The first AGM of the newly listed Nine Entertainment Company on Wednesday was a strange affair that highlighted plenty of governance issues the directors ought to deal with.
It was former federal treasurer Peter Costello’s first AGM as a public company director and the first time he has sought a voting mandate for a position since the 2007 federal election. He sailed through with more than 99% of the proxies in favour and only one vote against in the show of hands from the floor.
Costello’s path to the Nine boardroom, as he described it during a chat after the meeting, was highly unusual. It dates back to when American vulture funds Oaktree and Apollo were seeking to take control of the company by profitably converting their debt holdings into equity in 2012-13.
The judge wanted to know who the directors of the new vehicle would be if he approved the scheme, and the lawyers for Apollo and Oaktree had to quickly rustle up some names. Costello took a call from the lawyers and agreed immediately to serve.
It was fitting, perhaps, that Nine’s first AGM as a public company was held at the offices of law firm Gilbert + Tobin on level 37 at 2 Park Street. The late Kerry Packer presided over Sydney for many years from his office 200 metres east of this venue at 54 Park Street. He also lost money when 2 Park Street was developed as the Citigroup tower in the 1990s.
The vulture funds and their lawyers also rustled up another former lawyer to be chairman of Nine, in the form of News Corp television veteran David Haslingden.
However, there are governance problems with this appointment, something that independent directors like Peter Costello will need to deal with.
Haslingden is presented as an “independent chairman” of Nine when he is not, courtesy of his position as the owner of two television production companies that supply the entire Australian industry.
I asked him to spell out to the AGM any related-party transactions with Nine, and he gave a lengthy answer detailing a documentary about great white sharks and a show called Rising Star, which is based on an Israeli singing competition.
Nine is said to have paid a hefty fee to take on option on this program from its chairman’s company, but the hype surrounding the format has subsided and it is no longer proceeding. The size of the fee has not been disclosed. It should have been.
Rising Star is also believed to have been offered to other networks, which is a strange state of affairs when you would expect the Nine chairman to be singularly focused on promoting the interests of Nine.
Costello used his campaign speech to talk about his skills and knowledge in corporate governance, and for 11 years he was the Australian politician responsible for ASIC and our corporate law regime.
After Nine’s chairman detailed his related party transactions with the company, I pointed out that Australia has lax laws when it comes to disclosing related party transactions and politely requested that future related party transactions be included in next year’s annual report. Haslingden said he would talk to the lawyers and ensure Nine complied with all applicable laws. He did say these dealings were fully disclosed to the board.
Unfortunately, it is difficult to see Costello stepping up to fix this governance problem at Nine when he, too, is a supplier of paid content to Nine’s competitors, in the form of his regular column in the Murdoch tabloids and occasional appearances on Ten’s The Bolt Report.
Asked why he was helping a competitor rather than appearing on Nine’s 10am program on Sunday morning, Financial Review Sunday, Costello ran a free speech defence and joked that he probably wouldn’t rate very well on the business program. He then stressed that he would be appearing on Nine’s Victorian election panel on November 29 and did likewise at the last federal election, when Nine had the best coverage and the highest ratings.
Good governance starts at the top with the chairman, so David Haslingden is not in any position to lecture Costello to enforce standards at Nine given his own conflicted position.
Indeed, when it came to the chairman’s re-election on Wednesday, I asked him to explain how he responded to the enormous negative publicity Nine received when its CEO David Gyngell got into a public brawl with Nine’s former proprietor, James Packer.
“Appropriately,” was the one-word answer, which seemed to make light of the situation.
Gyngell looked bored and disengaged throughout the meeting, which included presentations from the chairman and CFO Simon Kelly, but nothing from the high-profile CEO, who has pocketed more than $20 million from Nine over the past three years. In more than 400 AGMs, I’ve never seen a CEO not present when the CFO is given time at the lectern.
When asked to “sing for his supper” and explain how Nine retained the rights to rugby league when everyone assumed the fix was in for Lachlan Murdoch and Ten to link up with Foxtel on the deal, Gyngell gave long and at times rambling answer.
After the meeting, Gyngell successfully “fed the chooks” with all sorts of colourful comments, including that talk of a $1.5 billion AFL rights deal was a “complete joke” and that Nine wouldn’t need any regional affiliates in five years’ time given live internet streaming.
Prime Media’s new chairman, John Hartigan, effectively slapped that tosh down yesterday at his first AGM in charge of Seven’s major regional affiliate.
However, Gyngell’s strange ramblings had the effect of distracting the media’s attention away from all of the governance discussions at the Nine AGM, including the Bondi brawl and Costello’s comments.
There is much talk in the industry that Gyngell has become quite withdrawn since the Bondi brawl. With two young children and a successful float under his belt, it would not surprise if he headed for the exit some time soon.
Apollo and Oaktree still own 36% of Nine between them, and together have four representatives on the board, most of whom are offshore bankers.
Once they exit, Nine will again have an open register. It will need more than its current tally of just two indisputably independent directors.
If Gyngell goes, someone like David Haslingden, who had an excellent record building Fox globally, would be a good candidate to be CEO, but he would need to dispose of his television production companies to remove the spectre of conflicted interest.
Costello might make an alternative chairman, but the Future Fund chairman would need to rise above the pettiness of his media commentaries with Bolt and the Herald Sun.
Another alternative as Nine chairman would be former Foxtel and News Ltd CEO Kim Williams, although he would clearly need to come off the AFL Commission if taking on such a gig.
The media industry is quite strange in the way multi-hatted dealings with competitors and potential conflicts of interest tend to be glossed over. No one seems to be worried that a Murdoch man like Hamish McLennan is chairman of Ten and involved in the process to sell the company, potentially to a consortium including Foxtel.
And Eddie McGuire’s company, McGuire Media, has this week signed a contract with Seven to produce its VFL coverage. Isn’t Eddie meant to be a Nine man? And as an AFL club president, should Eddie be a supplier to the rights holder, who also has gigs with other rights holders such as Foxtel and Triple M?
It’s all rather incestuous with a few big fish in a small pond, but don’t expect the big media players doing all this stuff to independently cover these issues.