As Joe Aston reported in The Australian Financial Review’s Rear Window column this morning, my public company tilt No. 48 is underway, with the Macquarie Group board set to sign off on the notice of meeting for its July 23 AGM at today’s board meeting in Sydney. The tilt was triggered by Macquarie’s involvement in the recent Slater and Gordon capital raising, which set a new low for the treatment of retail investors, as was explained in a four-part series for Crikey in recent weeks. Macquarie’s initial response to the tilt was to request a large exercise in form filling. In declining to co-operate, I politely suggested a better alternative than debating all this red tape would be for the board to negotiate terms for the nomination to be withdrawn. They were given a range of options in a letter I sent on Monday, explained in this extract:
Perhaps a more fruitful line of inquiry for Macquarie to examine relates to the circumstances in which I would be prepared to withdraw my nomination for the board before the Notice of Meeting is printed and distributed to shareholders. Ultimately, my goal is to improve the lot of retail shareholders in Australia and use shareholder activism to try and achieve greater accountability and transparency amongst ASX listed companies. I’m quite open about the leverage for governance reform which can be applied to companies courtesy of creating a contest for directors at the AGM and am considering using this method as a negotiating tool for the establishment of small but worthwhile precedents in the period ahead. Therefore, below are the circumstances in which I would be prepared to withdraw this nomination. There are a range of alternatives for the board to consider, but I will only withdraw if Macquarie agrees to implement proposals which total 5 points on the following tally board: Governance improvements sought from Macquarie Group Five points Macquarie agrees to appoint Stephen Mayne to fill a casual vacancy on the board at some point in the financial year ending June 30, 2016. The board would still be free to oppose Stephen’s re-election at the 2016 AGM if it believed the circumstances warranted this at the time. Four points Macquarie makes a public statement that it will use its best endeavours to encourage ASX-listed investment banking clients to raise new equity capital by now of a PAITREO structure in order to best protect the collective interest of Australian retail investors. Three points Macquarie will amend its constitution at the forthcoming AGM to lift its maximum number of directors from 10 to at least 12 but preferably 15 or, indeed, the Rio Tinto model of having no upper cap. Three points Macquarie undertakes to broaden its disclosure of voting results after its AGM by reporting the numbers of shareholders which directly voted or directed proxies for and against each resolution. Two points Nicholas Moore stands for re-election at the 2015 AGM and Macquarie publicly commits to nominating future CEOs for election on the normal three year election cycle. Two points Macquarie Group undertakes to conduct future equity capital raisings for its own purposes through a PAITREO structure, subject to market conditions at the time. One point Macquarie commits to include pictures of its directors and Key Management Personnel in the annual report. If I was a Macquarie director seeking to take the governance high road, not set an unusual precedent and simultaneously avoid distracting contests for board positions at the 2015 AGM, I would agree to the board expansion and the CEO standing for election to satisfy the 5 point criteria. Both would be unremarkable resolutions at the AGM and supported by the usual 98%+ of shares voted. If such an agreement could be reached, I would also be prepared to commit not to make any public reference to this negotiating process before September 1, 2015, thereby allowing the AGM and its aftermath to pass without any mention of this agreement.
Macquarie chairman Kevin McCann agreed to meet for an hour in Sydney on Tuesday, but he was not interested in negotiating away the competition that new director Gordon Cairns and remuneration committee chair Peter Warne will face at the AGM. He also confirmed that Macquarie proposes using the “no vacancy” tactic, which will probably make it statistically impossible to get elected. Macquarie’s constitution requires it have between five and 10 directors, and it is presently at the maximum of 10.  This means there is no room for a challenger, who will instead have to be more popular than one of the incumbents to get elected. Given that the typical Macquarie director gets re-elected with 99% in favour, it will be statistically impossible to win because, even with 100% of the directed proxies in favour, McCann would be able to use his undirected proxies to get my vote back below the least popular incumbent. The Rudd-Gillard government reformed the rort that allowed boards to pick any number they like for the maximum in order to play “no vacancy” against unwanted challengers, so this is the first time the tactic has been used against me since Ten Network Holdings in 2009. Best practice has boards operating below the cap so shareholders have the option of adding additional directors if necessary.