You’ve got to hand it to Don Argus. The former CEO of NAB, turned Australia’s most prolific board member, certainly is willing to speak his mind. The only problem is, Argus appears to be completely confused as to the role of company directors and the status of shareholders.
At the launch of an AICD/Mercer study in shareholder and institutional engagement, Argus decided to attack shareholders who weren’t happy with executive pay. Instead of taking action to protect their investment, Argus gave some blunt advice to shareholders. If investors didn’t like how a board unilaterally decided to pay its hired help, they should "sell their shares".
This comment is a perfect example of how Argus just doesn’t get it.
The role of directors is to protect the interests of shareholders (from a technical legal perspective, directors owe a duty to the company). In reality, directors essentially do two things: appoint the most senior executives, and sign off on significant corporation actions. Company directors and executives are stewards of the assets of a company -- they are supposed to act on behalf of shareholders to ensure that capital is allocated most effectively. It is the shareholders who own those assets, not the directors or executives.
For example, if a shareholder wants to buy shares in BHP Billiton, they would do so because they want exposure to the assets owned by BHP. These assets have been built over more than 100 years, using capital contributed by shareholders. If a shareholder in BHP is unhappy with how the board remunerates its executives, it is their right (and perhaps even their obligation) to do something about it. For someone such as Don Argus (who is paid very well by shareholders) to then say that shareholders should not complain about corporate governance issues, but instead "buy another company" indicates that he has grossly confused the role played by directors.
Moreover, Argus certainly isn’t the right person to be taking aim at shareholders.
As Stephen Mayne pointed out in Crikey
last week, Argus has been responsible for some of the most generous remuneration packages paid to poorly performed executives. Keith Lambert, who blew up hundreds of millions at Southcorp was paid more $6 million while Argus was a director. CK Chow, former head of Brambles, walked away with more than $4 million. While Chow was CEO of Brambles, the company lost hundreds of millions of dollars after literally losing 15 million pallets. According to the Australian Shareholders Association, during his time as CEO, Chow was paid lucrative performance bonuses, despite "not achieving a single strategic or financial objective".
But Argus’ failures weren’t limited to poor choice and overpayment of executives. Argus himself was head of NAB when it decided to purchase a US mortgage company called Homeside. Homeside ended up costing NAB almost $4 billion.
And that wasn’t the worst of it. While chairman of BHP, Argus oversaw the transfer of literally tens of billions of wealth
away from BHP shareholders, when he led the company into a merger with Billiton.
As part of the merger, BHP gave 43% of its assets, in exchange for Billiton’s assets. The problem was Billiton’s assets barely make any money where as BHP’s are a veritable gold mine (the including coal, iron ore, copper and oil). Thanks to Argus, BHP shareholders have seen around $40 billion of their wealth transferred to Billiton shareholders.
This is more than 10 times as bad as HIH or ABC Learning.
Argus doesn’t like investors taking action to protect their own interests because more than any other, he has been responsible for destruction of shareholder wealth and grotesque overpayment to poorly performed executives. In terms of shareholder returns, it seems that the sooner Don Argus fades away from the Australian corporate scene, the better.