Telecom's new man gets a quick taste of the heat

By PETER GRIFFIN telecoms writer

If Telecom's new board member Lindsay Pyne was under any illusion about shareholder unease at his appointment, he is no longer.

Sitting quietly amid suits from Telecom's auditor KPMG at the Telecom annual meeting in Auckland yesterday, Pyne watched and listened as shareholders questioned his suitability for election as non-executive director, citing a 1993 Securities Commission report that criticised the accounting practices of the Bank of New Zealand during his term heading it.

But the numbers stacked up for Pyne, and he was backed by 92 per cent of just over 1 billion votes cast.

Of the seven resolutions up for discussion, Pyne's election drew most criticism at a meeting where light-hearted grumblings about patchy Telecom service mixed with serious questions about everything from chief executive Theresa Gattung's pay to the sale of Telecom's mobile radio business to Team Talk.

Pyne's nomination drew vocal opposition from two fund managers with large Telecom shareholdings.

Brook Asset Management chief investment manager Simon Botherway said an overstatement of the BNZ's earnings in 1990 and Pyne's failure to warn shareholders of the need for a substantial recapitalisation of the bank amounted to a "damning indictment" of his record in corporate governance.

"If the best they can come up with is someone who is based in Thailand, hasn't had experience of New Zealand business in 11 years, [and] of whom there are lingering concerns among the investment community about, then it's a matter of concern for us all," Botherway, who controls around 19 million Telecom shares, later told the Herald.

The Shareholders' Association kept the pressure on.

Its director Ross Dillon said it was hard to understand what unique skills Pyne brought to the board when it already had at least four directors with banking backgrounds.

"Given Mr Pyne's history, and given that bitterness, I do not see it as a clever thing for Telecom to engraft that degree of opposition on to its board through Mr Pyne's appointment."

Pyne said he was "disappointed" at the reaction from the floor.

"The BNZ touched the lives of all New Zealanders," he said. "In its demise a lot of people were hurt."

Other resolutions eventually passed with substantial majorities also generated debate.

A resolution to increase Gattung's pay packet to more than $2 million - a base salary of $1 million, the rest in cash and shares and tied to the operating performance of the company - and grant her a further 1.5 million options was overwhelmingly passed.

But some shareholders said Gattung should stay at her current pay of $1.77 million until Telecom's share price and dividend improved.

"The average pay of the top people in Telecom is considerably less than the top people in Telstra, taking into account longer-term incentives," said company chairman Roderick Deane in defence.

Deane went into great detail fending off Shareholders' Association queries about the sale in 2000 of Telecom's Fleetlink business to rival TeamTalk for $36 million.

At the time of the sale, Active Equities, of which Telecom director Patsy Reddy is a shareholder and a director, held about 62 per cent of TeamTalk.

Critics say Reddy's involvement meant there should have been greater disclosure about the sale.

Deane said Telecom excluded Reddy from discussion of the sale.

He said there were no other takers for the Fleetlink business, which was "mature" and ripe for divesting.

He rejected claims that Telecom played a part in guaranteeing the loan secured by Team Talk.

Deane also attacked calculations used by the Commerce Commission to set the cost of the Kiwi Share, and its recommendation that Telecom's network be opened to rivals.

"Why would Telecom continue to stay at the leading edge of investment in the next generation network, for instance, if the regulator were to insist that its benefits must be delivered, at cost, to competitors?" he asked.

While Telecom's management left yesterday's meeting with its resolutions supported, the progress of the company in Australia and its overall recent track record concern some.

Botherway credited Gattung's deputies, chief financial officer Marko Bogoievski and chief operating officer Simon Moutter, with bringing fresh approaches to management but had less confidence in the chief executive herself.

"I don't think you can claim that her tenure's been an unmitigated success."

After listening as details of her pay were discussed, Gattung later said she felt "slightly uncomfortable" with the attention, but "that goes with the territory".