The Orica
AGM in Sydney on December 21 was further evidence of the
rising standard of debate in Australia at AGMs. The
board got a real shellacking from a whole range of
erudite and well-spoken shareholders.
And even the voting was pretty
aggressive with the options package for executive
directors only getting about 71 per cent of the vote in
favour.
The best debate at AGMs in 2000 has been
at companies whose shareholders have taken a bath -
Pasminco, HIH, Delta Gold and now Orica are the ones
that we've witnessed.
Orica chairman Ben Lochtenberg was very
charitable to Crikey. Twice he told shareholders that he
admired what we are trying to do and that "people
like you are needed in Australia" to apply pressure
so that directors "perform better".
The 44-year ICI veteran copped a lot of
flak but never lost his cool. The Australian
Shareholders' Association also did well. They got the
necessary 100 signatures to be allowed to distribute a
letter to shareholders with the notice of meeting which
called for directors who have served for more than five
years to be turfed out.
They did the same with Pacific Dunlop
and it was a very effecitve campaign. In the case of
Orica they attracted a whopping 5300 proxies from
shareholders holding 7.8 million shares - this was 10
per cent of the total voted on the resolution approving
the accounts. It also helps to drive ASA membership -
which is up above 7000 - and drive traffic on their
website which jumped 10-fold during the PacDun battle.
This is exactly the sort of thing which needs to be done
to raise the profile of shareholder pressure in
Australia.
Institutional shareholders came in for a
lot of flak for their subservient voting habits. Not a
single insto spoke during the four hour meeting even
though they've shared equally in the $1 billion bath
that shareholders have taken since the ICI PLC selldown
at about $12 a share in 1997. It's not struggling to
hold $5.
I got up and rather indulegently told
the meeting about my mixed feelings towards ICI Plc.
They are fantastic because my 101 year old grandfather
worked for them for 37 years until 1962 when he retired
as a regional director and they told him he'd probably
live for 5 years. 39 years later he's still on a
generous indexed pension with them.
That's the upside, the downside is the
way they've treated ICI Australia. Amid growing
speculation that they would mop up the minorities, ICI
Australia rode the chemical cycle which peaked around
the time the parent sold out. There was no mention in
the selling prospectus of all these clean up costs that
have now bitten Orica on the bum at the Botany plant.
There was another one-off $40 million abnormal cost this
year because the EPA no longer allows Orica to
incinerate the waste.
One shareholder and former Botany worker
Peter Graham asked whether Huntsman (half owned by
Packer) and Exxon Mobil would be sharing in the clean up
cost having recently bought into parts of the Botany
facility. Chairman Ben replied that they didn't take on
any of the liabilities which is different from ICI Plc
which niftily passed them onto all those unhappy punters
who bought their stock for more than double what it's
currently worth.
As if to rub salt into the wounds, ICI
Australia spent almost $30 million rebranding themselves
and then paid a way over the top $400 million for its
former parent's global explosives business. Orica is now
the biggest explosives company in the world and we
haven't got many world leaders Down Under. But this
expansion into all sorts of exotic places like
Venezeula, Estonia, Kazakstan and Uzbeckistan has so far
only succeeded in blowing up shareholder value.
ICI Plc spun off its successful
pharmaceutical division into a company called Zeneca a
few years back and grandpa is very satisfied with their
performance whilst becoming more and more disillusioned
with what has happened to ICI Plc. But good old Zeneca
rubbed more salt into Aussie wounds yesterday when they
terminated a distribution deal with Orica's crop care
operations which generated about half of the division's
profits. Chairman Ben said he was unaware of any more
parental legacies that were left to come back and bite
shareholders in the future. Let's hope that's the last
we ever hear of ICI Plc and Zeneca.
The Orica board is very much a
reflection of the Melbourne business establishment which
has performed far worse than the Sydney business
establishmnt over the years. There is former BHP finance
types Geoff Heeley and Tony Larkin (now Orica CFO),
along with ousted ANZ CEO Don Mercer, former Clayton Utz
managing partner Catherine Walter and Biota chairman
Brian Healey. The Denver-based global explosive boss
Graham Liebelt sits on the board and the only other
non-Melbourne director is former Tubemakers CEO Tony
Daniels.
When prodded into finally speaking to
shareholders Daniels rather disingenuously claimed he
was not part of the Melbourne BHP club because he lived
in Sydney and BHP slapped a hostile bid on the table
just one month before he retired. Yes, but Tony, BHP
already owned 50 per cent of Tubemakers and they
appointed you to run that company. You were part of Club
BHP.
The resolution to re-elect Daniels was
defeated from the floor, mainly because of what Crikey
told the meeting, backed up by ASA chairman Ted Rofe. I
told shareholders that the only worse performing
director in Australia is the PM's brother, Stan Howard.
Since Daniels joined the Pacific Dunlop
and Pasminco boards, both have seen their share prices
more than halve. Combine that with the current problems
at Orica and you have a trifecta of dogs. On the credit
side he has the Commonwealth Bank and AGL - one is part
of an entire industry that has flourished and the other
still makes plenty from its gas monopoly in NSW.
Daniels got home comfortably in the end
with 88 per cent of the vote but this was lower than
what Nick Whitlam got at NRMA and you should remember it
is virtually unheard of for incumbent directors to get
less than 90 per cent of the vote.
Orica is the best example I've seen to
date of the problems caused by having the same cosy club
of directors running the companies and also running the
institutions that invest in these companies. Until April
this year, Tony Daniels was chairman of the $30 billion
NSW State Super fund. So he's the boss of one of
Australia's biggest funds but at the same time he's
destroying billions of dollars of money managed by funds
such as his. But it gets worse because as a director of
the Commonwealth Bank, he sits on top of Australia's
biggest fund with $73 billion under management.
That's $100 billion covered by the Orica
board, then you've got Catherine Walter who is a
director of the NAB which is Australia's second biggest
fund manager with $61 billion. Two of these funds, MLC
Life and National Australia Funds Management actually
appear in Orica's top 20 shareholders.
And then you've got Brian Healey being a
director of the $25 billion Queensland Investment
Corporation and a director of the $12 billion Portfolio
Partners fund. So all of this dreadfully performing
board sits on the boards of funds controlling $200
billion. Most of these people are also members of the
Australian Institute of Company Directors, which is the
directors' union and a very closed shop at that.
Chairman Ben said that the institutions
were broadly supportive of the company's strategy and
Catherine Walter told the meeting she had no influence
over what individual fund managers do. Yes, but that's
like Rupert Murdoch never telling his journalists to
write positive stories him - they just do it anyway
because they second guess what the boss wants. No
self-respecting NAB fund manager is going to try and
toss one of his or her directors off the board of
another company.
All up it was an excellent meeting. The
board are doing it tough in part through more bad luck
than bad management, but the shareholders are rightly
angry and the board were left in no doubt about their
feelings.
See IRG research reports
