Further heat on Contact for heads to roll

Contact Energy is facing more pressure for heads to roll following the Origin merger debacle - this time CEO David Baldwin, on secondment from Origin since May, is on the block.

In a letter to deputy chairman Phil Pryke, Brook Asset Management executive chairman Simon Botherway writes: "The appointment of an Origin secondee ... can no longer be considered appropriate."

Botherway demands Pryke take measures to address "the implicit conflict of interest".

He argues that Origin is a prospective contractual partner for Contact with respect to fuel supply.

Origin has now also declared itself to be a potential competitor in terms of building its own generation, he writes.

Pryke responded by saying Baldwin would not be going and the independent directors were well aware of rules regarding related transactions.

"Appropriate protocols are in place to deal with the flow of information between the two companies," said Pryke. "David Baldwin was an outstanding appointment and had the full support of the board." He was required to act in the best interests of Contact.

"We are surprised that these issues are being raised now when in the course of discussions with institutional investors the benefits of combining the boards and management were regarded as immaterial."

Some fund managers offered only partial support for Botherway.

"In our eyes ... it is an issue and they've got no choice but to come back and explain how they will address these issues," Rickey Ward, domestic equity manager at Tyndall Investment Management, said yesterday.

But he said Baldwin could stay in his role as long as the board could resolve these issues satisfactorily.

On Wednesday night, Ward called for Pryke to step aside.

Walker Capital Management principal Craig Brown said Botherway had made a valid point. Brown wanted the board to consider whether Baldwin's position as CEO was an issue and - if it wasn't - provide reasons why.

Paul Richardson, BT Funds Management equities portfolio manager, said he would not support or oppose "a let's boot the CEO out move" now.

He said he did not have enough experience with Baldwin to have a problem with him.

"The fact that he's effectively an Origin secondee is part of life in owning a company which is majority owned by something else," he said.

Shareholders Association chairman Bruce Sheppard said he supported Botherway's stance and was planning a motion for Baldwin's removal.

Botherway also called on the three independent directors - Pryke, Tim Saunders and John Milne - to put themselves up for re-election.