Axa AGM, Maurice Newman, David Crawford, WA News and QBE
February 2, 2010
Dear Mayne Reporters,
the Axa Asia Pacific Holdings AGM kicks off at 10am this morning and we've got plenty of issues to raise that will be covered in a special edition this afternoon.
In this morning's edition we've got some strong stories on ASX chairman Maurice "Opes" Newman, the heavily conflicted ANZ investigator David Crawford, plus more on the battle for WA News and a snippet on the QBE bid for IAG, which has generated some conflicts of interest in our household.
Click through for the full edition and 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.
the Axa Asia Pacific Holdings AGM kicks off at 10am this morning and we've got plenty of issues to raise that will be covered in a special edition this afternoon.
In this morning's edition we've got some strong stories on ASX chairman Maurice "Opes" Newman, the heavily conflicted ANZ investigator David Crawford, plus more on the battle for WA News and a snippet on the QBE bid for IAG, which has generated some conflicts of interest in our household.
Click through for the full edition and 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.
Can Maurice Newman survive the Opes Prime firestorm?
The AFR's Monday feature about regulatory failure at Opes Prime really was a remarkable read. Reading it again on the bus coming from the city yesterday, it dawned on me that ASX chairman Maurice Newman ought to be coming under considerable pressure.
As the man who drove the ASX demutualisation, the slack of regulation of the booming market is an issue that ultimately rests at his door. The Opes timeline laid out by The AFR was as follows:
Oct 2007: ASX did on-site review and missed dodgy related party deals, director dealings plus breaches of loan ratios.
Late 2007: tri-ennial audit – starts with 40 question questionnaire, then 5-10 day site observation. Missed everything.
Dec 2007: dodgy manipulation of client accounts begins.
Jan 29: discussions about LVR ratios and loan classifications on same day as Tricom fails to settle.
Feb 11: liquidity ratio crashed from 2.06 to 0.61% and ASX advised of breach.
Feb 12: Opes finance director Tony Iremonger claimed in letter Merrills changed LVR from 90% to 85%, plus that ASX “methodology is inappropriate for our business”.
Feb 15: ASX and Opes met to discuss liquidity breaches, where ASX “encouraged” loan reclassification to avoid ratio breaches.
March 7: Opes directors meet with ASIC expecting notices to produce books but got nothing.
March 14: ASIC's Adam Coleman called Opes asking for copy of stock lending agreement and verbally advised would be taking no further action.
March 28: administrators appointed, punters to lose $300-400 million.
Robert Elstone is the ASX CEO who is renowned for tight cost control and was foisted upon the ASX board by SFE Corp shareholders at the time of the merger. Elstone inherited ASX supervision boss Eric Mayne whose three year contract is up and unlikely to be significantly extended.
However, the ASX itself is going through a transition phase with David Gonski replacing Newman as chairman after the AGM in October. Interestingly, Gonski was poached from the primary Opes banker ANZ, where he was jockeying to be chairman. I reckon Newman ought to go earlier than that and the ASX board needs some new blood with serious regulatory credentials if it is going to see off Labor's inevitable push to strip the monopolists of its regulatory functions.
For instance, someone like Michael Sharpe now appears to be completely inappropriate when he is chairman of the Babcock & Brown audit committee which insists on not releasing the full management agreements with its listed funds. The ASX board simply cannot play host to people who refuse to practice good disclosure in their other gigs. Besides, Sharpe's conflicts of interest with that office accommodation from PwC is also a concern, as is explained here.
Given Maurice Newman's reluctance to invest in regulatory functions at the ASX, it doesn't inspire confidence that he'll champion increased resources for investigative journalism at the ABC, where he is also chairman. There really should be a serious investigation into the Opes Prime collapse and if the ASX comes out of it badly, Newman's tenure at the ABC might also be questioned.
As the man who drove the ASX demutualisation, the slack of regulation of the booming market is an issue that ultimately rests at his door. The Opes timeline laid out by The AFR was as follows:
Oct 2007: ASX did on-site review and missed dodgy related party deals, director dealings plus breaches of loan ratios.
Late 2007: tri-ennial audit – starts with 40 question questionnaire, then 5-10 day site observation. Missed everything.
Dec 2007: dodgy manipulation of client accounts begins.
Jan 29: discussions about LVR ratios and loan classifications on same day as Tricom fails to settle.
Feb 11: liquidity ratio crashed from 2.06 to 0.61% and ASX advised of breach.
Feb 12: Opes finance director Tony Iremonger claimed in letter Merrills changed LVR from 90% to 85%, plus that ASX “methodology is inappropriate for our business”.
Feb 15: ASX and Opes met to discuss liquidity breaches, where ASX “encouraged” loan reclassification to avoid ratio breaches.
March 7: Opes directors meet with ASIC expecting notices to produce books but got nothing.
March 14: ASIC's Adam Coleman called Opes asking for copy of stock lending agreement and verbally advised would be taking no further action.
March 28: administrators appointed, punters to lose $300-400 million.
Robert Elstone is the ASX CEO who is renowned for tight cost control and was foisted upon the ASX board by SFE Corp shareholders at the time of the merger. Elstone inherited ASX supervision boss Eric Mayne whose three year contract is up and unlikely to be significantly extended.
However, the ASX itself is going through a transition phase with David Gonski replacing Newman as chairman after the AGM in October. Interestingly, Gonski was poached from the primary Opes banker ANZ, where he was jockeying to be chairman. I reckon Newman ought to go earlier than that and the ASX board needs some new blood with serious regulatory credentials if it is going to see off Labor's inevitable push to strip the monopolists of its regulatory functions.
For instance, someone like Michael Sharpe now appears to be completely inappropriate when he is chairman of the Babcock & Brown audit committee which insists on not releasing the full management agreements with its listed funds. The ASX board simply cannot play host to people who refuse to practice good disclosure in their other gigs. Besides, Sharpe's conflicts of interest with that office accommodation from PwC is also a concern, as is explained here.
Given Maurice Newman's reluctance to invest in regulatory functions at the ASX, it doesn't inspire confidence that he'll champion increased resources for investigative journalism at the ABC, where he is also chairman. There really should be a serious investigation into the Opes Prime collapse and if the ASX comes out of it badly, Newman's tenure at the ABC might also be questioned.
David Crawford too busy and conflicted for ANZ review
Whilst David Crawford is a reputable figure in the corporate world, the idea of calling him in to do an independent review of ANZ's Opes Prime debacle has enough problems that I reckon it is untenable. John Durie made some good points in The Australian yesterday:
But there are clearly important issues to determine, not least of which being the fact that, unlike other banks, ANZ has had one audit firm almost since the day the world was created. That firm is KPMG, which is too closely linked to ANZ, because that is where finance boss Peter Marriott learned his trade and key directors like Margaret Jackson also started life. At the very least, this risk failure should prompt a change in audit firm. Ironically enough, the man chosen as the outside party to join Smith's review is a former chairman and chief executive of the aforementioned audit firm, KPMG, David Crawford. His acceptance of the role is even more surprising given he is already chairman of Foster's and Lend Lease while also serving on the BHP Billiton board.
We've long argued that the directors' club gene pool is too shallow and there are too few doing too much and Crawford is already on our list of over-burdened directors. Indeed, Crawford produced one of the classic examples back in 2004-05 when he was juggling the following workload:
So, David Crawford is simultaneously chairing a company enjoying a record breaking commercial deal with ANZ whilst conducting an internal review which, if done properly and made public, could cost the bank hundreds of millions of dollars.
Crawford remains at the absolute epicentre of the Melbourne business establishment - Scotch College, the MCC committee etc etc. He's also been the preferred corporate undertaker for Melbourne banks for a long time, all of which means he's not fit to lead an independent review of ANZ.
A genuinely independent and public review would significantly change the personnel who would be occupying those plush new ANZ offices at Docklands which Lend Lease is building.
But there are clearly important issues to determine, not least of which being the fact that, unlike other banks, ANZ has had one audit firm almost since the day the world was created. That firm is KPMG, which is too closely linked to ANZ, because that is where finance boss Peter Marriott learned his trade and key directors like Margaret Jackson also started life. At the very least, this risk failure should prompt a change in audit firm. Ironically enough, the man chosen as the outside party to join Smith's review is a former chairman and chief executive of the aforementioned audit firm, KPMG, David Crawford. His acceptance of the role is even more surprising given he is already chairman of Foster's and Lend Lease while also serving on the BHP Billiton board.
We've long argued that the directors' club gene pool is too shallow and there are too few doing too much and Crawford is already on our list of over-burdened directors. Indeed, Crawford produced one of the classic examples back in 2004-05 when he was juggling the following workload:
- Chairman of National Foods – takeover battle between San Miguel and Fonterra
- Director of Foster's – successful but expensive takeover bid for Southcorp
- Director of BHP – successful but expensive takeover bid for WMC Resources
- Chairman of Lend Lease – rebuffed bidder for GPT, then dumped as manager
So, David Crawford is simultaneously chairing a company enjoying a record breaking commercial deal with ANZ whilst conducting an internal review which, if done properly and made public, could cost the bank hundreds of millions of dollars.
Crawford remains at the absolute epicentre of the Melbourne business establishment - Scotch College, the MCC committee etc etc. He's also been the preferred corporate undertaker for Melbourne banks for a long time, all of which means he's not fit to lead an independent review of ANZ.
A genuinely independent and public review would significantly change the personnel who would be occupying those plush new ANZ offices at Docklands which Lend Lease is building.
QBE vs IAG - can't say too much
QBE Insurance wants to land the biggest financial servies takeover in Australian history with its hostile crack at IAG.
Unfortunately, I can't say too much on this because the wonderful wife, Paula Piccinini, is a director of RACV, which has a major joint venture with IAG. However, there was a discussion on 774 ABC Melbourne with Lindy Burns last night, mainly pointing out what legends QBE chairman John Cloney and CEO Frank O'Halloran had been building the business together over 30 years and saving it from the crisis after September 11.
The QBE statement yesterday said that its proposal was "subject to business relationship partners". I don't have any specific information on this but suspect that might be a reference to the RACV, which owns 30% of Insurance Manufacturers Australia, a joint venture with IAG that has thrown of profits in excess of $300 million a year for the past three years.
The two big mutuals ended their war by merging their insurance operations back in the Nick Whitlam days. The RACV, as Australia's biggest remaining mutual, is certainly an interested observer as that 70% stake in IMA potentially changes hands.
Unfortunately, I can't say too much on this because the wonderful wife, Paula Piccinini, is a director of RACV, which has a major joint venture with IAG. However, there was a discussion on 774 ABC Melbourne with Lindy Burns last night, mainly pointing out what legends QBE chairman John Cloney and CEO Frank O'Halloran had been building the business together over 30 years and saving it from the crisis after September 11.
The QBE statement yesterday said that its proposal was "subject to business relationship partners". I don't have any specific information on this but suspect that might be a reference to the RACV, which owns 30% of Insurance Manufacturers Australia, a joint venture with IAG that has thrown of profits in excess of $300 million a year for the past three years.
The two big mutuals ended their war by merging their insurance operations back in the Nick Whitlam days. The RACV, as Australia's biggest remaining mutual, is certainly an interested observer as that 70% stake in IMA potentially changes hands.
How did WA News miss Steve Harris?
The powerful proxy advisers had their noses out of joint because WA News candidate Steve Harris was uncontactable in Europe when they called. This led to the best-credentialled candidate for the board not getting a recommendation.
However, the recommendation by Korn Ferry for the Seven Network is even more puzzling because the firm's Robert Webster did get a chance to interview Harris over the phone last Saturday.
Whilst everyone seems to agree that Peter Abery is the stand out candidate, it seems bizarre that someone who has run both The Age and the Herald Sun could be considered an inferior candidate to Prof Margaret Seares, who has no media or public company experience.
The WA News incumbents have moved quickly to discredit Seares' claims of independence by pointing out that she got here nomination form from the Stokes camp.
If Harris is overlooked by WAN shareholders as now seems likely, there's actually an even more suitable board that should snap him: Fairfax Media. With The Age's journalists in open revolt (see this latest Media Watch transcript), partly due to chairman Ron Walker's ridiculous conflicts of interest and manipulation of editor in chief Andrew Jaspan, Harris would be a perfect addition to that board which needs to establish some clear board protocols about editorial independence.
Finally, I should correct an earlier item about the proxy advisers and WA News. Ron Lee hasn't worked for CGI-Glass Lewis for more than a year and therefore wasn't involved in the flawed recommendation to unconditionally back the incumbent board.
However, the recommendation by Korn Ferry for the Seven Network is even more puzzling because the firm's Robert Webster did get a chance to interview Harris over the phone last Saturday.
Whilst everyone seems to agree that Peter Abery is the stand out candidate, it seems bizarre that someone who has run both The Age and the Herald Sun could be considered an inferior candidate to Prof Margaret Seares, who has no media or public company experience.
The WA News incumbents have moved quickly to discredit Seares' claims of independence by pointing out that she got here nomination form from the Stokes camp.
If Harris is overlooked by WAN shareholders as now seems likely, there's actually an even more suitable board that should snap him: Fairfax Media. With The Age's journalists in open revolt (see this latest Media Watch transcript), partly due to chairman Ron Walker's ridiculous conflicts of interest and manipulation of editor in chief Andrew Jaspan, Harris would be a perfect addition to that board which needs to establish some clear board protocols about editorial independence.
Finally, I should correct an earlier item about the proxy advisers and WA News. Ron Lee hasn't worked for CGI-Glass Lewis for more than a year and therefore wasn't involved in the flawed recommendation to unconditionally back the incumbent board.