Gaynor: Generosity reaches its limits

By BRIAN GAYNOR

The debate over golden handshakes for retiring Air New Zealand directors should never have been a major issue. The directors neither deserved, nor was Air New Zealand in a position to make, these payments and the retirees were wise not to ask for them.

Bonus payments to retiring directors are based on Listing Rule 3.5.2 of the New Zealand Stock Exchange, which states:

"An issuer may make a payment to a director or former director, or his or her dependents, by way of a lump sum or pension, upon or in connection with the retirement or cessation of office of that director, only if: (a) the total amount of the payment does not exceed the total remuneration of the director in his or her capacity as a director in any three years chosen by the issuer; or (b) the payment is authorised by an ordinary resolution of the issuer."

Most listed companies, including Air New Zealand, have adopted these provisions and have included them in their constitutions.

Air New Zealand has been extremely generous in the past and paid the full three-year entitlement to Bob Matthew (a golden handshake of $228,000), Sir Ron Trotter ($120,000), Paul Collins ($120,000) and Patsy Reddy ($120,000).

Why should directors representing a controlling shareholder be paid any bonus entitlement?

Air New Zealand's 1999 annual meeting approved an increase in directors' fees from $400,000 to $900,000.

As a result, the chairman's annual payment was raised from $76,000 to $160,000 and ordinary directors' from $41,000 to $90,000.

Sir Selwyn Cushing was paid $390,000 over the past three years, and if the company had paid out the full entitlement he would have received that amount.

But Sir Selwyn and the other directors did not deserve a golden handshake.

From the day Sir Selwyn became chairman of Air New Zealand to the day he resigned from the board, the company's sharemarket value plummeted from $1570 million to $200 million (adjusted for the $1.50 a share rights issue last year).

From the day he became chairman of Brierley Investments to the day he resigned from the board, its sharemarket value fell from $1500 million to $480 million.

In other words, during Sir Selwyn's greatest period of influence the combined market value of Air New Zealand and Brierley Investments plunged $2390 million, or 77 per cent, from $3070 million to $680 million.

So why does the Stock Exchange almost encourage companies to give golden handshakes to retiring directors without setting any performance criteria?

Surely the best way to align the interests of directors and shareholders is to issue options to directors that are performance based. If the company is successful directors will be well rewarded and if it is not they will be confined to their annual fees.

Fisher & Paykel

The positive side of NZ business was on display at the Ellerslie Convention Centre on Monday.

It was Fisher & Paykel's annual meeting, which also approved the separation of the group's healthcare and appliances operations.

Shareholders were in a particularly happy mood as the company's share price had shot up from $7.30 to $13.35 since last year's annual meeting.

Only three questions came from the floor. One man wanted to know why the company was selling Hill & Stewart (Fisher & Paykel didn't want to be in retailing) and fund manager Michael Long asked what would happen if the poor performance of the Nasdaq market delayed the separation process (it could be delayed until early next year).

A shareholder raised the only negative note when she asked why directors were proposing a big rise in directors' fees when "investors had been hit by the Air NZ disaster and reduced income because of lower interest rates".

Chairman Sir Colin Maiden said that the higher fees were due to an increase in the number of directors and the more exacting demands on the Healthcare board when it listed on the Nasdaq Stock Exchange.

There was no comment on the proposal to pay a director living in Australia a higher fee than the NZ resident directors. Is this the beginning of a trend?

Chief executive Gary Paykel was in a particularly upbeat mood. He reported that the Healthcare division was going very well and September 11 had had little impact on its activities.

The appliance market has become more competitive in Australia and New Zealand.

In the United States the division has been growing steadily, and was heading for a record month in September until the terrorists struck. This had a big impact on sales but September was still its second best month in the US.

The meeting ended on a high note when the board bade farewell to retiring director Maurice Paykel, aged 87. He and the late Sir Woolf Fisher started the company in 1934, and Doreen Norton, who joined it in 1944, gave an eloquent description of its early days.

Sir Colin, who is retiring as chairman, closed the meeting as he fought back the tears and invited shareholders to participate in a social hour of celebration.

It proved to be a welcome respite from the more sobering events of the past few weeks.

Montana

Peter Masfen was also in a happy mood on Monday as his great success story, Montana Group, delisted from the Stock Exchange.

Montana Wines was floated in 1973 and had a fairly rocky history until it was taken over by Mr Masfen's Corporate Investments for $25 million in 1987. Corporate Investments changed its name to Montana Group in 1999, and Allied Domecq's $4.80-a-share offer valued the company in excess of $1 billion.

An original Montana shareholder who invested $10,000 in 1973 would have realised total returns of $77,300 by selling at $4.80 a share.

Corporate Investments shareholders have done even better. The company started its Stock Exchange life as Allied Group in 1974, was taken over by Collingwood Holdings in 1978 and acquired by Corporate Investments in 1985.

An original investment of $10,000 in Allied Group would have cost $20,200 after taking up a subsequent rights issue.

This $20,200 would have become $362,000 for shareholders who waited for the final $4.80 a share offer.

While the focus has been on Air New Zealand in recent weeks, it is important to remember that many NZ businessmen have produced outstanding returns for shareholders. Peter Masfen is an excellent example of this.

* bgaynor@xtra.co.nz