David Jones is one of those companies that does most things rights at a corporate governance level but the financial performance still does not measure up. Our man Neal Woolrich joined in the kicking at this week’s AGM.

At the meeting, CEO Peter Wilkinson saw his lucrative 450,000 options package embarrassingly voted down on a show of hands with a clear majority perhaps 60 to 65% – against. But the proxies saw him get across the line and once again the shareholders who bothered to turn up to their meeting saw their will subjugated by that of the faceless instos.

DJs is yet another company that did it tough in the 2001 financial year, with net profit down 21.7% and earnings per share down 22%. So the scene was set for another fiery meeting, and this one didn’t disappoint.

And, like so many of his mates in the exclusive chairmen’s club, DJs’ head honcho Dick Warburton blamed the poor result on the “exceptionally poor trading environment” and the company’s “strategically imperative” investment in growth. Chairman Dick noted that the slump during the year was the biggest recorded decline in consumer spending since the ABS has been keeping records.

Warburton noted that “we, like you, are not happy with the under-performance of our share price”. Cold comfort, indeed.

The chairman spent some time talking about the company’s cyberstore, David Jones Online. He spoke with some pride of what the store had achieved and that the framework was in place as far as taking orders and delivering products in a timely and efficient fashion. But we’re sure that plenty of Crikey’s upwardly mobile and web-savvy readership would have used DJs Online, so if there are any war stories out there, send ’em in!

Warburton noted that the company had written off $11.5 million in web development costs as well as DJs Online sharing in a $25.9 million loss for the year with the company’s “Foodchain” division, but expected that loss to be halved next year, with the online store turning a profit in 2003. While Warburton said this was the usual profitability profile of its bricks and mortars stores, this correspondent for one won’t be holding his breath waiting for the Online store to turn a quid.

But this correspondent thinks the chairman may have had a puff on the jazz cigarettes when he was writing up his next comments. The chairman opined that, while he was a vocal advocate for full disclosure, the push to fully disclose executive remuneration was responsible for the explosion in executive salaries.

Warburton said that three years ago he had warned that, contrary to many idealistic hopes, full disclosure of executive remuneration would not shame companies into salary restraint but rather fan the flames and lead to the huge pay rises we have seen of late.

To quote Lenny Bruce, what duck are you smoking?

For starters, every executive would have a fair idea of what every other executive is on even if the figures were not published in companies’ accounts. Every recruitment company keeps records of the positions they fill and regularly put that information out into the market place to get execs to think “gee, I could be earning more somewhere else” and keep the recruitment wheels well and truly greased.

And company directors have access to this information, both through the recruitment agencies feeding them their stats and through the directors’ extensive network of cross-directorships.

So to pretend that this information would be hidden from “the players” if not for their publication in annual accounts is a furphy. Sorry Dick, you haven’t convinced us on this one. The only people who gain information that they wouldn’t otherwise have access to from executive remuneration being published in annual reports are the shareholders.

And the mysterious “market forces” of supply and demand which company chairmen like Dick Warburton frequently cite as being the reason for driving up executive remuneration operate strangely in the world of company executives. Unlike most markets, in the bidding war for senior management, the supply and demand side is controlled or at least significantly influenced by the same party the boards of directors themselves.

The demand side of the equation is simple every company needs its senior executives. But the supply side is what is lagging and what explains why salaries are so painfully high. You see, boards of directors, in continually looking for directors with proven records and not taking a chance on blooding fresh talent or cultivating effective succession planning in their own organisations, have by their inaction severely restricted the available supply of senior executives. The relative lack of supply against demand can lead to only one outcome outrageous executive remuneration.

Instead of giving the supply side of the equation a kick along, boards are set in their ways, don’t have the balls to take a chance on new blood and don’t put in place adequate procedures to ensure that the capable people in their own organisation can progress to the top. Instead, they cop out and go for someone who has been around for donkeys and hope that their boom recruit can give instant impetus to their share price.

Sorry Dick, you have completely lost us on your argument that full disclosure in the accounts has been responsible for the explosion in obscene executive remuneration in this country.

And we’ve said all that without taking any cheap shots like implying that directors are a bunch of greedy egomaniacs who couldn’t swallow being paid less than their mate next door.

Dick still supported full disclosure but he said that it wouldn’t lead to salary restraint as many hoped.

CEO Peter Wilkinson engaged in a most disingenuous report to shareholders by painting a rosy picture of the company’s operations in 2001 when compared to 1997. In 1997 the company had hit rock bottom and it seemed they were there to stay. But Wilkinson talked glowingly about how much better the company was in 2001.

To use a Tilburn-esque analogy, that’s like saying Little Johnny’s going great guns now he got 50% for maths, but in first term he got 35%.

The company’s share price is still languishing around $1.10, down from its float price of $1.80 (net of returns to shareholders), so neither the market nor DJs shareholders are particularly impressed with the company’s performance.

The other problem with Wilkinson’s comparison with 1997 is that five of the eight directors had been on the board since October 1995. Those people could not recognise the problems the retailer was in until at least 18 months after their appointment, and it was until after the abysmal 1997 result that they started acting on it. Boards are appointed to make sure calamitous results like these don’t happen, not to mop up after the event.

So to give the company a collective pat on the back was meaningless, because the controlling minds were the same ones that had put them in their parlous state way back in 1997.

Not surprisingly, there was some robust discussion come question time, with the first shareholder to take the floor questioning how Warburton could juggle so many directorships. Dick was ready for this one, and appeared to be reading off crib notes to answer it, saying he was proud of his record as a professional company director and that it was a matter of juggling one’s “capacity”.

Dick generally does have a pretty good record as a director by Australian standards, but that isn’t saying a heck of a lot. On the positives side of the ledger are Tabcorp (which is basically a government licence to print money), Southcorp and Goldfields, on the negatives are Caltex (dud), the Commonwealth Government Board of Taxation (a political football which anyone with any political savvy would’ve avoided like the plague) and HIH Claims Support Limited (the government’s bailout of HIH policy holders another political football which can only lead to controversy).

And Dick sure knows how to run a meeting.

A Mr Matthews from the ASA threw half a dozen curlies at Warburton on topics such as performance bonuses, the lack of detail in the concise reports, and the potentially mis-leading graphics in the accounts.

He scored a hit when he compared DJs’ performance indicators (EPS, share price, dividends etc) against those of Woolworths, and thought that on the basis of the comparison, Peter Wilkinson was far too highly compensated compared to Woolworths CEO Roger Corbett. Warburton did note that Wilkinson’s overall pay packet was down 33% due to the absence of a bonus this year, at which point there was widespread tear-shedding in the audience and the clinking of change as a hat was passed around to provide for the Peter Wilkinson provident fund.

Matthews of the ASA also asked what the elusive “cross functional business savings” were that Wilkinson alluded to in his CEO’s report. Warburton and Wilkinson both gave non-answers that didn’t illuminate the shareholders one iota.

But Matthews’ biggest hit was when he referred back to the chairman’s addresses in 1999 and 2000 and noted the optimism which the chairman had shown back then an optimism which the chairman is still trying to infuse in the increasingly directorspeak-weary shareholders. Matthews’ point was well made we’ve heard it all before at DJs, why will this year be any different?

Warburton argued that DJs had “turned the corner” of their core business and they were now looking at “growth businesses”. These so-called “growth businesses” required capital, and that was eating into the current year’s results, the chairman explained.

In other words, more excuses for DJs shareholders and no results.

The re-election of directors went through with the usual 99% majorities, which was disappointing especially in the case of Elizabeth Nosworthy a director since 1995 who could have been sent a message for her part in the disastrous recent results. Nosworthy noted in her address to shareholders in support of her candidature that it was the shareholders after the 1997 AGM who told them that they needed to turn the company around. Well derr Fred isn’t it the job of the directors to figure out that the company is in the pits?

The resolution to allow the board to award the CEO “up to” 450,000 options invoked some passionate dissent from shareholders, one saying “you and your board have shown yourselves to be a greedy lot. This is not the time to be asking for incentives, 05 Let the plans come to fruition and then offer him shares.”

Warburton dismissed this in the typically dismissive company chairman manner.

When put to a show of hands, the “nays” had a clear majority of about 60 to 65% as far as this amateur headcounter could tell. The proxy votes were interesting only 51% in favour, with 14% against and 35% open. This is a fair bit less than the re-election of directors, who all snaffled a primary “for” vote of between 63 and 65%.

Obviously more instos were concerned about the CEO’s generous remuneration and the shareholders present certainly recorded their dis-satisfaction.

But will that stop the board awarding Wilko “up to” 450,000 options when they get the chance?

Not likely!

Feedback to [email protected] or to [email protected]

DJs spinner and Crikey subscriber gets her say

Hi Stephen and team

At the risk of a bollocking and inevitably being lumped in with the rest of the spin doctors, just a quick note on the issue of the shares “awarded” to Peter Wilkinson yesterday as per Noel’s report. The shares relate to the long term incentive plan. The 450,000 is the maximum Peter could be awarded 3 years from now provided some significant hurdles are met regarding revenue, capital management and TSR. The company will need to be significantly outperforming for the maximum amount of shares to be obtained. The impression created in some forums has been that the shares were given to him yesterday.

Regards Jill Campbell

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