No Patsy

By Fiona Rotherham

Sunday 1st February 2004

You're never going to catch Patsy Reddy on a bad hair day. Immaculately groomed and cool as cucumber, she looks the part - a professional, conservative, well-to-do lawyer on the boards of two major Kiwi companies, Sky City Entertainment and Telecom.

The well-worn leather briefcase she totes is testament to how hard she works. As well as two public company directorships, Reddy is on the board of three other organisations, actively supports the arts and, with former Brierleys chief executive Paul Collins, is an executive director of Wellington-based investment company Active Equities.

As BIL's legal counsel for over a decade Reddy was involved in some of this country's biggest commercial deals, but has kept her public profile low. Imagine, then, her discomfort when she found herself at the centre of insider trading allegations late last year, after an anonymous letter entitled, "Did you know?" was sent to the media and investors. The letter claimed directors of casino company Sky City Entertainment had breached market disclosure obligations. In particular, it claimed Active Equities had a stake, via another company, in Sky City Leisure, a company majority-owned by Sky City Entertainment and chaired by Reddy's partner David Gascoigne.

It was enough to make even the unflappable Reddy get a little agitated. Both the Sky City board and the Securities Commission found no substance to the allegations. But the Shareholders' Association continues to question the potential conflict in Reddy having public company directorships and an active role in an investment company it dubs "mini-BIL".

Conflict issues have been raised before. Telecom shareholders at last October's annual meeting said there should have been greater disclosure about a related party transaction involving Active Equities - the sale in 2000 of Telecom's mobile radio business to rival TeamTalk for $36 million. At the time of the sale Active Equities held about 62% of Team Talk. Telecom chairman Roderick Deane defended the board's actions, saying Reddy was excluded from any board discussion on the original sale, Telecom's purchase of a $2.4 million 19.9% stake in Team Talk, and the subsequent sale of the stake back to Team Talk for $3.5 million last year.

Active Equities was also in the thick of the bitter and drawn out PPCS/Richmond takeover battle, from which it made a killing - more than $20 million. Active Equities acquired its Richmond stake from PPCS, which was forced to sell because it had been found to be in breach of the Richmond's constitution. The stake was later sold back to the South Island-based co-operative a year later for a whopping profit.

No adverse findings were made against Active Equities in an ensuing High Court trial. But when the investment company unsuccessfully sought costs, Justice Willie Young said a statutory declaration sworn by Paul Collins was false.

Reddy also came in for reproof. During a meeting with Richmond supporters she denied the existence of a PPCS guarantee over a Citibank loan which Active Equities obtained to buy its Richmond stake. She later said it was an indemnity, not a guarantee. Justice Young accepted Reddy believed what she was saying was strictly correct, but it was nonetheless misleading and her conduct further contributed to the suspicions surrounding Active Equities' role in the saga. An unrepentant Reddy reckons the judge got it wrong.

Despite the flak, colleagues defend Reddy as a strong proponent of corporate governance. Bruce Hancox (who recently resigned as an Active Equities director) says Reddy is the one in the company who ensured their deal-making was totally above-board. Collins agrees, saying Reddy has always ensured she's not involved in any deal where she can't publicly say she's done the right thing. But a former BIL colleague, who didn't want to be named, says Reddy was known for pushing the law to the limit, for being "innovative and creative in looking for solutions to investment challenges. That's what makes her particularly attractive to Collins and shareholders at Active Equities."

At the boardroom table she's said to be a big contributor, respected by her mainly male colleagues for her financial astuteness and diligence. While tough, she is persuasive rather than confrontational. And she's personable. Jim Farmer QC recalls sitting at an Air New Zealand board meeting where Sir Ron Trotter was extolling the virtues of a new chief executive and said, "He's no patsy." All the directors, including Reddy, roared with laughter.

How did this diminutive woman lawyer become one of our most experienced company directors? There was no grand plan. Aged 17, Reddy left her Hamilton home to study law at Victoria University simply to escape parental supervision. After graduating and a stint lecturing in law at the university, Reddy was made a partner in law firm Watts Patterson (now Minter Ellison) within 18 months. "Everyone recognised she had star quality," says managing partner Peter Rowe.

Her focus on commercial law and taxation saw her involved in a eurobond financing transaction for BIL in 1986. During a chance meeting in a lift with Paul Collins, he invited her to come and be legal counsel for BIL and "do some exciting deals". Reddy was cautious about such a big move, working part-time at BIL for some months to ensure she was doing the right thing before finally leaving the law firm.

It was not uncommon for BIL's small team to regularly work 70 to 100 hours a week. Reddy flourished under that workload, acting more as a project manager than in-house lawyer. She became a director through BIL, starting out on the board of Southern Petroleum. Over the years she and Collins became a tight team and few were surprised to see her follow him when he was ousted from BIL in 1998.

At Collins' suggestion they set up Active Equities with Hancox. Its raison d'etre is taking strategic stakes in small New Zealand companies and helping them expand. Four years ago it raised $40 million from wealthy private investors, including the likes of Craig Heatley, Sir Ron Trotter, Tim Glasson, Jenny Gibbs and John Hart. The plan is to keep the company small. The lesson learnt from BIL was the bigger you are, the harder it is to make the capital earn its way.

Since formation, Active Equities has made an after-tax return of 38%, or 8.5% compound per annum, and $10 million of the original shareholder capital has already been paid back. However the 2003 annual report says the return, while respectable, is inadequate and below the directors' own targets. It was significantly boosted by the more than $20 million made on the Richmond deal. Collins says Active Equities is no mini-BIL. The chief difference is if the company doesn't make money the directors don't get paid. They make nothing if the return is under 5% per annum and share up to 20% of the profit if it rises over 20%. It keeps them focused on results.

Collins reckons Reddy has succeeded commercially due to her mixture of skills. "She has a huge fund of common sense, she is extremely intelligent, she has a great personality and is a very hard worker."

She works and plays hard. "She can talk about politics and business or a great brand of mascara. She's good at the girly stuff too," says friend Gisella Carr. Her wide range of interests include a passion for the arts and she has an extensive collection of New Zealand art, clothes and jewellery. Both she and Gascoigne are active in arts administration. Reddy is on Victoria University's Adam Art Gallery advisory board and is a director of the New Zealand Festival of the Arts.

Auckland's Sky City casino, built a decade ago, is Reddy's biggest commercial achievement. After a BIL/Harrahs consortium was given two years to get the casino up and running, Reddy was made "the champion of the cause" for the $520 million project. Against the odds, the casino opened on time.

Sky City chief executive Evan Davies says the only time he's seen Reddy look less than dignified is on construction sites. They don't make steel-capped boots to fit Reddy's petite feet. She had to clump around in "boat-sized" boots. She's convinced she would have been safer wearing her high heels (she has a huge but undisclosed number of shoes). But as always, she was determined to be within the law.

Above the law
The issue is simple, says Shareholders' Association chairperson Bruce Sheppard. Patsy Reddy can be a corporate raider or a public company director, but shouldn't combine the two. "She can't do both convincingly because she has a track record of not avoiding conflict."

Reddy responds by pulling out a letter from Sheppard to Telecom dated October 2002. The letter states: "While I went into your annual general meeting with some disquiet regarding Patsy Reddy's background and, in particular, her involvement with Brierley Investments and now with Paul Collins at Active Equities, I have to say that that disquiet was without foundation and she clearly provides sound leadership of your remuneration committee."

Round one, Reddy. But there is no doubt of the potential for conflict between her dual roles. That's why she has rejected offers of other public company directorships. Her Sky City and Telecom directorships pre-date Active Equities. The ever-cautious Reddy claims to have made sure conflict doesn't occur at either. After seeking legal advice from external lawyers for Sky City and Telecom in 2001, Reddy introduced Chinese Wall procedures as provided for in the Securities Market Act. She won't make public these procedures because of the risk that may "cause a diversion into different people's perceptions about the detail of particular rules." Translated, she's sensitive about the issue and wants it to die down.

The latest allegations follow the purchase of convertible notes by Port Stafford in Sky City Leisure (former Force Corporation). Port Stafford was set up to invest in listed companies and is a joint venture company 50/50 owned by Active Equities and Jarden Corporation. Reddy says she has no relevant interest in any equities held by Port Stafford. Its directors have signed written undertakings to abide by the Chinese Wall rules, which include not buying shares in Sky City or Telecom. The decision to buy the Sky City Leisure notes was made by Active Equities' investment manager Geoff Davis.

Sheppard admits Reddy has complied with the law in both the Sky City and Telecom cases but says to Ma and Pa investors they looked "whiffy". Rod McGeoch, who's also on the Telecom board, claims the Shareholders Association is trying to apply a standard to directors that is above the law. A similar "quaint notion of what looks good" is being sought by Australian shareholder activists, he says. "They're using people's reputations, in this case Patsy's, to raise debate about an issue. It is quite improper."

But perception is a big driver of corporate behaviour. Former Sky City director Sir Peter Elworthy says in principle there's no problem being a corporate raider and a public company director. But in practise, it is difficult for directors in New Zealand's small market to give the perception of avoiding conflict even when they have done so.

"The problem is the perception of conflict has to be avoided as much as in actual terms. I personally think directors have to meet a standard that is much higher than the law."

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No Patsy

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