Vector chairman Michael Stiassny. Photo / Getty Images
COMMENT: The bitter clash between Vector chairman Michael Stiassny and Entrust chairman William Cairns is a clear example of Auckland's continuing struggle to establish and maintain effective private/public partnerships.
Vector has had several corporate governance conflicts, while Ports of Auckland has been a disappointment, both when listed and since delisting in 2005.
The energy group is 75.1 per cent owned by Entrust, formerly known as the Auckland Energy Consumer Trust (AECT). Entrust's five trustees are elected by approximately 302,000 eligible consumers, with elections held every three years.
The next election is on Friday, October 26, with the candidates announced this week.
Meanwhile, the private/public partnership model has been more effective in the Bay of Plenty, where Port of Tauranga is 54.1 per cent owned by Quayside, the investment arm of the local regional council.
Why does Vector have regular board splits while Port of Tauranga has been relatively conflict free?
The AECT was established in 1993 to look after the interests of its beneficiaries, the more than 300,000 Auckland and Manukau City households and businesses that received electricity through the Vector network. The trust was established to run for 80 years, until 2073, and was assigned 100 per cent ownership of Vector.
The February 1998 Auckland electricity crisis focused attention on the company and its corporate governance.
The Report of the Ministerial Inquiry into the Auckland Power Supply Failure concluded that it was not best practice for elected AECT trustees to be directors of the network company as their conflicting duties diminished the board's effectiveness.
AECT representative Karen Sherry resigned from the Vector board following the release of this report.
Nevertheless, in April 2002 AECT trustee John Collinge was appointed to the Vector board.
This caused major problems two years later when a new board of AECT trustees, elected by beneficiaries at the October 2003 election, decided it was no longer appropriate to have an AECT trustee on the Vector board.
Collinge refused to resign and left only after the AECT proposed a special resolution of shareholders to remove him. This was a forerunner to the Stiassny developments this week.
Just over four months later, in October 2004, Tony Gibbs, John Goulter and Greg Muir were appointed to the Vector board following a comprehensive review by AECT.
Trust chairman Warren Kyd was quoted as saying "the new directors' proven ability and wide variety of experience will add strength to the existing board in meeting the challenges ahead".
At the time of Vector's IPO in mid-2005, which resulted in AECT's shareholding falling from 100 per cent to 75.1 per cent, the newly listed company had seven directors: Stiassny, who was chairman, Gibbs, Goulter, Muir, Donald McLaren, Brian Plimmer and Robert Thomson.
The prospectus emphasised the importance of good corporate governance and the independence of all seven directors.
The IPO was highly successful but shortly after there were rumours of a dysfunctional board with directors shouting at each other in meetings.
McLaren resigned in April 2006 and three months later two AECT trustees, Shale Chambers and former Vector director Karen Sherry, were appointed to the listed company board. Sherry, who has been an AECT/Entrust trustee since October 1994, was a Vector director during the 1998 Auckland electricity crisis and is standing for re-election at next month's Entrust election.
The appointment of Chambers and Sherry in 2006 was a dramatic reversal of AECT policy, particularly as Kyd, who was still chairman of the trust in 2006, had said during the Collinge dispute that "having a trustee in a position of potential conflict [on the Vector board] is not a desirable position".
Vector's corporate governance problems burst into the open again in December 2006 with the dramatic announcement that Gibbs, Goulter and Muir had resigned because of ongoing concerns with the company's governance and Stiassny's leadership.
The departing directors made an unprecedented attack on their former chairman, accusing him of being autocratic, uncommunicative and making policy decisions behind their backs. One claim was that Stiassny and an AECT representative met the Commerce Commission without the chairman telling his fellow directors or Vector management.
The three resignations clearly showed that the AECT was in control of Vector and supported Stiassny, although it is important to note that the AECT previously supported Gibbs, Goulter and Muir.
One of the issues with Vector is that the trust represents just over 300,000 Auckland and Manukau City customers yet the listed company has acquired more than 300,000 additional customers in other areas that are not beneficiaries of the trust.
Entrust recently announced an annual dividend of $350 for beneficiaries.
Vector continued to be racked by controversy, with one published report describing the 2007 annual meeting as reminiscent of Jonestown, the infamous Jim Jones sect compound in Guyana where 909 individuals died in November 1978. There was heavy security at the meeting, cameras were prohibited and security staff were instructed to exclude two shareholders from the meeting.
This columnist has found that shareholder meetings chaired by Stiassny are frequently disappointing because he has a relatively uncommunicative style and is a difficult person to get a straight answer from.
Stiassny has continued to chair Vector but four months ago Entrust chairman William Cairns announced that "at an Entrust meeting this week, the re-election of Mr Stiassny as a director of Vector at the September 2018 Vector AGM was discussed, and a decision was made to not support his re-election".
Stiassny told the Herald he had always served Vector with the full support of the majority shareholder but this support had been withdrawn.
Entrust had commissioned a report on Vector's corporate governance, with the report concluding that the Vector board needed refreshing and Stiassny's re-election should not be supported.
There is no question that the Vector board needs refreshing, as the average tenure of the seven directors is over nine years and Stiassny has been a director for 16 years.
However, it should be noted that Sherry and Michael Buczkowski have been on the trust board for 24 years and 18 years respectively and are both seeking re-election at next month's election.
Entrust has two representatives on the current Vector board — Sherry and James Carmichael. Sherry has been on the listed company board for nearly 16 years, in two different periods, and Carmichael 10 years.
Entrust can be accused of setting one rule for Vector but a different rule for its own trustees.
All hell has broken out in the past few days, with Vector announcing it would hold its annual meeting on October 29, a month later than the last two annual meetings and shortly after the preliminary Entrust election results are expected to be released.
Cairns said that Stiassny's behaviour has changed since May and he had made several decisions the trust did not consider were in the interests of shareholders. Stiassny claimed that Cairns wants to sell Vector, an accusation that Cairns denies.
Sherry was quoted as saying that Stiassny's removal had been unprofessional and lacking transparency.
On Thursday, Entrust announced it had asked Vector to call a special meeting on or before October 5 to formally remove Stiassny before the annual meeting on October 29.
Unfortunately, most of the problems between Entrust and Vector are recurring because of the flawed structure of their relationship, particularly the ability of Entrust to appoint its own trustees to the Vector board.
These recurring issues include: different views on the appropriateness of appointing trustees to the Vector board; the appointment and removal of Collinge; the resignation of three directors in 2006 and criticisms of the way Stiassny chairs the company.
By contrast, Bay of Plenty Regional Council has no rights to appoint directors to the port company board, although Quayside, its investment vehicle, has two directors.
These are Rob McLeod and Doug Leeder. Leeder is an elected councillor and chairman of the Bay of Plenty Regional Council while McLeod in not a councillor.
The Quayside/Port of Tauranga relationship is much more robust than the Entrust/Vector arrangement and unless the latter structure is reorganised, Vector will continue to have a fractured relationship between its public and private partners.
- Brian Gaynor is an executive director of Milford Asset Management, which holds shares in Vector on behalf of clients.
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