What is it about public company boards and their fear of outsiders offering themselves up for election? Seeing as no outsider in a widely owned ASX-listed company has ever been elected, it is hard to see why the incumbents are so scared. But scared they are. Or is it just paranoia? Crikey last week outlined the extraordinary steps that Macquarie Group has gone to stack the deck against its outside challenger (me) at this Thursday’s AGM. But Crikey can today reveal another sneaky defensive board move by some of our biggest corporate names. When BHP recently spun off its South32 ugly duckling inherited from the disastrous 2001 Billiton merger, it installed 71-year-old David Crawford as chairman. This was controversial because Crawford has a chequered record on public company boards and only finally agreed to resign from the BHP board after 21 years when he was given a new associated board gig. Given the way Alan Kohler described the Billiton merger as an "act of terrorism" against BHP shareholders in this celebrated 2006 column, it is amazing that one of the perpetrators is still presiding over the dilutive, over-priced assets that denied BHP shareholders what would probably have been a $100-plus share price at the top of the boom. As I am a long-time critic of Crawford, it would have been tempting to run against him at the inaugural South32 AGM last this year. Alas, he has conspired with his BHP board colleagues, led by chairman and Rupert Murdoch-apologist Jac Nasser, to install a sneaky clause in its constitution that creates a barrier to entry unlike anything else seen in the ASX 50. Go to page 29 of the South32 constitution and you’ll see the following words in article 8.1(j):
A person is eligible for election to the office of a director at a general meeting only if: (1) the person is in office as a director immediately before that meeting; (2) the person has been nominated by the Board for election at that meeting; or (3) the person has been nominated by at least the number of members required under the Act to give notice of a requisitioned resolution at a general meeting and, at least 45 Business Days but no more than 90 Business Days before the meeting, the company has been given.
The key barrier is in point three, which inserts a requirement for a nominee to receive support from 100 shareholders or investors who own at least 5% of the voting stock, the same onerous requirement for putting up a shareholder resolution. I’ve run for 48 public company boards over the past 15 years, which is more than the 35 examples the Australian Shareholders’ Association has found of the 100 signatures being successfully gathered by retail shareholders for a corporation action. It would have been preferable to put up resolutions rather than run for so many boards but, unlike in the United States, the Australian system does not make this easy, whereas it is relatively simply to nominate for a board -- until South32 was born. The BHP Billiton directors would never have got away with attempting to insert such a clause into their own constitution, but no one noticed when BHP Billiton shareholders were given a single vote on the South32 demerger, and it sneaked through without any public debate. The South32 board and its legal advisers would have known full well that Toll Holdings attempted a similar ruse in 2010, but it required a 75% super-majority and was firmly rejected by shareholders, as you can see in these proxy results. This is how the Toll directors explained the proposed constitutional change on page 4 of the notice of meeting for that AGM:
Rule 8.1(k) also introduces a minimum threshold of member support that candidates for election to the Board must meet before they can nominate to be Company directors. Currently, a person can nominate themselves to be a director and stand for election with the support of a single member. The new constitution requires candidates to have a minimum threshold (5% of voting rights or 100 members currently required by the law) of support from members which is equal to the level required to requisition a resolution circulate a members’ statement under the Corporations Act.
Interestingly, Toll never faced an external board challenge during its 23 years as a listed company. However, it did cop a much-deserved and quite excruciating AGM shellacking in 2009 over a $55 million executive pay rort. Rather than apologise for what happened and give the shareholders back some of these funds, the Toll board instead tried to erect a barrier that would make it harder for angry shareholders to impose new directors who weren’t so supportive of dominating founder and CEO Paul Little. It is for these reasons -- plus the saga that has unfolded at Essendon Football Club -- that I hope Victorian Premier Daniel Andrews heeds the megaphone diplomacy of Jeff Kennett and Ron Walker and doesn’t appoint Paul Little as the next chairman of the Victorian Grand Prix Corporation. There’s just too much baggage to give someone such a plum role -- unless, of course, Little offers to spend some of his $600 million-plus pile covering the exorbitant $50 million annual cost of the race.