The extraordinary outburst by Tower chairman Colin Beyer against his former managing director James Boonzaier raises, rather than solves, the issue of who is to blame for the group's problems.
Boards of directors are a crucial part of the corporate governance structure. They are the link between a relatively powerless group
of shareholders and the small and powerful management group who run a company.
The main role of the board is to monitor the chief executive and senior management and ensure that the company is run in the long-term interests of the owners - the shareholders.
Robert Monk, a leading authority on corporate governance in the United States, says one of the biggest challenges of corporate governance is to give management plenty of discretionary powers to run a company while holding it accountable for the use of that power.
Beyer shot himself in the foot when he said Boonzaier "had done a reasonably good job as chief executive while we were a mutual, but never quite made the transition to leading a listed company".
As Tower was listed in September 1999, why did it take the board nearly three years to identify that Boonzaier was not suited to running a listed company?
Did the board undertake an annual review of Boonzaier and, if so, why did it not pick up these problems earlier?
The most important issue as far as Tower shareholders are concerned is what happens from here in terms of earnings, directors and chief executive.
Beyer said he expected to announce a new chief executive before the end of the month but his comments on future profitability were particularly low-key.
Beyer (appointed 1989) and Lindsay Cuming (1995) are scheduled to stand for re-election at the annual meeting on March 27. Both should go because of the company's disastrous performance: Beyer has been a director for 13 years; and Cuming is based in Australia and should have spotted the group's problems across the Tasman.
Tower has an open registry with 123,000 shareholders. The only substantial stakes are AXA with 8.9 per cent, Tower Financial Services Group and its relevant subsidiaries, 6.6 per cent (can directors vote these shares in their favour?), and AMP, 5.6 per cent.
In most other countries institutional investors would be insisting that Beyer, Cuming and a number of other directors resign. Do our large institutions have the courage and leadership qualities to take a similar stance?
Star rating: Evan Davies
Evan Davies, managing director of Sky City Entertainment Group, is one of the country's best corporate executives.
When the Auckland Casino opened in February 1996, the same month the company listed, Harrah's held the casino management contract. Davies headed a small management team who monitored Harrah's performance, communicated with investors and evaluated future opportunities for the group.
His big challenge came in June 1998 when Sky City bought the management contract for $20.4 million and took over the operation of the casino.
Since then the company has gone from strength to strength under Davies' leadership. Its share price has more than doubled from its listing-day price of $3.20 and the annual dividend has risen from 16.25c to 38c (both figures have been adjusted for the recent two-for-one share split).
The one flaw on Davies' scorecard is the acquisition of a 74.4 per cent stake in Force Corporation (now called Sky City Leisure).
This necessitated a write-off of $27.9 million in the year to last June that has reduced net earnings growth since 1997, the company's first full year of operation, from 136 to 58 per cent.
But on a scoring system that gives three, two and one stars for an excellent, good and mediocre performance respectively, Davies scores an extremely satisfactory 12 stars out of a potential 15.
Performance Rating
Net earnings +58% **
Dividend +134% ***
Share price +135% ***
Strategy good **
Communications good **
Score 12/15
Base: February 1996 when listed.
Davies had more good news for shareholders on Friday when Sky City told the Stock Exchange that revenue at the Auckland and Adelaide casinos for the first five months of the year was 15 and 18 per cent ahead of the same period last year.
The company was also comfortable with present market expectations of net earnings between $95 million and $105 million for the full year.
At yesterday's closing price of $7.52, the stock has a mid-point prospective price/earnings ratio of 16 and a fully imputed dividend yield of 5.9 per cent.
These valuations are not too demanding, particularly when Evan Davies has shown that he is one of the country's best wealth-creating managing directors.
Powerco
Steve Boulton, of Powerco, will be forced to slow his fanatical expansion programme after retail shareholders failed to support his just-completed rights issue.
Powerco funded the recent $810 million acquisition of Vector's electricity and gas assets through $660 million of debt and $150 million of equity. The equity was raised through a $102 million institutional offer that was fully subscribed and a $48 million retail issue that had an $18.5 million, or 38.5 per cent, shortfall.
The shortfall was taken up by Macquarie Equities, in accordance with the underwriting agreement, and the underwriter has subsequently managed to place 86 per cent of these shares with institutions. Macquarie now holds just 1.6 million shares, or 0.5 per cent, of Powerco's total issued capital.
The shortfall occurred because the utility has 17,000 shareholders who received their shares in a general distribution and are not used to taking up rights issues; concern over the company's debt levels; a potential increase in electricity and gas regulation; and a general shortage of equity capital in New Zealand.
Recent statistics show that New Zealanders had only $6 billion, or 14.1 per cent, of their total managed funds in domestic equities and unit trusts at the end of September. This compares with $6.9 billion at the end of the June 1997 quarter.
By comparison, Australians had A$220.1 billion ($246.1 billion), or 35.2 per cent, of their managed funds in domestic equities and unit trusts, compared with A$112 billion in June 1997.
Shortages of equity mean that aggressive, expansion-oriented companies are overly dependent on debt to fund their growth. This places extra pressure on management and makes these companies more susceptible to regulatory and trading risks.
Auckland International Airport
When are individual investors going to get a decent break?
They have unattractive initial public offerings pushed down their throat but when Auckland City sells a 12.8 per cent stake in the city's airport at a big discount they are left out in the cold.
This year's three IPOs, Vertex, Skellmax and Paramount Property Trust, were heavily promoted to individual investors and are all trading below their issue price. Many of the same individuals would have been delighted to buy Auckland International Airport shares at $4.90 last week, compared with yesterday's closing price of $5.22, yet all the Auckland City shares went to institutions, many of them overseas.
Individual investors will not return to the market until they can participate in the more attractive share offerings.
* Disclosure of interest: none.
* bgaynor@xtra.co.nz
The extraordinary outburst by Tower chairman Colin Beyer against his former managing director James Boonzaier raises, rather than solves, the issue of who is to blame for the group's problems.
Boards of directors are a crucial part of the corporate governance structure. They are the link between a relatively powerless group
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