The AFR’s Pamela Williams has produced a shocking insight into the tactics used by NRMA (now IAG) chairman, James Strong, to unite what was possibly the most dysfunctional boardroom in the country. Williams noted that “within weeks of his arrival, Strong demanded an extraordinary gesture of fealty from his new boardroom – in the form of signed but undated letters of resignation from all directors”.
The move was not supported by all NRMA board members, with former NRMA director, Maree Callaghan, noting that:
Were there some ASIC investigation I would co-operate of course. But due to legal reasons, I cannot say other than I would not, and did not [submit a letter]. It is an issue of ethical and corporate governance. Hypothetically, a chairman could do anything if he had such a document.
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Callaghan makes a valid point. While a dysfunctional board can cripple a company, a Chairman possessing signed resignation letters would effectively render the rest of the board powerless. If for example, a majority of the board opposed a significant transaction, the Chair would have veto power over the majority decision – in reality, that would mean that a company has an effective board of one. (If an executive director had such a power, there would effectively be no functioning board at all representing shareholders).
Further, the ability of a Chair in practical terms to “fire” directors at will amounts to an effective usurpation of the rights of shareholders to elect their own board. As noted by Williams, the Corporations Act provides that “only the shareholders can remove a director of a public company and that attempts by directors to remove another director from office are void.” If the Chair were ever to rely on such “letter of resignation”, the form may look voluntary, but the substance would be anything but.
In Strong’s defence, his tactics have worked to an extent, with board warring seemingly diminishing since 2001. However, that has not overly helped IAG’s relative share price performance. While IAG’s share price has increased 61% since Strong became chairman in August 2001, it has lagged the S&P/ASX200, which increased by around 80% during the same period.