Back in early May, when the 10 directors of Macquarie Group received a formal application to join their board in a vote at the July 23 AGM, they didn’t have much to be worried about. In the 19 years Macquarie had been a public company, I was the only previous challenger, and I was resoundingly rejected with just 15.53% in favour at the 2006 AGM.
Contrast that with the five Macquarie incumbents who were re-elected at the 2014 AGM with an average 99.7% in favour.
Macquarie’s constitution is unusual because it prescribes a maximum of 10 directors but gives the board discretion to go higher. This happened in February 2014, when Sydney corporate lawyer Nicola Wakefield Evans was added to the board, and Macquarie temporarily had 11 directors until Peter Kirby and Helen Nugent retired at the AGM in July last year.
The appointment of Gordon Cairns last November brought Macquarie back up to its soft cap of 10 directors, which is low by Australian standards. ANZ and ASX have a maximum of 15 directors, AMP is at 16, BHP Billiton 20 and the likes of Rio Tinto and Brambles have no limit.
On receiving the nomination, Macquarie elected to play hardball on multiple fronts, the likes of which I’ve never experienced in 47 previous public company tilts over the past 15 years.
Firstly, it refused to use its discretion to allow shareholders to decide on appointing an 11th director and instead declared “no vacancy”. This used to be a common tactic deployed by boards against external candidates until the Gillard government changed the law in 2011 so that companies could not pick any number as a maximum but instead had to accept all outside candidates up to the constitutional maximum.
In other words, 50% plus 1 is now normally good enough to get elected, but not with Macquarie declaring “no vacancy” so that only the two most popular of the three candidates will be admitted into their club. It’s a prize for gold and silver but nothing for bronze, no matter how big the shareholder mandate.
The next hardball tactic was censorship of the submitted platform, during which the board removed references to Macquarie’s role in the disastrous $890 million Slater and Gordon capital raising earlier this year, which is now almost $400 million underwater.
Macquarie also demanded I fill in 32 pages of forms to satisfy the highly unusual “fit and proper person test” in its constitution.
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At first I declined, but then Macquarie sent all the election material to its 100,000 shareholders on June 15 and threatened to cancel the contest (see page 9 of the notice of meeting) if the forms weren’t completed. This was highly unusual, so after two hours of form filling, they were returned on June 23.
Fast forward to last Friday — just 13 days before the AGM — and the bank moved the goal posts again, this time inviting me to write to the directors and prove my credentials to satisfy a new “competency” component.
This includes requirements to demonstrate “outstanding and extensive senior commercial experience”, “cultural fit with existing board members” (whatever that means) and an “ability to work in a collegial manner”, among others. The deadline is 5pm tomorrow or else the board is still threatening to cancel the election, even though thousands of shareholders have already voted.
The final hardball tactic was a blatantly biased ballot paper (see page 26 of the notice of meeting). It’s one thing to oppose a candidate in the notice of meeting, but the ballot paper should be as neutral as possible, as the law requires in political elections.
Macquarie did not determine the voting order by lot and instead created two categories of election. The first is for the two board-endorsed incumbents (items 2a for Peter Warne and 2b for Gordon Cairns) and the second, with its own box, is item 3 for the uninvited outside interloper who gets a big bold AGAINST next to his name and yet another reminder within 3cm of the “for” box that he is “Not Board Endorsed”.
If a miracle were to happen and I somehow got 100% of the directed proxies in favour, this still probably wouldn’t be enough to succeed courtesy of the board’s decision to declare “no vacancy”.
This is because the incumbents will get the usual 99% and then the 74-year-old chairman Kevin McCann would be able to scoop up undirected proxies from shareholders who leave the resolution 3 box blank and vote them against the challenger, putting me back into the unwinnable third place with about 97% of the vote.
Back in the real world, based on recent experience, I’ll be lucky to get 3% — if the board even allows the election to proceed.
The lesson from this saga is that some Australian directors are needlessly paranoid about contested elections even though no self-nominated candidate opposed by the board and not backed by a substantial shareholder has ever been elected to an ASX 300 board.
Clearly there is a role here for an independent umpire such as ASIC, APRA, the AEC or the ASX to get involved running contested corporate elections, as occurs with union elections.
I hope such a body would recognise the conflict of interest of directors designing their own election rules, and bring some fairness to the table, plus an approach that actually lets the shareholders decide.