Stephen Bartholomeusz thinks Crikey has money-making ambitions that conflict with our activist goals. We beg to differ.

It was an interesting column and relatively accurate although there are a few points of clarification worth noting.

Firstly, read what Bartho had to say.

Crikey, shareholders are starting to get Bolshie

By Stephen Bartholomeusz

Published in The Age and SMH on November 4

The grey flannel brigade needs to monitor the anger backing a man in a green foam suit.

Earlier this week proprietor Stephen Mayne wrote a lengthy, plaintive complaint on his Web site about the lack of coverage his latest burst of shareholder activism has had in the mainstream press. Given his recent successes, his frustration has some legitimacy.

Mayne, who claims to have attended 200 annual meeting in the past two years, has been lifting his averages this AGM season. On Thursday alone, he bobbed up at four meetings in two States.

He has nominated for boards including the Australian Stock Exchange, Telstra, AGL, Westfield and the National and Commonwealth banks. He attempted, but failed, to nominate for the John Fairfax board.

Last week, remarkably, he attracted 40 per cent of the primary vote in his attempt to become a CBA director. In other words, Mayne is having a surprising impact, and attracting surprising levels of support from shareholders, mainly small shareholders, for someone who sometimes appears at meetings and functions in a green foam suit.

He’s an interesting phenomenon because he represents the emergence of a new type of shareholder activist. There have always been maverick, publicity seeking shareholders. In recent years a new form of activist has emerged, groups wanting to use the forums provided by annual meetings to pursue social or political agendas.

Mayne is quite different and more complicated. In essence, however, he is a professional activist trying to build a business out of his activism.

His Crikey site, with its odd cocktail of aggressive, opinionated, top-of-the-head journalism and corporate activism, is a commercial endeavour, a subscription-free traffic-generator for his activist, subscription-driven site,

Mayne harbours ambitions of supplanting the Australian Shareholders Association as the representative of small shareholders. He wants their 5,000 or 6,000 members and he wants their subscription fees. He also has longer-term aspirations to build a funds management business based on activism, similar to the Hermes funds in the UK.

Mayne is too complicated a character to define simply. He is entrepreneurial and interested in wealth. He is also an ego-driven self-publicist and a very good one. He is also, however, something of a crusader who believes in his self-appointed role of protecting the little guys.

Whether his motives are pure or otherwise, Mayne asks good and tough questions at meetings and encourages, though the demonstration effect, more aggressive participation by other small shareholders. He could, of course, ask the same questions outside meetings in his other role as journalist, and perhaps even get better answers in a less public forum, but that wouldn’t serve his commercial purpose, nor have the same demonstration effect.

There is something disquieting about the notion of commercially motivated activism, let alone activism successful enough to convince so many CBA shareholders that a 31-year-old without any history of demonstrated commercial success was a credible candidate for their board. Mayne himself appears to have been taken aback by the support. He is not standing for boards to win, but to win visibility.

Does it matter if his motives aren’t entirely pure if the effects are useful? Probably not. His profit motive might not be the same as those of other shareholders at the meetings he attends – his primary motive is to make money from them, rather than for them – but he does throw spotlights on issues that are relevant to those shareholders and encourages them to be more active in protecting their own interests.

There has been a theme to some of Mayne’s campaigns this meeting season. With all the financial institutions to whose boards he has nominated, his platform has advocated them becoming more activist in their funds management operations “to create a greater culture of shareholder pressure in Australia”.

The objective is a fine one. While there has been a rapid increase in the level of individual share ownership of Australian companies, the real clout remains with the institutions. Most fund managers are interested only in financial performance, not governance issues and few are prepared to challenge an incumbent board in an open forum.

Mayne’s point of attack, however, is probably misguided. The CBA or NAB boards can’t instruct their fund managers to vote or insist that they adopt activist stances. The managers, not the bank directors, owe fiduciary responsibility to their clients and have to decide how to act in their interest. Following instructions from their boards could represent a compromising of their responsibilities. Some managers argue that the simple costs, in dollars and time, of determining a view on an issue, organising the appropriate voting authorities and then voting can’t be justified – that the clients’ interest is better served if they focus on performance.

In some overseas jurisdictions, however, voting rights are seen, quite reasonably, as having actual value. If fund managers don’t at least consider whether or not to exercise those rights, it is arguable that they aren’t fulfilling their fiduciary obligations.

The experience of activist funds like Hermes, or Calpers in the US, tends to suggest virtue is rewarded and that managers actively pursuing better corporate governance from companies they invest in can add and/or protect significant value for their investors or beneficiaries.

In any event, it would be preferable if the managers came to the conclusion themselves that agitating for better governance, and insisting on better performance, can be justified on performance grounds. Or that their clients helped them come to that conclusion. There is some evidence that is occurring, although the progress is frustratingly slow.

Perhaps the most interesting aspect of Mayne’s success in convincing small shareholders to support him in such surprising numbers is that his profile and support levels are out of proportion to the success of Crikey. It appears to have a very modest subscription base and its content is often shallow and uneven, as one would expect given the extent to which its main resource – Mayne – is stretched.

What that might suggest is that the mood of small shareholders is changing and becoming more restless, aggressive and organised, perhaps sparked by the explosion in senior executive and non-executive director remuneration and incentives and, in many instances, the absence of a direct enough, or reasonable enough, relationship between performance and rewards.

If Mayne were simply a visible signal of a broader trend in shareholder behaviour, incumbent directors would have more to be concerned about than having to deal with the distractions and irritations of an activist.

Rising small shareholder activism and, from a lowish base, an increase in the interest of institutions in governance-related issues, could re-balance the relationship between the insiders – boards and managements – and their owners, big and small.

Now Bartho is an old colleague of Crikey’s. We worked together on The Age in 1992 when I was banking writer. In many ways he was a form of mentor as I regularly pumped him for information and discussed the various issues happening in the market.

But it should be noted that a contributor to Crikey gave Bartho a big spray when I was in the US in June. Bartho was most upset about it and fired off a long letter attacking Crikey and rebutting the column.

He returned to the same themes last week but in my view has overstated the whole wealth and conflict of interest thing.

His basic starting point appear to be that there is something wrong with trying to agitate for good causes whilst also trying to survive financially.

What does he want to do? Become a door opening a PR flunky like hundreds of other journalist who sell their public interest souls for hard cash and a comfortable life.

If Bartho had called before going to print, he would have been assured that Crikey has been a major drain on my finances and this is partly because the commercial side of it has been given such a low priority.

We launched on February 14 but didn’t finally get around to banking our credit card subscriptions until August this year.

And so far we have not taken any paid advertising, partly because it would start to muddy the waters and give us commercial conflicts and partly because we haven’t chased it. Fighting the good fight has been a higher priority.

I could have tried doing contra deals on air fares and hotel accommodation like Rash Ash Long does with his Media Flash, but I’ve preferred to remain completely pure and capttured by no-one.

Similarly, if we wanted to maximise subscriptions we would post a lot more content behind the subscription wall on but thus far have preferred to give away most of our content for free on Crikey.

People keep telling us that to create value we need to get the archive up and build up a large database of email addresses but we haven’t done this so far.

Putt simply, if I was so focused on wealth I’d have stayed on the Financial Review earning $105,000 a year.

Instead, I quit out of principle to run against Jeff Kennett and after burning bridges with all the the major media outlets we have poured about $100,000 into a business that has so far generated meagre revenues of about $12,000.

There a dozens of journalists in Australia who get paid for radio spots or charge fees when speaking at conferences and the like.

I have not asked for a dollar out of the ABC or RRR for my weekly spots and have never charged for a speech which are now running at about one a week. I had a beer with a journalist in Sydney yesterday who gets paid $3000 a speech.

If you want to find any more detail as to my disinterest in making money then you should speak to my dad, who does Crikey’s banking and keeps telling me I’m going out the back door, or my wife Paula Piccinini who is about to take over my $315,000 mortgage.

Then we move along to Bartho’s suggestion that I want to supplant the Australian Shareholders’ Association and win over their 6000 members before then setting up an active funds management business.

Again, we need to think about Crikey’s prime goal which is “to create a greater culture of shareholder pressure and accountability in Australia”.

You need to assess this in terms of competition principles. The ASA will perform better if there are other bodies out there also trying to apply pressure.

And with 7.6 million Australians now directly and indirectly holding shares, his suggestion that I am trying to get “their” members and “their” subscription fess is crap. I’m a member of the ASA and advocate people should join them to support the concept of shareholder pressure. My dad is about to join them too.

Similarly, we have completely different demographics and distribution means. Their typical member is aged about 65 and has a portfolio worth about $400,000. Many are not on the net and enjoy the hard copy Equity magazine that the ASA sends to members.

Crikey’s subscribers are younger professionals and are on the internet. Similarly, Crikey is staffed by volunteers yet the ASA has paid staff.

The differences are many and we are both the voice of small shareholders. However, the ASA tends to focus on the big companies that are not performing well in a financial sense.

Crikey will often target smaller companies such as Central Equity, Centaur Mining or Southern Cross Broadcasting because they are more interesting from a public interest or journalistic perspective.

Similarly, the ASA attemtps to cultivate the media by regularly sending out press releases and by not causing a stir at the AGM of media companies. They even have a column in Rupert Murdoch’s Australian newspaper.

Rather than feeding the media I see Crikey’s role as keeping the media and the media companies on their toes and am therefore the only person regularly asking difficult questions at media AGMs. Why has the ASA never asked Rupert Murdoch or Kerry Packer a question when both companies are so rich with corporate governance issues?

There are a couple of minor errors in Bartho’s piece. I didn’t nominate for AGL it was Ray Proudley who got 58 per cent of the vote. Last Thursday I went to three AGMs not four and I’ve never attended a meeting wearing the seven foot Crikey foam suit. For 15 minutes I handed out flyers before the AGL meeting wearing the suit but then went home and got changed into civvies for the actual meeting.

Bartho also says that their have “always been maverick, publicity seeking shareholders”. I would submit that sadly, there has only ever been one and that is the 70-something convicted insurance fraudster Jack Tilburn who is now a raving madman and adds absolutely nothing to meetings.

Bartho’s only revelation not in the public domain was that I have “aspirations to build a funds management business based on activism” but again his emphasis on my alleged wealth-creation goal is misplaced.

The goal is to give Australia its first activist fund but I would prefer it wasn’t me doing it. Ideally, Australia’s institutions will wake up to themselves and become more active. I’m trying to pressure them into doing it themselves. If after a lot of prodding they still refuse, then the last resort would be to try and actually offer the product myself through some sort of joint venture with someone like Hermes, Calpers or the Lens fund in the US.

Bartho wrong on the funds being constrained

Bartho’s biggest mistake in his column was his observation that bank boards can’t instruct their fund managers to vote or become more activist. When George Trumbull first came to Australia he said that AMP would become more activist. He and the rest of the AMP board got involved in the battle for Coles Myer after Phillip Bowman revealed Yannon.

The boards appoint the fund managers and can tell them to become more active. Maybe they should not get involved in individual battles like as occurred with Yannon, but they can set policy.

It really is a shame Bartho remains so office-bound and doesn’t get out to more annual meetings to see what is actually happening in the field. I doubt he has even been to an AGM in 10 years.

If he’d come to the CBA meeting, he would have heard chairman John Ralph say that the Commonwealth Bank chooses not to subscribe to the proxy advisory group Corporate Governance International.

For a mere $35,000 a year, CBA could buy in expert advice on how to vote their shares in the top 200 companies. They are now the biggest Australian fund manager yet choose not to do this.

If CBA is one of those fund managers that Bartho says argue that “the simple cost, in dollars and time, in determining a view on an issue, organising the appropriate voting authority and then voting can’t be justified” then they should have a good look at themselves.

Whilst it is disappointing that on average only 35 per cent of the shares of a company are voted at a meeting, my beef is more with the way those shares are voted yet Bartho has completely missed this point.

For instance, why did 99 per cent of the shares voted at this year’s Pacifica meeting support the election of former BHP chairman Jerry Ellis, even though he was responsible for about $4 billion of write-offs at BHP.

If Bartho was a harder hitting commentator he would have criticised institutions for supporting the Ellis election. Instead he remains part of the cultural problem in Australia because too often he does not take companies to task.

One of his colleagues calls him the “win-win” columnist because he never goes on the attack. He writes for the people that he talks to and doesn’t want to upset them.

Someone like Bartho could have broken up the incestuous club of directors in Melbourne but instead he has tolerated much of what is wrong in the state.

He was too soft on Solomon Lew during Yannon, too soft on all the players in the Crown casino debacle and too soft on issues like Transurban. The one issue that he really did well on was the abuse of the ASX’s monopoly when they were driven by greed to demutualise it.

The great irony of Bartho’s column about Crikey is that he has been quite tough on us. If only he was as tough on the big boys around town then he would contribute more towards creating a culture of pressure, performance and accountability in corporate Australia.

That said, I don’t want to attack him just because he expressed his opinion about Crikey. What we’re doing is worthy of debate and commentators should stop ignoring it because it ain’t genna go away. The more debate the better.

However, it would have been preferable if he’d called to talk through the issues before going to press, but he made the same arguments about us when a Crikey contributor attacked him for being too soft on JB Were over the Auditor General’s criticisms about the Melbourne IT float. Let’s hope Bartho doesn’t make it too much of a habit attacking regulators and pressure groups and defending the corporates that he knows so well.

In our case, it would have been preferable if Bartho had focused more on the issues in the campaigns that we are running rather than on the motivations of the messenger.

Just because Bartho writes about a whole range of companies that advertise in his profit-motivated paper doesn’t make him somehow inappropriate to comment. He personally profits to the tune of about $130,000 a year from this whereas I’m going out the back door.

Now if you’ve got to the bottom of this rave and are not a subscriber, don’t feel shy about clicking on the subscribe button. Bartho is right when he says that we haven’t been very commercially successful as yet so we need all the sympathy subscriptions we can get.

Peter Fray

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