to the procedures to be adopted at the meeting. It was a bit disappointing that candidates weren't formally given an opportunity to successively speak to the meeting.

I certainly would have liked to have heard from Sam Chisholm and Catherine Livingstone about what they would bring to the board and why they were here, and I would specifically like to hear from Sam Chisholm about his relationship with Kerry Packer and Rupert Murdoch. There has been a lot of media speculation about this. He worked for a number of years for both of them. I think it is good that he has come into the board because of his experience, but what is the current status of his relationship with both of those two gentlemen, given the very public criticisms that both Packer and Murdoch have been making of Telstra surrounding what is happening with Foxtel?

There are a few issues in there, chairman, I hope you don't mind me taking up so much of your time. Thanks.

MR MANSFIELD: Thank you, Mr Mayne. Let me cover them. I think I have got them down in categories that I can do so.

There is no way any shareholder can be asked to say how they are going to vote, and there is no way that, unless the government wants to tell you what's going on, that they can be forced to do so. That issue is pretty easy. You as an individual shareholder can vote the way you want privately and any shareholder, irrespective of how many shares they have got, can do so.

From the point of view of resigning, people that resign from boards - and they do so relatively frequently when you look across the whole spectrum of boards in Australia - the reasons people do so are personal reasons and the explanation for that, if any is to be made, comes from those individuals and it is certainly not for me to explain reasons that may not reflect the individual's position.

The election of new directors: there is a very clear responsibility for the process outlined under our constitution. As chairman of the company, I can assure you that the necessary process has been followed. There is a formal nominations committee involving the deputy chairman and myself and the involvement in the nominations being put forward from the point of view of the business experience outlined for Catherine Livingstone, John Fletcher and Sam Chisholm, their global experience and what I believe they can contribute to the board I think will be very beneficial in the years ahead, and it was done on that basis.

Obviously the issue of discussions with the majority shareholder at a point in time, we did mention that selection and from that point in time I have had no discussion on their voting - the indication of their voting pattern today, whether anyone is here or whether they have provided proxies, I have no idea. The figures I quoted earlier on were from non-government sources.

Sam Chisholm is not here and all I can assure you again is this absolute fascination with regard to, if you have been successful and Kerry Packer and Rupert Murdoch are involved, you are automatically under suspicion. I eagerly look forward to the contribution that Sam Chisholm can contribute to this board, very much in the areas where the company is at and going, and he has done so with extraordinary success on a global basis. But that's my personal opinion. The issue in the hands of shareholders, certainly not in my hands, and that is what will ensue with the polling that will be conducted.

STEPHEN MAYNE: Two quick points, chairman. My experience with running for a few other boards is that generally about 30 per cent of the small shareholders who do vote just fill in the form, sign the form and send it back, so they don't actually vote, so this gives a very large chunk of shares to the chairman which are left open. I think it is probably incumbent on the board today to tell us what they are doing with the open proxies. There is going to be literally, I suspect, possibly billions of dollars of shares that have been given to you to vote and I think you should tell us, for each of the nine candidates, whether you are going to be saying for, against or abstain.

Because the notice of meeting does not express any opinion from the board, there is no guidance whatsoever from the board about how you are going to vote, but you are actually going to vote a whole large amount of open shares. Also, could we please be advised of the proxies before we take the poll, so we can see whether the federal government has voted and so we can also see how some of the bigger shareholders, the better informed shareholders have voted, which might be of some guidance to some of the smaller shareholders who are not as well informed on the various candidates.

MR MANSFIELD: Mr Mayne, I have noted you have been quite busy with regard to annual general meetings this year. I am not required to do any of the things that you have requested and in relation to the position as chairman of this company I will be following that path.

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