With corporate governance all the rage, here are three recent sealed section vignettes on poor practices at David Jones, Westfield Holdings and PMP.

It does seem a little odd that David Jones chairman Dick Warburton is the busiest man in Australia, yet he refuses to give up the chair at the battling retailer and will soon be onto his third CEO after Chris Tideman and Peter Wilkinson both got the blame and the bullet for poor performance.

The multi-hatted lad seems to expend more energy beating up on Allan Fels than doing anything else these days. But one thing he did for DJs in 1999 was introduce a retirement scheme for directors which has racked up about $1.5 million in liabilities for long-suffering shareholders already.

DJs is usually rated very highly for their corporate governance practices (they should disclose that directors get shopping discounts of up to 35 per cent) but chairman Dick dropped the ball in 1999 by introducing a system of lump sum cash retirement payouts based solely on years of service, not performance. Benefits start at 3 years service and then the multiple of lump sum rises with each year.

Dick is coming up for 7 years in the job and if he can just get through one last year and rack up an eighth year of service, he’ll be entitled to a $500,000-plus cash lump sum, which is three times his annual chairman’s fee $178,000.

Does this explain why DJs has so many long-serving non-executive directors all hanging around like a bad smell? John Coates, Katie Lahey, Elisabeth Nosworthy and chairman Dick have all been directors since October 1995 despite ongoing poor performance which sees the shares wallowing at $1.09 after floating at $1.80.

If they get to 15 years service they’ll be entitled to 5-times their annual fees by which time the share price will be down around 50c if the current trend continues.

DJs is the only popular float of the 90s that has been a dud. Other companies that lured in more than 40,000 new shareholders (Tabcorp, Woolworths, CSL, Bank West, GIO, NSW TAB, Telstra, Qantas, ComBank, AMP, Colonial, Axa etc) in major floats have all provided net profits for investors although T2 did neutralise T1 and GIO was only a bonanza if you sold to AMP.

BHP-Billiton and the Commonwealth Bank have announced they are closing their director retirement schemes and other companies like David Jones should follow as they represent bad corporate practice.

David Jones continues to under-whelm the market, its 2001-02 profit results being a disappointing $6.6 million, down 76.5 per cent on the previous year’s result.

At its most recent meeting, a special meeting earlier in the year to approve a fresh capital raising, the ASA’s spokesman, Stephen Matthews, loaded up and attacked the company’s fundamental lack of credibility. Mathews has recently joined the ASA board and has given them some much needed grunt in Sydney. We support their move to oust Warburton at the upcoming AGM.

In its latest profit announcement, its credibility takes yet another hit. While CFO Stephen Goddard insisted the company was on target to attain its ambitious targets of “15 to 20 per cent increase in net profit after tax before significant items”, that will of little comfort to shareholders as losses in DJs’ Foodchain division mount up in the “significant items” column.

Last year, Foodchain contributed a $19.5 million hit to the bottom line.

In May DJs stopped the expansion of its Foodchain business, with only 4 out of a proposed 40 outlets opened since November 2000. So much for taking 1 per cent of the $55 billion food and grocery market. And we loved the line about the St Kilda store firing whilst Hawthorn and Brighton were salvageable but the Parramatta store is being closed. What’s wrong with those Sydney Westies.

Corporate governance at Westfield

Sealed section Friday, September 13

With the Westfield Holdings two man audit committee of David Gonski and Fred Hilmer set to take control of John Fairfax as chairman and CEO respectively, Fairfax needs to be very careful that their papers are not seen to be giving Frank Lowy an easy run.

Lo and behold, what does the Fin Review do this morning? It splashes across the front page Frank Lowy’s intention to donate his excessive $11 million salary to some unknown charitable cause.

And who wrote the yarn? Lowy’s hand-picked biographer Jill Margo, who replaced Edna Carew on the job when she refused to let Lowy vet the manuscript and change things accordingly.

This was a classic puff piece. Lowy couldn’t buy this sort of publicity.

Crikey was struck by the Lowy claim that his firm’s auditors Ernst and Young ran a review of Westfield Holdings.

“They concluded we were at the high end of the Australian corporate governance spectrum,” Lowy was a quoted saying by his official biographer in today’s AFR.

How this can go unchallenged is beyond belief.

These are some of the poor corporate governance practices evident at Westfield:

1. Executive chairman

2. Majority of Lowy family or executive directors

3. All non-executive directors have relationships with Westfield and are Lowy friends

4. Excessive executive pay no Australian-based executive gets more than Lowy.

5. Misleading accounts. They claim net assets of less than $2 bn when the market says $8bn

6. Excessive political donations

7. Loads of options with no hurdles, including to all the Lowy boys

8. No independent board for Westfield Trust which gets profits upstreamed to Holdings

9. Undisclosed pay offs to unions, green groups and many others

10. Frank Lowy chairs the remuneration committee

The Fin Review does its credibility no good at all carrying this rubbish and shareholders should vote against David Gonski becoming chairman of Fairfax.

Ken Cowley payout for non-performance

Mrs Crikey is the proud owner of 1500 PMP shares and she’s just loving the Kerry Stokes inspired resurrection in the share price since Seven became the largest shareholders and he bought the magazine business. Crikey transferred the PMP shares to the missus at $2 a pop two years ago and they duly plunged to 32c. Not happy, Jan. But they are back through $1and Stokes is enjoying a $20 million profit on his 13 per cent shareholding already with the stock at $1.10 today.

The perpetrator of all this destroyed value was one Ken Cowley, the foundation chairman of PMP when Rupert Murdoch spun 55 per cent of it out of News Corp as part of his debt crisis in 1991.

Cowley was ably supported by the two long-time Murdoch lieutenants who became CEO of PMP, namely Ken Catlow and then Bob Muscat. Another guilty party is long-serving Murdoch finance director Peter Chegwyn who still sits on the PMP board.

The shares were first floated at $3.40 a pop so Rupert pocketed $382 million in cash and shifted an additional $312 million of balance sheet debt into PMP. At the time his shares were wallowing under a $10.7 billion debt load and this deal was forced on him by a nervous Citibank-led banking syndicate.

Lachlan Murdoch was then very smart to dump the residual 40 per cent PMP stake for $370 million in July 1997 when they were still trading well above $2. This meant Rupert effectively disposed of his Australian magazine and printing assets for a total of $1.05 billion.

The latest PMP annual report turned up in the PO Box today and it reveals that Bob Muscat, the thoroughly underwhelming CEO who also failed to perform when CEO of Fairfax, collected another $1.1 million-plus package.

It also reminds us that Ken Cowley got a $229,000 retirement payout in March 2001. He also sold a pile of PMP shares just before they nosedived. Around the same time Kenny quit the ComBank board which was heavily exposed to PMP. Kenny also got a similar retirement payout from the CBA based on years of service rather than performance.

The sooner they get rid of time-based, lump sum cash payouts to retiring directors the better because Ken Cowley is a classic example of someone who was never an executive of PMP but still collected more than $1 million from the company over the years despite presiding over a huge destruction of shareholder value.

And don’t get me started on his other stuff-ups, namely Ansett, Super League, Qantas NZ and even RM Williams which reported a disappointing profit drop last week and has seen its shares plunge from a peak of $3.60 to almost $1 over the past three years.

Why oh why does Rupert still tolerate him on the News Corp board and why didn’t more institutions vote against his re-election last year? One more disaster and he’d probably be as bad as the Prime Minister’s brother Stan, who still holds the title as “Australia’s worst professional director”.

Peter Fray

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