It might have only been a 20-minute stay at the AGM of Alumina Ltd yesterday, but Melbourne’s newest and last remaining old boys network mining board got put through their paces for what is a pretty blatant rort.
For those who don’t know, Alumina Ltd is what’s called a postbox company. It doesn’t actually do anything because its only asset is a passive 40% stake in a global aluminium and bauxite joint venture, AWAC, run out of Pittsburg by Alcoa of America.
It was Crikey who first blew the whistle on this arrangement two years ago, and this is part of a whinge we had at the time about not getting any acknowledgment in the papers about the issues we raised at the first Alumina AGM after the WMC demerger in 2003:
Friday’s two-pronged attack from Crikey on outgoing WMC chairman Ian Burgess and then the board of Alumina, formed a key part of several reports in the Saturday papers. Alas, there wasn’t any attribution anywhere. It was Crikey who got up and said that Alumina was only a postbox and that five directors earning $85,000 a year and $212,500 for chairman Don Morley was clearly excessive.
Morley admitted that the AWAC joint venture only cost $3.5 million to run when it was part of WMC but this has now blown out to $8 million even though the only asset is a passive 40% stake in the AWAC joint venture which is controlled and run by Alcoa out of Pittsburg.
If ever there was an argument for calling an EGM to sack an entire board then Alumina is it. They’ve recycled tired old directors such as Mark “Pasminco, Mayne, Homeside” Rayner and retrenched BHP veteran Ron McNeilly. They are supported by long-standing WMC lawyer and Melbourne Club type Peter Hay and Don Morley who ran WMC’s finances for almost 20 years.
The board at least held off on any pay rise for 18 months but then this appeared on page 35 of the 2004 annual report: “It was determined not to grant fee increases during 2004. A total of $509,575 was paid in non-executive director fees in 2004 before the effect of the previous WMC Stock Appreciation Plan. The board did, however, commission an independent expert review of non-executive director remuneration, and taking into account their advice approved an increase in non-executive director fees of $25,000 per annum effective 1 January 2005.”
The tenor of Crikey’s attack yesterday was that the Alumina directors don’t have to do anything, so what on earth required 20 board meetings last year and who were the consultants who recommended the pay rises?
Morley revealed that Mercer, part of the Marsh & McLennan conglomerate currently in the sites of New York Attorney General Eliot Spitzer, actually recommended an even bigger increase but the board declined. He then made the rather big call that Alumina’s rising profits and strong performance “did reflect the contribution from these directors”.
Crikey told the meeting that his 105-year-old grandfather could handle the chores of being an Alumina director given that the AWAC joint venture is run out of Pittsburg. The only time they’ll really be needed is when Alcoa decides to make a takeover bid and at that point they would simply hire an investment bank to haggle over the price.
Sure, the old WMC chose its partner well and Alumina is now a $6 billion company, but the fact remains that it doesn’t need five directors taking home more than six figures a year, as will occur in 2005.