KEY POINTS:
The Indefatigable Tony Gibbs has put the cat among the pigeons with his call to disband the energy trust that controls Vector.
Some officials from Auckland councils - which will inherit the Auckland Energy Consumer Trust's 75.1 per cent control stake in Vector when it goes out of existence in 2073 - believe it's time to hasten the process by cutting out the middleman and ensuring that the 290,000 electricity consumers the trust represents are given shares equivalent to the net present value of future dividends.
Ten days ago, Gibbs, John Goulter and Greg Muir quit the board in protest at the leadership style of chairman Michael Stiassny and the trust's increasing interference in the day-to-day affairs of Vector.
Now Gibbs is publicly pushing for the trust to be disbanded and for its $1.9 billion Vector stake to be distributed among its capital (councils) and income beneficiaries (consumers).
The income beneficiaries' stakes could be worth $4000 or more, depending on how the interests of the councils are divvied up with those of the consumers. The councils would then decide whether to become direct shareholders in Vector, sell their stakes or, more likely, put the investments into a public body to fund Auckland infrastructural investment.
This move is logical and overdue for the company which distressingly remains captive to the snake pit activity of a bunch of politicians who compete to control the trust and what is NZ's largest diversified infrastructure network owner and manager.
It won't happen unless the councils and business people can persuade the Government to sharply bring forward the trust's self-destruction.
They need to indicate that trusts may be a fine way to represent smaller commercial utility companies but retaining trust ownership does not compute in exerting influence on one of NZ's biggest companies.
Commerce Commission chair Paula Rebstock's decision to question the way the trust had ensured its Auckland-based beneficiaries were favoured with lower prices by Vector at the expense of the company's other consumers put paid to the raison d'etre for the trust's existence.
If the company has to treat all consumers equally, the rationale for a trust to indulge in increasingly ridiculous special pleading on its beneficiaries' behalf is also lessened.
Disbanding the trust will not be easy to accomplish, given the obvious objections that will be raised by the five trustees. Trustees, like chair Warren Kyd and longtime trustee Karen Sherry, are used to wielding power over the commercial directors they appoint to run Vector. The trustees enjoy their influence in the community and, suggest some previous directors, the potential to pick up fat directors' fees and retirement benefits if they also lobby to gain appointments as Vector directors.
The Government and local councils might have to come up with an ego-saving stratagem - ASB Bank set up a high-profile trust to manage a special fund for donations and charitable purposes to release itself from the stranglehold of local political control. Particularly if the Government can be persuaded that Auckland's infra-structural investment needs should take priority over keeping the current bunch of trustee politicians happy.
The councils have tried to go down this route before but were foiled when they lost a nasty court battle.
Former Vector director Wayne Boyd was exercised sufficiently himself during his own period on the board to get an investment banker to look at options for changing the ownership and governance structure.
In Gibbs' case he argues:
The move will enable Vector to function as a "normal corporate" as befits a company with a $2.53 billion market capitalisation instead of being captive to the political whims and agendas of individual trust members;
It will end the conflict of interest between a trust which has wanted to skew Vector's charges towards its 290,000 Auckland customers (just 36 per cent of its total customer base) - which comprised the company's client base when it was split from the old Mercury Energy - rather than acting in the best interests of the 840,000 consumers Vector now represents after five years on the takeover trail;
It will put paid to the practice of trustees standing for re-election on promises to increase dividends for the income beneficiaries who elect them - something that may not be in the best interests of a company which has considerable debt.
Enquiries suggest this latter point was a particular bone of contention between the two trustee directors, who came back onto the board mid-year after getting Energy Minister David Parker's blessing, and the independent directors.
Vector's dividend policy is to distribute to shareholders all funds surplus to the company's investment and operating requirements as determined by the board. The target dividend payout ratio in respect of each financial year is 60 per cent of free cash flows.
But what was now at issue is whether the company would have to increase borrowings to pay dividends, to underpin promises some trustees made at the last AECT elections, instead of simply paying dividends from out of tax-paid profit.
Vector is now clearly in breach of its prospectus commitment that it would ensure good corporate governance through seven independent directors. Two were effectively fired within a year of the public listing. With Gibbs, Goulter and Muir gone, the board is evenly divided between the two independent directors, Stiassny and Bob Thomson, and the two trustee directors, Sherry and Shale Chambers, that the trust lobbied Parker to approve as directors.
The controversial decision to appoint the trustees as directors flies in the face of a key recommendation in a report the trust commissioned from an Institute of Directors' panel.
The IOD panel of three experienced company directors - Kerry McDonald (BNZ chair), Bill Falconer and Norman Geary - examined Vector's board and the governance arrangements between Vector and the trust a couple of years back.
The panel made two key recommendations:
Representatives of the trust should not be on the board of Vector;
The Vector board needed to be strengthened by the appointment of some heavy-weight directors.
Now that Gibbs, Goulter and Muir have walked, the company is bereft of top commercial experience.
Stiassny's performance as Vector's chair was also reviewed. He was felt to be making good progress in his first major company chairmanship.
But experienced directors told this column he has since become too much the instrument of the major shareholder and will face difficulties overcoming his autocratic image.
- HERALD ON SUNDAY
