Friday 6th September 2019
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Nobody can doubt that John Hawkins’ nine-year reign as the New Zealand Shareholders’ Association chair transformed a rag-tag ginger group led by its flamboyant founder, Bruce Sheppard, into a highly respected professional organisation that listed companies ignore at their peril.
Sheppard, famous for wearing a Viking helmet to various AGMs, started NZSA in 2000 and Hawkins says nobody was more surprised than him that he became Sheppard’s successor. Sheppard had to step down because he had been shoulder-tapped to sit on the Financial Markets Authority’s establishment board.
“I’m not sure how I allowed myself to be talked into it,” Hawkins told the NZSA’s annual meeting in Christchurch last weekend.
Sheppard had asked him out to lunch with then Telecom chair Wayne Boyd, a lunch Boyd was paying for, and then introduced Hawkins as the NZSA’s next chair. Sheppard was certainly telling everybody who would listen why Hawkins was the man for the job.
Hawkins is quick to explain that NZSA’s unorthodox image back then was due to its lack of resources.
Hawkins is certainly cut from very different cloth and doesn’t have a flamboyant bone in his body. What he does have is the same passion Sheppard has for shareholders’ rights, particularly retail shareholders, and a very careful and measured approach to criticism.
Every company he singled out for complaints knew that criticism was well-founded and, to begin with at least, Hawkins reasoned – or shamed – companies into taking note of the point of view of the retail shareholder.
Hawkins said he had three objectives to start with – to provide a range of attractive shareholder services, to provide an independent voice to look at issues rather than the people involved and to ensure NZSA “could work with others but not for them.”
Among the milestones of his reign was a number of property trusts deciding to corporatise and internalise their management to eliminate the inherent conflict of interests between a trust and its external manager.
In Argosy Property Trust’s case, NZSA accounted for 7.6 percent of the votes cast and held the balance of power that saw that corporatisation achieved, Hawkins said.
Hawkins lamented that interference from Vital Healthcare Property Trust’s “myopic” institutional shareholders failed to get that trust’s corporatisation over the line, with dire consequences to Vital’s investors.
Canada-based NorthWest Healthcare Property REIT swooped in and bought Vital’s management contract in 2011 for $11.5 million and has since extracted more than $120 million in gross fees from Vital.
It took concerted pushback from investors recently to prevent NorthWest from causing Vital to buy some over-priced Australian properties.
A key battlefield for NZSA and a fight not yet convincingly won was the practice of raising fresh capital via placements.
NZSA has strenuously argued for rights issues that treat all shareholders equally, mostly trying to use reason and logic but occasionally giving offending companies a blast.
That involves explaining carefully to companies that, unless there’s a reason for particular urgency, such as a specific large purchase, NZX listing rules these days make rights issues relatively easy and quick.
“Nine years ago, most equity raising was done by placements, usually to mates and well-placed institutions” but all retail shareholders got were crumbs, Hawkins told the conference.
That is changing although Ebos’ recent $175 million placement – it had to be raised from $150 million because demand was so strong – was a major disappointment for NZSA.
The shares were sold at $19.70 each, an 8 percent discount to the prevailing share price, and retail shareholders were diluted without getting a sniff at the issue.
Hawkins gave Ebos both barrels, telling directors they should “hang their heads in shame.”
Ebos already had a strong balance sheet before the issue, Hawkins said at the time. “They could have done an accelerated rights issue to achieve the same outcome, which would have treated every investor fairly, but they have deliberately chosen not to.”
Perhaps the most prominent of NZSA’s achievements to date was the unseating one of technology components company Rakon’s executive directors, Darren Robinson, son of founder Warren Robinson, in 2016.
Unhappy at Rakon’s poor financial performance, NZSA sought to reduce the influence of the Robinson family to make way for better governance and “a stronger and more realistic commercial focus."
NZSA demonstrated for all to see that small shareholders could wield real power, Hawkins said.
“That action focused the attention of a lot of boards,” he said.
But there was that voice of reason again: shareholders should support paying good directors appropriately and well.
“However, they also deserve good information when making those decisions.”
It was the lack of information, not the quantum, that caused NZSA to vote its proxies against an increase in accounting software company Xero’s directors’ fees, Hawkins said.
But when infrastructure investor Infratil sought a large increase for directors’ fees and provided a wealth of supporting information, including a copy of the full independent consultant’s report, NZSA threw its support behind the company and cited it as an example of best practice.
Nevertheless, there are plenty of local examples that highlight the fallacy of the need to pay high salaries to get good managers, and Hawkins cited a number, including the former chief executives of Fonterra – Theo Spierings, Telecom – Paul Reynolds, and Fletcher Building – Mark Adamson, who walked away from large messes with very big payouts.
“Some of the lowest paid CEOs are the best performers and some of the highest are the worst.”
Other NZSA achievements have been more behind-the-scenes affairs, such as persuading NZX to get rid of its “20-minute rule” that used to give brokers a head start on price-sensitive company announcements.
And it was NZSA that persuaded NZX to leave full details of company announcements under their tickers on the NZX website. Previously, such announcements vanished after three months.
The organisation also fought tooth and nail to ensure commission salesmen and the likes of bank tellers couldn’t be called “financial advisers” in recent legislation.
It also persuaded virtually all New Zealand companies to start using a standard proxy form to make it easier for retail shareholders to vote.
NZSA successfully wielded its power as the voice of retail shareholders when two large companies, Spark and Z Energy, wanted to hold virtual-only annual shareholders’ meetings.
Both backed down and continue to hold actual meetings with a virtual option for out-of-towners.
Hawkins points out that Spark is a corporate backer of NZSA while Z Energy is not, but NZSA treated both equally.
Another battle not yet won is the conflict between different pieces of legislation that the collapse of insurance company CBL highlighted.
Reserve Bank rules kept the CBL insolvency problems secret for months and, arguably, years, despite other legislation requiring listed companies to disclose material information in a timely manner.
“Without a solution, I believe it’s inevitable for similar situations to arise again,” Hawkins said, adding that such secrecy allowing stock investors to continue to trade in ignorance is “unacceptable.”
All too often, regulators, by and large, are “sheep in wolf’s clothing.”
NZSA is also facing what looks to be a losing battle against NZX-listed companies being taken over via schemes of arrangement.
With a conventional takeover offer, bidders need to persuade shareholders holding 90 percent of a company’s shares to accept before they can compulsorily acquire the remaining shares.
But with a scheme of arrangement, they can gain control if 75 percent of shares are voted in favour as long as at least 50 percent of shares are voted.
“It’s my personal view that they reduce the ability to withstand a takeover. What is wrong with our executives and directors who, when things get a bit tough, would rather support an easy exit via a scheme of arrangement?”
Hawkins railed against brokers who try to persuade boards with unsolicited proposals for schemes of arrangement, which are often stitched up with the agreement of large institutional shareholders before retail shareholders know anything about them.
“Have the regulators ever looked at disclosure around that? I don’t have the answer, but it’s an interesting question,” Hawkins said.
Bowing out with the comment that “I’m yesterday’s man,” Hawkins warned his successor, Tony Mitchell, that “you’ve inherited a tiger by the tail” and “remember that all that is left to do is everything else.”
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