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Opinion: Board room bust ups bad news for investors

By Simon Louisson of NZPA

Friday 15th December 2006

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Investors on Wednesday were treated to the second mass resignation of independent company directors within a week.

Such behaviour is uncommon in New Zealand where boardroom stoushes are as rare as examples of directors quitting on issues of principle.

The two companies involved, energy company Vector and coal miner Pike River Coal Ltd (PRCL), dealt with the abrupt resignations in very different ways.

This reflected the fact that Vector is publicly listed while PRCL is only due to list in February and is not required to fully disclose material events. But PRCL is 61% owned by listed New Zealand Oil and Gas.

Vector immediately issued a statement to the stock exchange disclosing the resignations of the three leading businessmen -- Tony Gibbs of GPG, Greg Muir of Pumpkin Patch and John Goulter former Auckland Airport ceo -- and a brief explanation.

Chairman Michael Stiassny, whose abrasive leadership style was a prime cause of the resignations, then responded to journalists to give his view.

The three resignees were difficult to get hold of, but did essentially outline their positions to the media, if not revealing all.

In contrast, NZOG only revealed the bust-up in the PRCL boardroom after The New Zealand Herald exposed it following a leak. It said the directors had resigned for "personal reasons", a totally inadequate explanation that utterly lacks credibility.

The three who resigned -- Graeme Duncan, Denis Wood and James Ogden -- refused to comment publicly. The most one would say is that because it was not yet publicly listed, there was no need to, and even this he would not put his name to.

NZX was prompted to issue a "please explain" note to NZOG about the timing and reasons for the resignations, from which it got very little joy.

NZOG said the resignations only took effect at 5pm on the Thursday and it informed the exchange on the Friday morning.
It explained the three had quit because it "understood" they disagreed with NZOG's decision to take control of PRCL's listing in February.

It said it did not consider the resignations to be market sensitive and it only released the update after a story appeared in the Herald on Friday.

Professor Ray Meyer, who has assumed chairmanship of PRCL from Wood, has basically been unavailable to discuss the issue.

PCRL's mine near Greymouth will cost $174 million to develop.
There have been problems raising the capital and three false starts with the IPO. Unless and until NZOG is more upfront, they can expect further false starts or even never getting out of the starting blocks.

The Institute of Directors believes a mass resignation of independent directors is material.

"If it's a listed company and the entire bloc of non executive independent directors have resigned at the same time, around the same reason, at first blush that would clearly need disclosure," said the institute's head of research and policy Richard Baker.

Whether personalities came into the PRCL boardroom is unclear, but they certainly did at Vector. A New Zealand Herald profile of Stiassny once sought comment from 21 of his friends and associates and all refused to be named, such was their fear of him.

He denied being a bully and shouting at fellow directors but admitted to being "very black and white; very outcome focused, and there are some people that find that hard to deal with".

Thursday's board meeting sounded like the stormy culmination of ongoing battles. The troika demanded Stiassny step down. He refused, with the support of the other three directors and 75.1% owner, the Auckland Consumer Energy Trust. So the three resigned and stormed out.

Stiassny and director Bob Thompson were appointed by the trust but are deemed independent while Karen Sherry and Shale Chambers are both trustees.

Baker said resignation should always be completely and utterly the last resort for directors.

"When things get crunchy or tough, directors should wherever possible stay in the job to get things done.

"But sometimes they feel they can no longer add value to the board."

However, sharemarket commentator Brian Gaynor believes Stiassny should have stepped down as chairman.

"It would appear to me, if three of the directors are dissatisfied with the chairman, that the chairman should step down as chairman. He can still remain on the board and the directors should elect another chairman from within," he told Radio New Zealand.

"There is something wrong with this situation that you have three directors who are unhappy with the chairman, yet it is those directors who resign rather than the chairman who steps down from the chair."

New Zealand could ill afford to lose such seasoned businessmen from its small talent pool.

Gaynor said that former Telecom chairman Roderick Deane was right to step down as chair and from that board this year as a result of Telecom's poor and unsuccessful stand on regulatory issues.

Mike Smith caused a stir in 2002 when he stepped down from Fonterra's board citing problems with corporate governance. Although he said little publicly, it certainly shook Fonterra up.

There are some basic conflicts within the Vector structure which may be insoluable. The trust is a public body not particularly committed to free enterprise concepts while the three who resigned are rabid free marketeers.

"This is about free enterprise etcetera," said Stiassny.
The board had to recognise the trust owned three-quarters of the company, he added.

In turn, trust chairman Warren Kyd and the other three board members expressed confidence in Stiassny.

Muir said that as well as concerns about Stiassny's style, he was unhappy about the board's relationships with the trust and trustees.

They also had concerns about skill-set gaps on the board, which have just got a whole lot worse due to their resignations. Even with the three, there seems to be a remarkable lack of energy industry expertise.

The market initially reacted by wiping $220 million off Vector's value but recovered most of that by the end of the week.

Simon Botherway, of fund manager Brook Asset Management, also frets about the trust's level of influence.

"It's important for the confidence of all investors that there is a perception that everybody is represented and decisions are made in the best interests of all shareholders.

"Confidence in all directors is paramount in maintaining investor confidence. In that respect, the trust should be concerned," he said.

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