Despite some pre-publicity suggesting institutional rumblings, Babcock
& Brown got through its second AGM with no meaningful opposition to
its pay or board, although we did manage to slug it out for more than two hours at the Four Seasons in Sydney on Friday.

The proxy advisory firms ISS and CGI, which often play the role of kingmaker at
AGMs, apparently took issue with a couple of resolutions but didn’t muster
much support, although this largely reflects the fact that 47% of
B&B’s shares are still owned by current and former executives.

Whilst John Singleton’s STW Holdings copped a 44.5% protest vote
(62.78 million proxies in favour and 50.34 million against) over its
remuneration report on Thursday due to concerns about CEO Russell
Tate’s pay structure, Babcock was applauded for comprehensively
explaining how its lucrative pay system works.

Macquarie Bank will certainly take heart that the company with
Australia’s second fattest pay packets got through its first
remuneration report vote with just 3.47% of the directed proxies

Given that the business press routinely fails to report voting outcomes, these were the three most opposed B&B resolutions:

Resolution Proxies in favourProxies againstPrimary vote in favour
Re-election of
James Fantaci
87.98m 12.49m 87.57%
Martin Rey’s
$250,000 options
72.32m 2.6m 96.58%
Remuneration report 96.8m 3.43m 96.53%

You’ve got to feel a little sorry for Fantaci, who runs the North
American operation out of New York and was the company’s seventh
employee when he joined 25 years ago. He’s joined the rare “re-elected
with less than 90% support” club because Babcock still doesn’t have a
clear majority of independent directors.

The addition in April of new independent Joe Raby, the former CEO of US
investment bank Donaldson Lufkin Jenrette before it was sold to CS
First Boston for $US11.5 billion in 2000, is quite a coup for Babcock
although it still has an executive chairman in Jim Babcock and there is
some dispute about whether deputy chairman Elisabeth Nosworthy is
genuinely independent given her deep affiliation with various Babcock

The Australian Shareholders Association had a big whack at Martin Rey’s
options, mainly because they were priced at $17.25 – the recent book
build price when $330 million was raised
by staff selling down from 54% to 47%. Sure, the stock is now up around
$20 after Friday’s profit upgrade, but giving an executive 250,000
performance-related options at $17.25 is a drop in the bucket compared
with previous hurdle-free issues and the massive cash bonuses on offer.

For instance, CEO Phil Green was issued 800,000 hurdle-free options at
$5 the day before the float in October 2004. I had a decent whack at
this during the debate about the remuneration report and later directly
asked Ernst & Young auditor Mark O’Sullivan whether it was a
“material mis-statement” to value them at $1.27 a share or $1.02
million in total when calculating that Green’s overall package was
worth $10.3 million in 2004.

Based on Friday’s close of $19.97, these 800,000 options are actually
worth $12 million so Green’s 2004 salary package is currently valued at
$21.3 million – more than double what the 2005 annual report states,
even though the auditor didn’t sign off until 30 March, 2006. Both
remuneration committee chairman Ian Martin and O’Sullivan hid behind
the lame accounting standard requiring historical accounting on the day
of issue in defending this material under-statement of the CEO’s

With up to $1 billion in option valuation understatement across our top
100 companies over the past five years, it really is time for Peter
Costello to step in and change the law because boards and auditors are
getting away with signing accounts that, when it comes to truly
revealing what a CEO is paid, are often a crock.

Peter Fray

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