Brian Gaynor: Choosing directors gets heated

Harvey Norman's Gerry Harvey defended his wife Katie Page against investors who wanted her off the company's board. Photo / Getty Images

COMMENT:

The appointment and re-election of directors continues to be hugely controversial.

The recent Delegat Group annual meeting raised numerous issues, as will the upcoming Hallenstein Glasson and New Zealand Oil & Gas meetings.

Last week's Harvey Norman annual meeting in Australia, where a proxy adviser firm recommended shareholders vote against the re-election of chief executive Kay — "Katie" — Page, generated huge media coverage. This was partly because company co-founder and chairman Gerry Harvey is married to Page.

Next week's Westpac meeting, in Sydney on Thursday, should be another fiery event.

Delegat's meeting, held in Auckland on Tuesday, had two directors standing for re-election. These were managing director John Freeman and independent director Shelley Cave.

Cave was appointed to the Delegat board in September 2016, shortly after Jane Freeman announced she would not be seeking re-election at the December 2016 annual meeting.

Cave was described as a former "corporate lawyer for 23 years, and a partner of Simpson Grierson for 12 years. In her legal career, she acted across a wide range of industry sectors and has significant experience in compliance and corporate governance".

Delegat has six directors: executive chairman Jim Delegat and his sister Rose Delegat, who jointly own 66.1 per cent of the company; Bob Wilton, who was appointed in 2006; John Freeman, Shelley Cave and Alan Jackson.

Cave and Jackson are the only independent directors.

Cave stood for re-election and received 99.99 per cent of votes in support, but said she was stepping down from the board for family reasons as soon as a replacement could be found.

After the meeting, Jim Delegat said he had seen 14 candidates but had not found the right person.

This highlights the dilemma facing New Zealand companies, as we have become trapped in a debate about independent versus non-independent directors, male versus female, the length of tenure and the age of directors.

Surely it should be all about competence, particularly the skills mix between directors and senior executives, rather than strict appointment formulas. We also need directors who will serve more than three years, as it takes at least this long to fully understand a listed company.

Jim Delegat, executive chairman of Delegat. Photo / Delegat

Delegat is a well-run company, with a market value in excess of $1.1billion, but it remains in the NZX SmallCap Index. This is because its shares are relatively illiquid, mainly because of the Delegat family's large holding, with only 4425 shares per day traded during November.

Hallenstein Glasson, another SmallCap Index company with a sharemarket value of $380m, will hold its annual meeting in Christchurch on Wednesday. Malcolm Ford and Michael Donovan are standing for re-election.

The current board consists of seven directors, four of whom have more than 25 years' experience. These are: chairman Warren Bell, who was appointed to the board in 1986; Tim Glasson, appointed in 1985; Michael Donovan (1990); and Graeme Popplewell (1985).
Glasson is the largest shareholder, with a 20.0 per cent stake.

The other directors are: Malcolm Ford (2010); Karen Bycroft (2014); and Mary Devine (2018). The latter was appointed group managing director this year.

The main issue at the Hallenstein Glasson meeting will be the proposed re-election of Michael Donovan to the board. This is a major issue because Donovan was the majority shareholder and a director of the failed retailer Wild Pair.

The NZ Shareholders' Association has noted that Donovan's "Wild Pair was liquidated in August 2017 with a distribution to unsecured creditors of 10.6 cents in the dollar".

The association has advised members that it will "request more information on both the issues that occurred at Wild Pair and the reasons why the board believes Mr Donovan should still be seen as an independent director despite his extended period of service and likely collegial relationships with other long standing board members".

It concluded: "If we obtain satisfactory responses to our queries, we will vote undirected proxies IN FAVOUR of this resolution, otherwise we will vote against".

The Shareholders' Association is getting soft if it endorses a director who has controlled a 20-plus store operation that went into receivership and will have been on the Hallenstein Glasson board for 32 years if he is re-elected and sees out the full three-year term.

New Zealand Oil & Gas, which is another SmallCap Index company with a market value of almost $100m, will hold its annual meeting in Wellington on Thursday.

There are four contentious resolutions on the agenda, particularly the re-election of independent director Rod Ritchie. Ritchie strongly recommended the recent low-priced takeover offer from NZOG's controlling shareholder, which was comprehensively rejected by minority shareholders.

Ritchie's re-election, which is Resolution 2, is strongly supported by the NZOG board, but the board has opposed Resolutions 3 and 4, which are the election of shareholder-nominated candidates Brian Roulston and Samantha Sharif.

Roulston and Sharif have more impressive CVs than Ritchie, including energy experience, yet the NZOG board opposes Roulston and Sharif because Ritchie's election "would fill the seven person quota of board appointments".

The NZOG board has clearly demonstrated, through its support for the low-priced takeover proposal and the opposition to the Roulston and Sharif board nominations, that the interests of minority shareholders are not one of its major priorities.

The NZOG board is also recommending the rejection of a shareholder proposal that would require the NZX-listed company to release all relevant reports and analysis on the Australian Ironbark exploration project to shareholders.

Hallenstein Glasson will hold its annual meeting in Christchurch on Wednesday. Photo / File

This will also be hotly disputed at next week's meeting because the lowball independent valuation of this prospect was one of the main reasons why shareholders rejected the recent scheme of arrangement proposal.

Harvey Norman's annual meeting was held in Sydney on November 27.

The company was co-founded by chairman Gerry Harvey in 1982 and his wife, Kay Page, was appointed chief executive in 1999. Harvey owns 31.3 per cent of the $5.3b retailer while Page owns 1.6 per cent.

Proxy adviser Ownership Matters recommended that shareholders vote against non-independent director Page because "the Harvey Norman board contains only two out of ten members who are considered independent. With a lack of transparency in the company's accounts and operations, investors should seek majority board independence and vote against all non-independent or executive director re-election".

Eighty-year-old Chairman Harvey was at his fiery best as he opened the meeting with strong criticism of proxy advisers, the organisations that advise large institutional shareholders how they should vote at annual meetings.

Harvey said: "We run the company with family involvement. The success of the business demonstrates this works for Harvey Norman. Everyone has the right to evaluate the company's position and continue to hold or purchase or sell their shares accordingly".

Harvey also slammed activist shareholder Stephen Mayne, who had been nominated to join the Harvey Norman board. The chairman told shareholders Mayne had unsuccessfully stood for positions as a director of 49 ASX-listed companies.

Page received 966.1 million shares in support and 94.8 million against while Mayne received 85.5 million shares in support and 951.6 million against.

Finally, the heat will be turned on the Westpac board next week with proxy adviser International Shareholder Services (ISS) recommending shareholders vote against high-profile director Peter Marriott and Nerida Caesar, who is also on the bank's risk and compliance committee.

But the main questions shareholders will want answered are: how did a bank with a $88.8b market value and a highly experienced and competent board get itself into such a mess and are there other undisclosed skeletons in its cupboard?

- Brian Gaynor is a director of Milford Asset Management.