The world’s biggest listed law firm, Slater and Gordon, have put up the shutters on the most controversial element of their recent capital raising involving the share entitlements of senior company insiders.

After being emailed a range of supplementary questions on Friday afternoon, Group CEO Andrew Grech inadvertently included Crikey in an email reply to his chief spin doctor, in which he wrote: “I think that’s all we should say, frankly. I’m not sure answering his questions will assist.”

The company provided an additional response this morning , which ignored all questions related to the share dealings of its board members and senior executives.

The original Slaters statement to Crikey came through at 12.50pm on Friday and has been added to the online version of Friday’s Crikey piece about the hugely different compensation outcomes achieved for non-participating retail and institutional investors in the $890 million capital raising.

The Weekend Australian produced a page lead about the lopsided result from the separate bookbuilds, including a reference to Grech receiving $1.8 million for renounced rights he sold through the institutional bookbuild on April 8. Grech would have received just $18,000 some time in early May if he’d sold in last Thursday’s retail auction, like thousands of retail investors did.

Surprisingly, The Australian Financial Review is yet to run a word in print on the whole saga after not coming out on Anzac Day and then declining to run this letter, which I submitted on Friday:

Just who is invited to be “sophisticated” in accelerated offers?

If politicians need any more evidence about the need to better protect retail investors in capital raisings, look no further than the outcome of Slater and Gordon’s $890 million two-for-three renounceable entitlement offer at $6.37.

The anything-goes system, which allows an accelerated institutional offer with a subsequent retail offer continues to deliver inferior results for small investors courtesy of the separate bookbuilds dealing with the respective shortfalls.

Why should non-participating institutional and “sophisticated” retail investors be able to pocket $1.13 for their Slater and Gordon rights two weeks ago, which is 13,000% more than the majority of the 5000 retail investors who declined to participate and will get just 1c in compensation in early May.

A particularly noteworthy element of this is the way that individual company insiders were given the opportunity to participate in the institutional offer.

For instance, based on ASX disclosures, it appears that long-time Slater and Gordon executive director Ken Fowlie collected $3.21 million for the 2.847 million rights he sold through the institutional bookbuild. If he’d waited for the retail offer, he would have collected just $28,470 for those same rights.

Given the institutional offer was done and dusted in 48 hours, how do we know that book-runners Citi and Macquarie presented the early participation option to other Slater and Gordon retail investors who have previously passed the “sophisticated investor” test?

The ASX and ASIC need to fix this mess. The obvious solution is to pool the proceeds from both bookbuilds and give all non-participants the same compensation.

So, where to from here? How about a shareholder resolution at this year’s Slater and Gordon AGM? After all, shareholder resolutions on environmental, social and governance issues are a healthy part of corporate democracy in other English-speaking countries. But, primarily for legal reasons, they are rarely launched in Australia.

US investors get to vote on hundreds of shareholder resolutions each year on a broad range of issues such as climate change, human rights, political donations and corporate governance.

Once Rupert Murdoch quit Australia for Delaware in 2004, I even did an SEC-endorsed shareholder resolution opposing the News Corp voting gerrymander in 2007. It received support from more than $5 billion worth of voted shares.

Until the late 1960s, US law was understood to preclude such shareholder resolutions in a manner very similar to the way they are viewed under the common law in Australia today.

That was until the 1970 US case Medical Committee for Human Rights v SEC. As the Vietnam War raged on, a US federal appeal court considered an SEC decision supporting Dow Chemical, which had refused to put a resolution on its AGM agenda such that “napalm shall not be sold to any buyer unless that buyer gives reasonable assurance that the substance will not be used on or against human beings”.

The court ruled such a resolution was valid and opened the way for the hundreds of resolutions now considered every year.

Back in 1970, that is the sort of case that a less commercial Slater and Gordon might very well have run pro bono in Australia.

In December last year, the Commonwealth Bank board (like Dow) refused to place on its AGM agenda the preferred resolution of the Australian Centre for Corporate Responsibility dealing with disclosure to shareholders of the bank’s financing of carbon emissions.

That resolution was framed in a manner similar to commonplace resolutions in the US. The ACCR (like the US Medical Committee) has filed suit in the Federal Court seeking a declaration the CBA board’s obligation was to consider the preferred ordinary resolution, not the special resolution proposing a constitutional change which prevailed.

The case will be heard on June 1, and the judge’s decision is likely to be available by mid-July.

I’ll be speaking at a fundraiser for the case in Melbourne this Thursday night. Wouldn’t it be nice if some of the millionaire left-wing lawyers on the Slater and Gordon share register agreed to kick in a few bob to help Environmental Justice Australia take on the $150 billion bank?

Peter Fray

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Peter Fray
Editor-in-chief of Crikey