The following is a selection of exchanges between Crikey
publisher Stephen Mayne and the Joint Committee on corporations
and financial services on Wednesday, 14 April 2004.
Joint Committee on corporations and financial services
Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Bill 2003 – Proof Committee Hansard
MAYNE, Mr Stephen David, Publisher, Crikey.com.au
ACTING CHAIR—Welcome. The committee prefers that all evidence be
given in public but should you at any stage wish to give any part of
your evidence in private you may ask to do so and the committee will
consider your request. The committee has before it a written submission
from Mr Mayne, submission No. 63. Are there any alterations or
additions you would like to make to your submission?
(See the original submission)
Mr Mayne—My updated submission covers quite a wide-ranging
territory and I will just focus on a specific area. I have run for 18
boards over the last four or five years, so I have the perspective of
an outsider trying to break into the directors club in Australia.
I would advise the committee of some of the issues and some of the
roadblocks that get placed in front of someone who tries to get elected
or present themselves to a board in trying to effect change by
improving accountability and transparency in listed corporations which
might be going through difficult times.
My key goal is to try and help create a culture of shareholder pressure
in Australia, but I find that a number of problems arise with that. The
first is extreme concentration in the financial services sector where,
compared with most other economies, we have unprecedented concentration
with our big banks now also dominating our funds management industry.
As someone soliciting votes from fund managers, I constantly come up
against their conflicts of interest: you might run for a board and find
yourself running against the Chairman of the Commonwealth Bank, who
might have long relationships with the board you are running for and is
chairman of the fund manager that controls 15 per cent of the stock. It
is often quite difficult to break down those conflicts and to approach
fund managers who are genuinely independent.
Similarly, the only reason I run for boards is that the directors
effectively have a monopoly over the resolutions that get placed before
shareholders at annual general meetings. That is because of the
practical difficulty a small shareholder faces in getting 100
signatures to sponsor a resolution to be put up at an annual meeting;
the odd union group and the odd green group have been able to do it,
but for genuine small independent shareholders logistically it is very
difficult. So I would love to see some sort of change to the
100-shareholder rule which would make it easier for shareholders to put
I cite the situation in the US; there you only have to own $US2,000
worth of shares to be able to place a resolution on the notice paper.
Last year at the Exxon Mobil AGM in Dallas there were 12 shareholder
resolutions. If you exclude Boral, we have not had 12 shareholder
resolutions in Australia since the Vietnam War.
Senator MURRAY—But that is at an AGM, isn’t it?
Mr Mayne—That is at an AGM, yes.
Senator MURRAY—Not an EGM.
Mr Mayne—Yes, that is right. I am more than happy for it to be
made more difficult to call an EGM because of the cost involved. But a
counterbalancing reform would be to adopt the US system, where
shareholders can easily put up resolutions on a notice paper. If you
are having an annual meeting anyway, there is no additional cost for
I would like to deal with a couple of other points. The directors club,
I have found, is very tight-knit, and in trying to break into it you
come across directors who are overcommitted and who have relationships
with each other. I notice that the ASX corporate governance guidelines
suggest that individuals only chair one top 100 company each.
There are currently seven chairmen who are chairing two, and that is a
fairly good example of how tight the system is. If you look at the
boards of the big four banks, those directors are on a majority of the
top 50 companies. I would say that the apex of the directors club is
the big four banks, who dominate now the majority of the funds
Those same directors cover the majority of the top 50, and that is
where I think it is too tight. As someone trying to break in, you
really cannot do it. When you are running for a board there are a
number of roadblocks that get placed up against you, and I dealt with
that in items 17, 18, 19 and 20 of my submission. Firstly, there is the
question of open proxy votes. The system that the boards use is that
they send out the documentation with reply paid envelopes, and if you
merely sign the form and send it back the default mechanism is that
that goes to the chairman as an open proxy.
Typically they gather about 10 per cent of all votes as open proxies,
so that is 10 per cent in their back pocket, which in the vast majority
of the boards I have run for they have used against me, sometimes
having not stated that they would be doing that. So that is quite a
difficult issue. I want to draw your attention specifically to the
NRMA, which I think it is the most egregious example of open proxies
being used. There is another system that the directors use: they say
that there is no vacancy available. So, when an outsider nominates for
a board, they say, ‘Sorry, there is no vacancy.’ But often the
constitution of the company will say they can have between three and 15
directors and there will only be, say, nine or 10.
Senator CONROY—Your submission says that, prior to the Boral
AGM, Australian companies had collectively received fewer than 12
shareholder resolutions during the past 15 years. Why so few, in your
view? In the US, for example, almost 40 per cent of resolutions at AGMs
each year are sponsored by labour unions. Why is Australia so shy?
Mr Mayne—I think it is a cultural issue. There is a
go-to-the-beach culture among shareholders. We do not have a culture of
shareholder pressure. That is the most important thing. Secondly, it is
the 100-shareholder rule. It is the logistics. I would have fired off
dozens of resolutions if we had the $US2,000 rule. I will never call an
EGM, as I regard it as disruptive, but the only people who do it in
Australia are those that have access to the numbers, that can marshal
the numbers—unions, green groups and the Shareholders Association. They
are the three groups that have done it.
Senator CONROY—So you even feel that the 100-shareholder rule for the proposing of a resolution is too stringent?
Mr Mayne—Far too stringent, logistically. Think about it from
your own lives: to run for state parliament in Victoria you need six
signatures; to run for a federal seat, 50 signatures. I would argue
that that is probably too draconian. How can you have a system where it
is one signature to run for a board and 100 signatures to get a
resolution up? Running for a board is a far more substantial issue.
Merely getting a resolution up is a fairly run-of-the-mill thing. Why
have this roadblock in front of it, when you are having the AGM anyway?
Senator CONROY—What sorts of resolutions have you wanted to put up that you have been denied?
Mr Mayne—Resolutions on all of the platforms. I would love to put a resolution up
condemning any company that is doing cash for comment; that would have
been part of it. There would be resolutions to reduce the pay of
non-executive directors and resolutions to eliminate retirement schemes
for directors. All these governance issues which companies are dragged,
kicking and screaming, into doing, I would have been putting
resolutions up proposing them; sack the auditor of AMP.
The auditor of AMP, Brian Long from Ernst and Young, signed the
accounts last year, saying that the company had net assets of $18
billion. They were actually close to $5 billion, although some people
argued that they were technically broke at the time. So he missed the
mark by about $13 billion or $14 billion. Ernst and Young got paid $42
million by AMP last year to advise on the demerger process, which is, I
think, a record fee.
I would have been putting a resolution up at this coming AGM to sack
Ernst and Young, on the basis that they signed the accounts, saying
that they were free of any material misstatement and that the company
had net assets of $18 billion. It is a complete joke, yet shareholders
cannot put these resolutions up. All you can do is stand up and utter
meaningless words which the chairman says they will give due
consideration to and thank you for your time—but it has no force.
Senator CONROY—Mr Mayne, in your view, was Boral’s decision to
nullify the 100-shareholder rule in relation to proposing resolutions
under the company’s constitution a step back in time for shareholder
activism in Australia?
Mr Mayne—Definitely. Ken Moss of Boral seems to have a problem with
shareholder democracy. I sympathise with him from the point of view
that his AGM does get hijacked by green groups most years; Christine
Milne, the Greens Senate candidate in Tasmania, runs for the board. But
that is a legitimate issue. I do not see why Boral are kicking up such
a huge stink about it, because they could just vote against the
resolutions. They will knock them down—95 per cent, without
blinking—every time. Silly old Ken Moss chooses to draw attention to
the whole issue and is seen to be attacking democracy, when
institutions will just line up and vote in support of the board, and
they will knock back the resolutions every time.
Senator MURRAY—Senator Conroy and I are going to try to burn him, so we will see!
Senator CONROY—Ken Moss’s promotion to the shareholders’ friend
on the NAB board—it is good to see that the NAB is still keeping its
sense of humour.
Mr Mayne—There is an important issue about dud directors getting
promoted, and there are some celebrated examples. You are right about
Ken Moss, who was audit committee promoted, and Graham Kraehe, who was
chairman of risk committee promoted, but at least through this NAB
process we are seeing an elevation of the importance of the audit
committee. I will give you a very important precedent where there has
not been the focus on audit committees that there should have been.
Margaret Jackson is now the Chairman of Qantas. She was chairman of the
Pacific Dunlop audit committee for five years, and chairman of the BHP
audit committee for three years. Both companies went through
calamitous, disastrous periods over that phase, yet she managed to
slink off as chairman of both of those audit committees because she had
been promoted to Qantas. Rather than ‘I am being held accountable; my
fellow directors or the shareholders have booted me off,’ it was ‘I
have just been promoted to Chairman of Qantas, therefore I am leaving
these boards to free up my time commitments.’
Australia has a terrible culture in this regard. We sack our bad
chairmen and CEOs, and they often go together within a six month
period. If you look back at Aristocrat, Southcorp, ANZ, BHP and NAB,
whenever there is a crisis, we have a good record of sacking the
chairmen and the CEOs, but we do not have a good record of dealing with
the non-executive directors. The best example I have of this is a
fellow called Tony Daniels, who had a trifecta of duds: Pasminco,
Pacific Dunlop and Orica. At that time Orica’s share price had more
than halved. He was re-elected to the AGL and Commonwealth Bank boards
subsequent to those disasters, with 98 per of the vote. Where is the
culture of accountability if a director who has a trifecta of duds and
overseen the destruction of vast amounts of money is putting himself up
to be re-elected and getting resounding Saddam Hussein-like victories
in his re-election quest? It sends a terrible message about the
accountability of directors.
If I had a better ability to put up resolutions, I would be putting up
resolutions seeking his removal as a director at every AGM where he was
running. That often has a powerful effect. If you threaten to run for a
board, you can often have the effect of getting the director removed. I
announced that I was running for the Telstra board specifically to
focus on Steve Vizard’s conflicts of interest, and he resigned from the
board two weeks later rather than have a public debate about his
conflicts. Public exposure, sunlight into the dark corners of
boardrooms, is a very powerful thing, but we need the legislative tools
to do that and the roadblocks to be removed—the 100 signatures being
the largest roadblock—to increase shareholder resolutions, to weed out
bad directors and to remove poor corporate practices.
ACTING CHAIR—Could you clarify the responsibilities of a chairman
of an audit committee relative to a director of a public company? You
are drawing a comparison and saying that those chairmen of audit
committees had responsibilities, yet they remained as directors. Could
you give us your view of those two responsibilities?
Mr Mayne—Audit committee chairmen, certainly with things such as
Sarbanes-Oxley, have been elevated and are clearly now second in line
in terms of responsibility, given the heightened powers given to audit
committee chairs. The audit committee specifically takes on a lot of
the financial responsibilities, so in the case of—
ACTING CHAIR—Surely the audit committee chairman reports to the board and the board make the final recommendation. It is not an independent—
Mr Mayne—That is correct. They are certainly secondary to the
chairman. In the NAB case, Catherine Walter, as chairman of the audit
committee, was third in line—the chairman was No. 1, the CEO was No. 2
and she was No. 3. There are some specific issues where the role of
audit committee chairman is very important. For example, take apparent
breaches of Sarbanes-Oxley. Catherine Walter, as audit committee
chair, has to deal with those audit governance issues. That is an
example of where she is more important than the chairman.
ACTING CHAIR—But she was reporting to the board, though, surely?
Mr Mayne—Yes, but, for instance, she used her casting vote as the audit committee chair to reappoint KPMG as NAB’s auditor.
Senator CONROY—She should go for that, if for nothing else.
Senator CONROY—Recently Max Walsh made a comment in the Bulletin in relation to proxy voting. He said:
Of course, the instos are not going to exercise their voting
power—especially against incumbent boards—unless they are obliged to do
First, there is the Mary Magdalene factor. Could you imagine AMP or NAB
being among the first stone-throwers against an incumbent board on a
He goes on to say:
The only solution is to make it compulsory for instos to exercise
their voting rights and to make known their record to their clients.
Even then, do not expect too much courage.
Do you agree with Max that legislation is required to force instos to vote?
Mr Mayne—I think if we have it in politics I cannot see why we
would not have it in corporate elections. You are still getting some
very poor low votes, like only 30 per cent, at the last AMP AGM.
Senator CONROY—AMP was a record low.
Mr Mayne—That was a very fluid share register with placements
and large turnovers, so there is a big paper trail and some people just
could not get their acts together to vote. The only thing that I have
seen which would argue against it is JP Morgan’s new technology
platform, which is allowing the clients who they are the nominee for to
dramatically increase their voting levels.
At last year’s AGM season, they were typically up around the 70 per
cent mark—their clients were voting on 70 per cent of their shares.
That had almost doubled from the previous year, totally thanks to this
technology platform. You have this shocking paper trail where you have
1,200 AGMs happening in six weeks—you have resolutions flying
everywhere, you have to be faxing authorities and it is a logistical
nightmare. That is probably the biggest factor. If you were going to
mandate compulsory voting, it would be quite a burden on the
institutions to actually do it. But technology could be the saviour. If
you have those platforms then I think it would be—
Senator CONROY—Japan has all its AGMs on the same day—
Mr Mayne—Yes, to stop the yakuza.
Senator CONROY—because of the yakuza. Are you Australia’s equivalent of the yakuza?
Mr Mayne—I am very polite.
Senator CONROY—Given your activism, given that the CLERP 9 bill is
a response to the corporate governance debate world wide as well as
here in Australia, and given your support and encouragement of
shareholder activism, are you disappointed that the bill only goes so
far? How would you rate it?
Mr Mayne—I think it is an important step forward, but it is
quite clear that we have lagged behind the US and to a lesser extent
the UK in our legislative response to corporate governance failures. I
think that the audit reforms are welcome—things like a four-year
cooling-off period are appropriate; I do not think you should ban an
auditor for life—but not the reforms in other areas, like the fines for
poor disclosure. I thought they were too small and we could have beefed
them up dramatically. Obviously, the non-binding vote on executive pay
is a good step. That is working well in the UK: Brambles, BHP and Rio
Tinto have had no problems due to having greater disclosure of their
remuneration. So I would say that it is an important step forward, but
there are a lot of issues which I would love to see incorporated into
it, particularly those I have addressed today on board voting and the
way those elections are conducted. I think they are very important
things that could really drive governance and accountability, and there
are some real cowboy acts in the governance of major companies.
Senator CONROY—The existing Corporations Act states that the
shareholder approval for retirement benefits is only required where the
payment exceeds the amount prescribed by the formula. But, in spite of
these provisions, retirement payments can still be made without
shareholder approval. This amounts to—I think the formula works out
to—3.5 times their average annual income if they have been with the
company for 3.5 years; five times their average income if they have
been with the company for five years; and seven times for seven years.
In your view, should these termination payments be approved by
Mr Mayne—Undoubtedly so. I think the situation with John Ducker at
Aristocrat is quite outrageous. Why have a resolution if it can be
contracted away? That is what has happened at Aristocrat. The
shareholders passed a particular retirement scheme for the directors
and then a new director joined the board with a contract—a service
agreement—that specifically bypassed the shareholder approval which had
If you are going to have shareholder approval for something, make it
binding; do not let the directors contract their way around it. Why do
we have it so that there are two different types of non-executive
director pay—cash up-front and retirement benefits—and different
resolutions? It should be the one resolution, which is: director
pay—maximum for the year $1.5 million spread amongst the directors—and
retirement formula—this. It is all the one resolution so you can deal
Because often you do not know—it is like a defined benefit super
scheme—how the liabilities are spiralling out. When a board member gets
an increase in their annual fee from $100,000 to $150,000, if they are
getting a five times multiple of their final fee—which is often the
formula—you do not realise that the resolution passed back in 1987 on
directors’ retirement payments, which has not been mentioned in an
annual report for 15 years, means that this director is going to retire
with an extra $250,000 lump sum in his packet just because he has been
able to ratchet up the final fee.
Senator MURRAY—It is a form of indexing.
Mr Mayne—Yes. But you know: ‘If I can just become chairman of
this committee in the last year, I will get the extra 50 grand and then
I will get the extra $250,000 lump at the end of it.’
Senator CONROY—What about a spouse getting free access to a limo?
Mr Mayne—All of that should be included. There is nothing that
should not be in there. A classic example is News Corporation and the
two corporate jets. The Murdochs use the jets for their personal
use—for example, Lachlan wants to go to the Melbourne Cup and jumps in
the company jet, flies down for the day and then flies back for a party
that night. That happened last racing season. There is no mention
anywhere in the annual report about the value of the corporate jet for
private use by directors of News Corp. There are a lot of ways that
benefits can be given to directors without disclosure. Therefore, you
should try to have a catch-all provision in the legislation.
Senator CONROY—I have one or two more questions. Should non-recourse loans to directors and senior executives be prohibited?
Mr Mayne—No, not necessarily. A loan from the company for housing
or to buy shares can be a regular part of any package. As long as it is
disclosed, I have no problem with that.
Senator CONROY—But aren’t shares supposed to align the interests of
shareholders and management? If they are not using their own money—more
importantly, if they are using shareholders’ money—how are they
aligning their own wealth with shareholders?
Mr Mayne—If they do not perform well, they will not get the upside on the shares.
Senator CONROY—A non-recourse loan means that, if the shares tank, the shareholders still pick up the tab.
Mr Mayne—That is right. But take, for example, someone like Ross
Wilson at Tabcorp. When he joined the company, he got a $6.25 million
loan for three million shares.
Senator CONROY—And how could a monopoly tank?
Mr Mayne—He walked out with $58 million—thanks very much. He performed very well with a big loan from shareholders.
Senator CONROY—He ran a monopoly.
Mr Mayne—My grandmother could have run that one.
Senator CONROY—That is right.
Mr Mayne—Loans are not inherently bad. Yes, shareholders take a risk if the shares flop, but as long as the loan is disclosed—
Senator CONROY—But isn’t the point to align the interests? Is this a mechanism which clouds the alignment?
Mr Mayne—You do not want your CEO going bankrupt because the
share price falls. You actually want to protect your CEO from that sort
of hardship, I would say. You want your CEO to be well ‘incentivated’
to drive the share price higher. You do not want them worrying about
losing millions of dollars and worrying about whether they can pay the
loan back if they are struck by some extraneous factor which destroys
the whole industry. You can never be sure with these things.
Senator CONROY—So shareholders can lose all their money, but the CEO should not have to worry about losing theirs?
Mr Mayne—I do not think you should have a contract where a CEO
can personally go broke if the company does not perform well. So, if
you are worried about that, do not go into a loan agreement; just have
options. Options are all about avoiding these large financial exposures
through loans and things.
Senator MURRAY—I will wrap up with this set of questions,
because I am conscious of time. I thought Senator Conroy’s questions
were very good, so that does not bother me. He covered many of the
areas I would cover. I want to talk to you about the independence of
directors. I think the independence area has been poorly defined by the
Corporate Governance Council, by ASIC, in this legislation and
everywhere else. I was interested to hear you laud an audit committee,
yet the directors who get on to an audit committee are appointed by the
board and the directors who get on to the board are appointed as a
result of somebody’s patronage—generally speaking, the dominant
management or the dominant financial interests. It is their patronage,
so the whole system is a web of patronage and all I can see is an audit
committee is patronage at arm’s length. I have the view that perhaps
the legislation should include a principles based admonition that
no-one can be appointed to certain committees—such as remuneration,
audit or risk—unless they are independent and that independence should
be defined on a principles based view as not being subject to the
patronage of dominant financial or dominant management interests in
appointment, tenure or remuneration. That would cut the link, I think,
with the oligarchic control which is present in all our main boards.
Mr Mayne—I think what you are saying is, in principle, a very
important thing: all board committees should be entirely independent.
In Australia, we have a system where you have large conflicts. A good
example is the way the brokerage firms and the big four accounting
firms provide office space to professional directors. Graeme Kraehe and
Catherine Walter are both part of the JB Were club. Geoff Tomlinson,
one of the NAB directors, had his office and consultancy at PWC. He
quickly closed the office and moved out when PWC were tendering for a
bit of work. I do agree with you that, in principle, you need that.
I think the practicality of it involves finding enough directors with
the requisite skills, particularly when you get below, say, the top 100
companies. I think there is an argument about that: that it can be
difficult to insist on the presence of an audit committee and insist on
the audit committee being entirely independent. It can get a bit
bureaucratic. There is one key point. There is going to be a most
important test this year on independent directors—that is, the largest
related party transaction we have seen in Australia in recent years,
which is the proposal for News Corporation to buy the Murdoch family
interests in Queensland Press for what is mooted to be about $2
billion. News Corp have said that all non-executive directors who are
independent are on the committee overseeing the sales process,
appointing the independent expert.
They have only ruled out one independent director—the former chairman
of the audit committee—because he is a long-serving investment banking
adviser to News Corp; he advised them on a series of deals. But
included on that committee are three former executives. The definition
is that if you have left a company for five years or thereabouts you
are deemed to be independent. I do not buy that for a minute. Ken
Cowley is Rupert’s longest-serving executive in Australia. How can he
be deemed independent and be sitting on a board committee, supposedly
at arm’s length of Rupert Murdoch, when he has worked for him for 40
Senator MURRAY—That would breach my patronage rule.
Mr Mayne—Completely, and there are two others there. How do you
deal with friends? Geoffrey Bible is one of Rupert Murdoch’s closest
friends, but he is deemed to be an independent director and he will sit
on this board.
Senator CONROY—How long have they been on the board?
Mr Mayne—Ken Cowley was the managing director in Australia for
20 years or so. I think Geoffrey Bible has been on the board for six or
Senator CONROY—I am not trying to catch you up about it.
Senator MURRAY—A principles based rule which said that if you
were subject to patronage then you were not independent would
automatically rule those people out.
Mr Mayne—I would absolutely welcome it.
Senator MURRAY—ASIC could easily adjudicate that. It is not a difficult concept.
Mr Mayne—There would be a sudden dearth of independent directors in Australia.
Mr Mayne—I completely agree with that. I grapple every day with the
question of my own independence in presenting myself as a shareholder
activist. For instance, I have just been invited to speak at the
Australian Institute of Company Directors conference in Port Douglas. I
was sitting there thinking: ‘Hang on, they are conferring a benefit on
me. They are putting me up at a nice resort. They are offering me the
golf day. That is going to be a benefit. I am actually reluctant about
that. I don’t want to owe them for anything.’ So I said, ‘Obviously
there is no fee and I am not staying for the golf day; I don’t want you
to be in a situation where you can be seen to have one over me.’
Rupert Murdoch flies his directors to New York business class six times
a year. It is a trophy board. You are honoured to be on that board and
you are in his debt for the fact that he has invited you onto that
board. Graham Kraehe’s status in Australia leapt when Rupert invited
him onto the board, but Graham Kraehe has not been the pioneer for
independence and removing related-party transactions that we had all
hoped for in the News Corp board. I have the feeling that he just does
not have the stomach to take on Rupert, because he feels honoured to be
on that board and he loves the six business class flights to New York
The whole question of patronage is very important. As a journalist, I
listed $40,000 worth of freebies that I received from corporates over a
10-year period working in newspapers, because I felt that these people
all owed me. Once you go to the footy or to the opera with them—you go
on a trip to Europe with Mayne Nickless, go to South Africa with
someone else or Lion Nathan flies you to New Zealand—you are in their
pocket. As a journalist, as a director or as a politician it applies
right across the board. Senator Conroy and I have had debates before
about AMP and the Olympics. I have a very strong view that to maintain
Senator CONROY—Do you think AMP thought it was value for money?
Mr Mayne—I do not think so, no.
ACTING CHAIR—Perhaps we should conclude our discussions. We thank you, Mr Mayne, for your contribution. We have gone considerably over time.
Mr Mayne—Yes, I am sorry about that.
ACTING CHAIR—The conversation has been interesting both for the committee and for the record.
Mr Mayne—I thank the committee.
CRIKEY: For more information read the CLERP 9 Minority Report from the Australian Democrats Senator Andrew Murray.