Investors seek veto powers

By ELLEN READ markets writer

Small shareholders are launching an attack on perceived boardroom excess, demanding the right to veto golden handshake payments for retiring company directors.

Their lobby group, the Shareholders Association, will ask the New Zealand Stock Exchange (NZSE) to change its listing rules to require shareholder approval for all payments to retiring directors.

NZSE Listing Rule 3.5.2 allows companies, if their constitution so provides, to pay retiring directors up to three years' remuneration.

Many New Zealand companies have adopted constitutions that allow payment of retirement gratuities to directors.

The listing rule does not, however, set any criteria for payments.

Shareholders Association chairman Bruce Sheppard said that, in effect, the rule allowed the directors of a company to vote remuneration to other directors.

As a result, the association intended to lobby the NZSE to change listing rule 3.5.2 to ensure that any payments made to directors should be permissible only after a resolution of shareholders.

Mr Sheppard said the issue of directors' retirement allowances was topical because of the Air New Zealand troubles.

"While the continuing board of Air New Zealand reached the right decision [in not paying retiring directors a benefit] in that particular company's circumstances, the issue of retirement allowances to directors is a concern to many shareholders in most New Zealand companies."

Mr Sheppard said directors' fees were normally set at a level which could reasonably be assumed to include an adequate allowance for superannuation and retirement.

Under the present rules, the six Air New Zealand directors who resigned on the eve of the Government's $885 million bailout of the company were eligible for large retirement payments.

Former chairman Sir Selwyn Cushing, who earned $160,000 in directorship fees last year, could have been eligible for almost $500,000. A fellow director, former State Owned Enterprises Minister Philip Burdon, and Brierley chief executive Greg Terry could have received between $135,000 and $270,000 each.

Directors' Institute chief executive David Newman said it would be inappropriate for shareholders to vote on retirement payments.

"I think that termination benefits for directors are in some cases quite appropriate, so I don't think it's something the shareholders necessarily need to form a view on."

Even when a company was not performing well, retirement payments remained an issue for the board, Mr Newman said.

"There's no evidence that retirement payments or termination payments have been abused," he said.

"[Just because a company may be performing badly] that doesn't mean that the directors haven't done what they ought to have done. When companies aren't performing is often when the directors put the hours and the effort in and in many cases that's [unseen] by the shareholder."

If consulted by the NZSE, Mr Newman said his response would be that present rules were appropriate.

NZSE chairman Simon Allen would not comment on the pros and cons of the debate.

"We will listen, obviously, and consider it and consult. I wouldn't prejudge the results of any proposals."

Small shareholders have in the past been successful in blocking payment of retirement allowances.

In March, small shareholder Graeme Bulling blocked a bid by Restaurant Brands to pay large retirement allowances.

Mr Bulling successfully argued that a director should be paid no more than 10 per cent of the total remuneration received during his or her term of office, and that the payment must be authorised by all shareholders at a meeting.

That victory was totally predictable, said Mr Newman. "I think it's an emotional issue for shareholders," he said.

"Whenever companies go to shareholders for an increase in directors' fees you get a minority of shareholders, and they always are a minority, who feel somehow that you should expect maximum performance by directors but pay them the minimum directors' fees. That's a natural tension and I think it's got to be one that's managed by the board."

Mr Newman said companies must disclose retirement payments so disgruntled shareholders would have the "ultimate weapon" of voting directors out of office.

A recent Contact Energy annual report attracted attention by showing that two directors, Andrew Thomson and Brian Wood, were paid a retirement allowance of $65,000 each, compared with annual directors' fees of $29,200. There was no explanation in the report of how the $65,000 was derived.

Australian Stock Exchange listing rules state that a shareholder vote must be held if retirement payments exceed 5 per cent of the equity of the company.