Preview of tomorrow's Macquarie AGM
July 22, 2015
Dear Mayne Report readers,
As you read this, the 10 directors of Macquarie Group will know the final proxy voting position on the 6 or 7 items which will be determined at tomorrow's AGM in Sydney.
The final number of resolutions is still not clear because, as of Monday afternoon, company secretary Dennis Leong advised that “the board has not made a decision” on the question of whether I'll be deemed a “fit and proper person” to even be allowed to contest.
This is an amazing and unprecedented situation for a contested public company election in Australia.
Maybe the board are still mulling the stiffly worded 2200 word letter sent last Wednesday in response to an unexpected email request to make a submission under some competency policy linked to the “fit and proper test”.
Here's a taste of what went back to them:
It has also been very disappointing to see how such well-regarded directors have conducted what is meant to be a free and fair election. In my opinion you have not judged yourselves to be “fit and proper” to run a fair election for the following reasons:
· After using board discretion to increase the Macquarie board to 11 for 5 months in 2014 you then used “no vacancy” against me and declared a cap of 10 in this election, which is clearly contrary to the spirit of the 2011 Corps Law amendments;
· You unreasonably censored my platform so it was no longer clear to shareholders what transactions had triggered the nomination;
· Having never mentioned “competency” in communications, you introduced this as a new requirement just 13 days before the AGM;
· You refused to determine the ballot order by way of lot, instead relegating me to last on the proxy form and I was not named on the agenda as the candidate when the other directors were;
· You constructed a ballot paper which is clearly biased and would be illegal in any form of political election;
After all of these tactics, I then get yet another email on Friday requesting that I opine on issues of “character, honesty and integrity”. Have a look in the mirror.
After this experience – the most obstructive in 48 contested board elections - I will be using Macquarie as a case study to publically argue for an independent body to oversee contested corporate elections in Australia.
Directors clearly have an interest in these matters and in my view the conflict has not been managed well through this process. But, of course, you all passed the “conflicts” test under your competency requirements.
It won't matter either way given that the deck has been stacked by the board, plus there has been no support for the tilt from any of the three major proxy advisory firms, or the Australian Shareholders' Association. The media has also been strangely disinterested during what is a quiet time for business journalism.
However, two of the proxy advisers have been good enough to include a link to this package of material I've put together on the tilt in the reports they've sent to institutional clients ahead of the vote.
In terms of the seven resolutions that should go to a vote, here is a summary of what is likely to happen tomorrow:
Item 2a: Re-election of Peter Warne
After a 20% against vote at last year's ASX AGM, Mr Warne was sent a clear message about an excessive workload but is yet to fully address this as he chairs two other public companies (OzForex and ALE Property Group), whilst also serving as a director of NSW Tcorp. That said, Mr Warne is a good director and chairs the important remuneration committee. May slip below 90% support.
Item 2b: Election of Gordon Cairns
A new director considered a likely successor to veteran Kevin McCann as chairman after he did precisely that at Origin Energy. Would need to review his workload if appointed to the Macquarie chair. Expect 99%+.
Item 3: Election of Stephen Mayne
3% for item 3 would be a good result – if the election is allowed to proceed.
Item 4: Remuneration Report
After many years of debate at AGMs, even the ASA has come to accept the contribution made by Macquarie's unique remuneration arrangements to its success.
There is no other Australian listed company with a greater element of profit-based or at risk remuneration. Equally, there is no investment banking CEO in the world with as much restricted equity bonus payments as Nicholas Moore. He must wait up to 7 years to collect his annual short-term incentive bonus and even then it comes as stock.
After the excessive focus on short term cash bonuses was phased out with the retirement of former CEO Allan Moss in 2008, Macquarie's remuneration arrangements have continued to positively evolve in recent years.
The record high 21.44% vote against the 2007 remuneration report was a catalyst for change and shareholder support has averaged about 98% over the past 4 years.
There is clear alignment with shareholders with meaningful equity holdings at both board and management level. Indeed, CEO Nick Moore has a shareholding and incentive play worth more than $150 million.
Item 5: Nicholas Moore incentive grants
Expect another 99%+ mandate for this resolution as occurred last year.
Item 6: Lift NED fee cap from $4m to $4.6m
There hasn't been a lift in the cap for 5 years but not sure this 15% increase is needed when the board is already operating at the maximum size of 10 and there are plans to reduce this.
If Macquarie agreed to requests to release the voting outcome by votes and voters, it would probably should thousands of small shareholders opposing it, but the big end of town will ensure it passes with more than 95% of votes in favour, despite being one of the biggest fee caps in the Australian market.
Item 7: Refresh placement capacity
ASX50 companies should be raising capital through PAITREOs which treat all shareholders fairly, including retail. Macquarie has never done a pro-rata raising, instead preferring placements which don't respect the property rights of existing shareholders.
If shareholders vote this proposal down, Macquarie will still have the flexibility to do a $3 billion-plus placement next week and then the full 15% capacity will be refreshed by early next year anyway after the anniversary passes for this year's $500 million placement.
The turnout will be lower on this item as placement recipients are conflicted out, but with the ASA still officially “undecided”, support could slip below 95% if they swing undirected proxies against on the day as punishment for Macquarie unfairly limiting its recent share purchase plan for retail investors to only $10,000.
DUET in the frame for a board tilt
The key message to the market from the Macquarie tilt is that companies which shaft retail investors in capital raisings are in the frame for a hostile board tilt.
Macquarie-advised power utility DUET have joined that club this week with a discounted capital raising that includes a dilutive $500 million placement, is non-renounceable and limits retail investors to overs equivalent to just 100% of their entitlement.
This is deliberately designed to dilute retail from a company which has a long record of doing dilutive placements to the big end of town. Contrast the dreadful DUET effort with the fair PAITREO capital raising that NAB recently did.
The DUET board has a lot to answer for and the media should be getting stuck in, especially given that chairman Doug Halley's record should be in the frame as he tries to salvage something from the Vocation train wreck.
That's all for now.
Do ya best, Stephen Mayne
* The Mayne Report is an email newsletter and website which promotes transparency and good governance in the corporate, political and media worlds. It is published by Stephen Mayne, the founder of Crikey.com, shareholder advocate and City of Melbourne councillor. To unsubscribe from this email list, click here.
As you read this, the 10 directors of Macquarie Group will know the final proxy voting position on the 6 or 7 items which will be determined at tomorrow's AGM in Sydney.
The final number of resolutions is still not clear because, as of Monday afternoon, company secretary Dennis Leong advised that “the board has not made a decision” on the question of whether I'll be deemed a “fit and proper person” to even be allowed to contest.
This is an amazing and unprecedented situation for a contested public company election in Australia.
Maybe the board are still mulling the stiffly worded 2200 word letter sent last Wednesday in response to an unexpected email request to make a submission under some competency policy linked to the “fit and proper test”.
Here's a taste of what went back to them:
It has also been very disappointing to see how such well-regarded directors have conducted what is meant to be a free and fair election. In my opinion you have not judged yourselves to be “fit and proper” to run a fair election for the following reasons:
· After using board discretion to increase the Macquarie board to 11 for 5 months in 2014 you then used “no vacancy” against me and declared a cap of 10 in this election, which is clearly contrary to the spirit of the 2011 Corps Law amendments;
· You unreasonably censored my platform so it was no longer clear to shareholders what transactions had triggered the nomination;
· Having never mentioned “competency” in communications, you introduced this as a new requirement just 13 days before the AGM;
· You refused to determine the ballot order by way of lot, instead relegating me to last on the proxy form and I was not named on the agenda as the candidate when the other directors were;
· You constructed a ballot paper which is clearly biased and would be illegal in any form of political election;
After all of these tactics, I then get yet another email on Friday requesting that I opine on issues of “character, honesty and integrity”. Have a look in the mirror.
After this experience – the most obstructive in 48 contested board elections - I will be using Macquarie as a case study to publically argue for an independent body to oversee contested corporate elections in Australia.
Directors clearly have an interest in these matters and in my view the conflict has not been managed well through this process. But, of course, you all passed the “conflicts” test under your competency requirements.
It won't matter either way given that the deck has been stacked by the board, plus there has been no support for the tilt from any of the three major proxy advisory firms, or the Australian Shareholders' Association. The media has also been strangely disinterested during what is a quiet time for business journalism.
However, two of the proxy advisers have been good enough to include a link to this package of material I've put together on the tilt in the reports they've sent to institutional clients ahead of the vote.
In terms of the seven resolutions that should go to a vote, here is a summary of what is likely to happen tomorrow:
Item 2a: Re-election of Peter Warne
After a 20% against vote at last year's ASX AGM, Mr Warne was sent a clear message about an excessive workload but is yet to fully address this as he chairs two other public companies (OzForex and ALE Property Group), whilst also serving as a director of NSW Tcorp. That said, Mr Warne is a good director and chairs the important remuneration committee. May slip below 90% support.
Item 2b: Election of Gordon Cairns
A new director considered a likely successor to veteran Kevin McCann as chairman after he did precisely that at Origin Energy. Would need to review his workload if appointed to the Macquarie chair. Expect 99%+.
Item 3: Election of Stephen Mayne
3% for item 3 would be a good result – if the election is allowed to proceed.
Item 4: Remuneration Report
After many years of debate at AGMs, even the ASA has come to accept the contribution made by Macquarie's unique remuneration arrangements to its success.
There is no other Australian listed company with a greater element of profit-based or at risk remuneration. Equally, there is no investment banking CEO in the world with as much restricted equity bonus payments as Nicholas Moore. He must wait up to 7 years to collect his annual short-term incentive bonus and even then it comes as stock.
After the excessive focus on short term cash bonuses was phased out with the retirement of former CEO Allan Moss in 2008, Macquarie's remuneration arrangements have continued to positively evolve in recent years.
The record high 21.44% vote against the 2007 remuneration report was a catalyst for change and shareholder support has averaged about 98% over the past 4 years.
There is clear alignment with shareholders with meaningful equity holdings at both board and management level. Indeed, CEO Nick Moore has a shareholding and incentive play worth more than $150 million.
Item 5: Nicholas Moore incentive grants
Expect another 99%+ mandate for this resolution as occurred last year.
Item 6: Lift NED fee cap from $4m to $4.6m
There hasn't been a lift in the cap for 5 years but not sure this 15% increase is needed when the board is already operating at the maximum size of 10 and there are plans to reduce this.
If Macquarie agreed to requests to release the voting outcome by votes and voters, it would probably should thousands of small shareholders opposing it, but the big end of town will ensure it passes with more than 95% of votes in favour, despite being one of the biggest fee caps in the Australian market.
Item 7: Refresh placement capacity
ASX50 companies should be raising capital through PAITREOs which treat all shareholders fairly, including retail. Macquarie has never done a pro-rata raising, instead preferring placements which don't respect the property rights of existing shareholders.
If shareholders vote this proposal down, Macquarie will still have the flexibility to do a $3 billion-plus placement next week and then the full 15% capacity will be refreshed by early next year anyway after the anniversary passes for this year's $500 million placement.
The turnout will be lower on this item as placement recipients are conflicted out, but with the ASA still officially “undecided”, support could slip below 95% if they swing undirected proxies against on the day as punishment for Macquarie unfairly limiting its recent share purchase plan for retail investors to only $10,000.
DUET in the frame for a board tilt
The key message to the market from the Macquarie tilt is that companies which shaft retail investors in capital raisings are in the frame for a hostile board tilt.
Macquarie-advised power utility DUET have joined that club this week with a discounted capital raising that includes a dilutive $500 million placement, is non-renounceable and limits retail investors to overs equivalent to just 100% of their entitlement.
This is deliberately designed to dilute retail from a company which has a long record of doing dilutive placements to the big end of town. Contrast the dreadful DUET effort with the fair PAITREO capital raising that NAB recently did.
The DUET board has a lot to answer for and the media should be getting stuck in, especially given that chairman Doug Halley's record should be in the frame as he tries to salvage something from the Vocation train wreck.
That's all for now.
Do ya best, Stephen Mayne
* The Mayne Report is an email newsletter and website which promotes transparency and good governance in the corporate, political and media worlds. It is published by Stephen Mayne, the founder of Crikey.com, shareholder advocate and City of Melbourne councillor. To unsubscribe from this email list, click here.