Brian Gaynor 's Opinion

Brian Gaynor is a Weekend Herald columnist.

Brian Gaynor: Shareholders should demand poll votes

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Some Apple shareholders opposed Al Gore's re-election to the board. File photo / Dean Purcell
Some Apple shareholders opposed Al Gore's re-election to the board. File photo / Dean Purcell

The annual meeting season is gaining momentum with a number of contentious issues coming to the fore.

These include shareholder rights, voting procedures, transparency, the election of directors and the remuneration of directors and senior executives.

Last week's Mainfreight annual meeting highlighted some of these issues.

The meeting was held at 4pm at the Villa Maria Estate near Auckland Airport. This is an excellent venue but not the easiest to get to, particularly in rush hour. There was a reasonable attendance but not as big as one would expect for such a successful company.

Individual investors prefer late morning or early afternoon meetings so they can avoid peak hour traffic. Some also use public transport and one Mainfreight shareholder told the meeting that the Villa Maria Estate attendance was low because there was no public transport to the venue.

One of the main issues was the re-election of Bryan Mogridge to the board. Mogridge has become a controversial figure in recent months because he chairs Rakon, which has been one of the worst performing NZX stocks, and George Kerr's Pyne Gould Corporation.

Pyne Gould's auditors resigned in May because of "unresolved differences as to whether certain transactions should be disclosed as related party transactions, and concerns over the adequacy of governance and management of financial reporting".

The Christchurch-based company was back in the news last month when High Court proceedings revealed that Kerr had initiated the transfer of $28.2 million from a conservative cash management fund to the high-risk Torchlight Fund No 1.

Pyne Gould subsequently had to suspend withdrawals and distributions from one of its funds because of a "surge of applications for redemptions".

Mogridge told the Mainfreight meeting that he had kept the transport company fully informed of the developments at Pyne Gould and all the money had been repaid by the Torchlight fund.

Chairman Bruce Plested called for a show of hands and declared Mogridge re-elected after a majority voted in the latter's favour.

This included a reasonable number of Mainfreight staff shareholders in attendance.

Mogridge's re-election highlights the issue of voting and transparency at annual meetings.

Each share is entitled to one vote and shareholders can either attend or lodge a proxy 48 business hours before the meeting begins.

These proxies can either give discretion to an attendee, including the chairman, or can have specific voting intentions.

Mainfreight has 2900 shareholders and only a small proportion of these attend annual meetings. The rest, particularly large institutional shareholders and KiwiSaver funds, vote by proxy.

Nevertheless, most voting is by show of hands.

However, a chairman usually requires the share registry to hand out voting papers to registered shareholders and proxy holders if a contentious issue is on the agenda.

Voting papers were handed out to Mainfreight shareholders and, based on this, there was an assumption that Plested would call for a poll.

However, he asked only for a show of hands and quickly moved on to the next resolution.

The NZX requires listed companies to include a section on voting at shareholder meetings in their constitutions. These sections are fairly standard and Mainfreight's is as follows:

"At a meeting of shareholders a poll may be demanded by:

(a) Not less than five shareholders having the right to vote at the meeting; or

(b) A shareholder or shareholders representing not less than 10 per cent of the total voting rights of all shareholders having the right to vote at the meeting; or

(c) A shareholder or shareholders holding shares that confer a right to vote at the meeting and on which the aggregate amount paid up is not less than 10 per cent of the total amount paid up on all shares that confer that right; or

(d) The chairperson.

"For the purpose of this clause, the instrument appointing a proxy to vote at a meeting of the company confers authority to demand or join in demanding a poll and a demand by a person as proxy for a shareholder has the same effect as demand by the shareholder.

"A poll may be demanded either before or after the vote is taken on a resolution. The demand for a poll may be withdrawn."

The problem with this clause is that most institutional shareholders do not attend annual meetings and are not in a position to call for a poll.

Therefore they can be disenfranchised if an annual meeting is held in a remote location and is stacked with related parties and/or employee shareholders.

There is absolutely no suggestion that Mainfreight did this but hand voting is outdated and lacks transparency.

In Delaware, where many United States companies are registered, there is a requirement that "all elections of directors shall be by written ballot".

These poll results are then lodged with the Securities and Exchange Commission for everyone to see.

For example, the figures for Apple's annual meeting this year show that a substantial number of votes were cast against the re-election of former US vice-president Al Gore whereas the re-election of chief executive Tim Cook won overwhelming support.

New Zealand shareholders should be demanding poll votes, particularly on contentious issues and on all special resolutions where a 75 per cent majority is required.

These voting figures should be released to the stock exchange.

Why should shareholders accept the simple statement that a director has been re-elected, without giving any voting figures, when we would be appalled if an electoral officer declared an MP re-elected without releasing the number of votes received by each candidate?

Another issue is the continuing increase in director and senior executive remuneration at a greater pace than earnings and dividends.

This development is reflected in the accompanying table of the aggregate figures of Fisher & Paykel Appliances, Fisher & Paykel Healthcare, Mainfreight, Ryman Healthcare and Trust Power.

These are the NZX50 Gross Index companies with March 31 balance dates that have released their 2012 year annual reports.

The figures, which compare the 2012 year with the pre-recession 2007 year, show that combined EBIT increased by 8.5 per cent, dividends by 11 per cent, the top five employees' remuneration by 30.8 per cent and directors' fees by 30 per cent.

Retained earnings surged by 93 per cent but companies in this country normally have a low level of undistributed earnings compared with dividends.

Ryman Healthcare and Trust Power have been the outstanding performers in terms of earnings and dividend increases yet their senior executives and directors are paid less than their peer group at F&P Appliances, F&P Healthcare and Mainfreight.

This belies the argument that the best performing companies need to pay high salaries in order to attract the most talented individuals.

However, the other side of the argument is that F&P Appliances, F&P Healthcare and Mainfreight need to attract individuals with overseas expertise because they have substantial overseas operations although neither F&P Healthcare nor Mainfreight have an overseas-based member on their boards.

Annual meetings are the ideal time to debate the distribution of company surpluses between dividends, retained earnings, senior executives and directors. If shareholders don't stand their ground then more surpluses will be allocated to senior executives and directors instead of dividends and retained earnings.

Brian Gaynor is an executive director of Milford Asset Management.

- NZ Herald

Brian Gaynor

Brian Gaynor is a Weekend Herald columnist.

Brian Gaynor has written a weekly investment column for the Weekend Herald since April 1997. He has a particular particular passion for the NZX and its regulation. He has experienced - and suffered through - the non-regulated period prior to the establishment of the Securities Commission in 1978 and the Commission’s weak stewardship until it was replaced by the Financial Markets Authority (FMA) in 2011. He is also a Portfolio Manager at Milford Asset Management.

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