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Dec 23, 2009

Crikey’s Business Awards of the Year: organisations

Crikey names the businesses who made a splash in 2009 -- for all the right and wrong reasons.

Wilson Tuckey Memorial Kindness to Pensioners Award

To the generous Kangaroo: Australia’s national airline Qantas felt it necessary to compensate former CEO Geoff Dixon more than $3 million as a result of changes to Australia’s superannuation laws. That Dixon didn’t suffer any loss (he was able to utilise a loophole to avoid penalty) was apparently not a major concern for the Qantas board. The payment was even more charitable given Dixon’s employment contract (which Qantas publicly released in 2006) specifically stated that that “superannuation tax obligations will be met by Mr Dixon”.

Qantas’ generosity, which had already made Dicko the highest-paid aviation executive in the world didn’t stop there — in total, Dixon received more than $10.6 million for a mere five months work in 2009, including $319,544 under Qantas’ long-term incentive plan —  this was despite the plan notionally containing an earnings-per-share hurdle and Qantas’ earnings slumping falling by 88.6% last year. If that wasn’t bad enough, Dixon received a lavish termination payment — despite not actually being terminated.

Meanwhile, Qantas faces industrial action over Christmas after seeking to reduce conditions for baggage screeners, who are currently being paid $18 per hour.

Independent Board of the Year

To the board of Macquarie Airports Group, which recommended shareholders accept buy-back management rights from Macquarie Bank for the trifling sum of $345 million. The payment may have surprised long-term holders who had good memories. MAp’s 2002 prospectus noted that its owners would be able to remove their manager at any time through a simple majority vote. Alas, that was before MAp purchased a bunch of other airports and included pre-emptive rights (and financing covenants) making it almost impossible to remove its manager without its own consent (which apparently doesn’t come cheap). In case you’re wondering, the poison pills that necessitated the $345 million payment were negotiated by MAp’s manager, which happened to be Macquarie.

Despite the cost, MAp’s independent directors supported the buyout. Lead independent director South African Trevor Gerber also rejected a far cheaper rival offer from Mike Fitzpatrick’s Global Airports Group because it was “too uncertain and involve[d] too many risks for security holders”.

A few harsh types suggested that maybe MAp’s independent directors weren’t really that autonomous. This seemed a little harsh — just because Gerber is also a director of another Macquarie-owned joint venture and was previously a director of other Macquarie funds Macquarie Prologis Management and Macquarie Countrywide Trust until 2003, we presume that wouldn’t affect his views at all. Similarly, that another MAp independent director Michael Lee is also a director of the manager of DUET Group — a joint venture between AMP Capital and Macquarie is completely irrelevant. As was the fact that a third “independent” director of MAp, Jeffrey Conyers, is deputy-chairman of Macquarie Infrastructure and his wife, Ede Conyers, the CEO and 16% owner of ISIS Funds Management, another related party of Macquarie. It was most likely just a series of unfortunate coincidences.

While Macquarie happily pocketed $345 million, it wasn’t all good news — the Millionaire Factory will lose the tidy earner that was MAp’s annual management fees. Since 2002, MAp had paid Macquarie $546 million in fees.

‘Half Day’ of the Year

To investment bank UBS, which managed to shrug off problems at its Swiss-based parent (and some unfortunate CDO losses) to again top the investment bank league tables and in the process collect one of the great investment banking fees of all time.

About a year ago, as banks scrambled to raise equity, CBA hired Merrill Lynch to undertake a $2 billion placement. While no one has ever taken the blame, someone (at Merrills or CBA) forgot to tell investors about a profit warning causing the placement to be cancelled. CBA promptly fired Merrill and hired Matthew Grounds’ team at UBS.

On the morning of December 17 last year, UBS placed the couple of billion worth of CBA scrip and earned about $30 million for its trouble. [Technically, this occurred in 2008, but due to timing, missed out on making last years’ honours]

Harvey Pitt Award for Regulator of the Year

To the Australian Taxation Office, for realising a few weeks after TPG floated the Myer department store (reaping profits of $1.5 billion in the process), that the gains may be income, rather than capital, and that TPG might just owe some tax on the windfall. Despite a lengthy and public float process, the ATO waited until a couple of weeks after the money had been paid before asking for money from TPG — by then, the $1.5 billion had found its way from the Netherlands to a bunch of sunny islands (also known for their tax friendliness). Perhaps the ATO had been distracted by all those pictures of the lovely Jennifer Hawkins on Myer’s prospectus. TPG was kind enough to leave $45 in its NAB account though, enough for a few months’ bank fees.

ASIC comes in a close second for its bumbling of the Jodee Rich One.Tel case. In a scathing 3105 page judgement, Supreme Court Judge Robert Austin noted that “ASIC’s contentions have a superficial appeal, but time and again they were shown to be unpersuasive when the underlying financial detail was investigated”.  ASIC had hitched its case to star witnesses, Lachlan Murdoch and James Packer, who sadly appeared to develop a terrible case of amnesia in the witness box. About all Murdoch was able to recall was that Packer broke down crying in his kitchen, which wasn’t overly helpful to the prosecution’s case. ASIC’s incompetence even managed to make the bike-riding Jodee Rich, the man responsible for the collapse of two ASX-listed companies, and who received $90 million from One.Tel before its demise, appear to be the victim of the entire fiasco.

Saint Ignatius Award for the Missionaries of the Year

It wasn’t long ago that investment bankers were referred to as Masters of the Universe or Big Swinging D-cks. But the global financial crisis has relegated investment bankers to the popularity of used car salesmen or real estate agents; with many simply removing the “Big Swinging” prefix.

A UK study reported that bankers destroy £7 for every £1 of value they create, while former chairman of the US Federal Reserve, the respected Paul Volcker, opined that there was “little evidence innovation in financial markets has had a visible effect on the productivities of the economy”, and that the “only useful thing banks have invented in 20 years is the ATM”.

This didn’t appear to bother Goldman Sachs CEO Lloyd Blankfein, who claimed that the world’s highest-paid bankers were merely doing “God’s work”.

See you next year!

Adam Schwab is the author of Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed (featuring detailed analysis of what went wrong at ABC Learning Centres, Allco, MFS, Telstra, Asciano and many more). Available in March 2010.

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