Westfield EGM (2004)

Details
Company: Westfield Holdings Limited
Type: Extraordinary General Meeting
Date: 25 June 2004
Chairman: Frank Lowy (executive)
CEO: Stephen Lowy and Peter Lowy

Pre-AGM
This was the meeting to merge the three Westfield companies (Westfield Holdings, Westfield Trust and Westfield America Trust) into one "stapled security". It was essentially reversing what had been done over a decade earlier when Westfield was split up into these 3 companies for tax reasons, which were now redundant because of the dividend imputation system.

As usual with these sorts of meetings, I got a small phonebook size report to wade through. I had quite a lot of difficulty understanding this report, as would I assume most shareholders. As mentioned in my previous Westfield report, Frank Lowy is quite a dominating chairman, I personally still don't have the confidence to stand up and have a long argument with him on the floor of the meeting. So I came up with the only question that I knew I could back up almost 100%, however it was also a question that I expected to get a "yes" answer to (i.e. I was just checking someting which for whatever reason, was omited from the report).

Questions and Voting
Me: I didn't see this in the report so I was hoping you could clarify this for me. Will the audit committee of the newly formed company be comprised entirely of non-executive directors?

Frank Lowy: Yes, I think so. (One of the other directors leans over to speak with him). I've just been told that I was misinformed. The audit committee will have one executive director, but the rest are non-executive directors.

WHAT??!! Now I admit that after hearing that all I did was thank him for his question and sat down. Not because I accepted it, but because I did not expect it. Like I said before, I asked that question expecting an unequivocal yes response. To not have an audit committee comprised entirely of non-executive directors goes against virtually all the academic research for an effective audit committee. If you need to ask the management team something, call them in and ask them, but don't put one of them on the committee. I repeat, do not put one of them on the committee. You cannot expect the other members of the committee to freely express themselves if there is an executive there.

That was completely unexpected to me. Couple that with Frank Lowy's intimidating personality and I was unwilling to get up and ask a follow up question.

It's definitely the last time I'm asking a textbook question without considering that there will not be a textbook answer. If I had my time again I would have kept up my questioning on him. Frank Lowy would have disagreed, and he would have his way. But that is a blatant disregard for what should be obvious corporate practice. You don't put executives on the audit committee!!

Voting: For the merger. It was a good proposal. Some people who purchased their shares prior to 1986 would lose CGT-free status (including Frank Lowy himself), but as that didn't include me I wasn't really too concerned.

Post-AGM
Going into the meeting I was stopped by one of the security guards who asked me what my business here was. I said that I was a shareholder and was coming to vote my shares. He reluctantly let me in. Haven't you ever seen a shareholder who wears a hooded jumper with jeans, sneakers and a big backpack? :)

Commonwealth Bank AGM (2003)

Details
Company: Commonwealth Bank Limited
Type: Annual General Meeting
Date: 31 October 2002
Chairman: John Ralph (independent)
CEO: David Murray

Pre-AGM
If you go to the Commonwealth Bank website you can still see a webcast of the AGM. Go up to 1 hour 50 minutes and 48 seconds then you can see my stellar performance!

Questions and Voting
Me:I noticed that there was no way of lodging proxies online. Will the bank be introducing one?

David Murray:Online proxies don’t have full legal support from the advice I have received. Will investigate the option.

Me:The Commonwealth Bank has had Ernst & Young as its auditor for the past 7 years. That to me would indicate that there’s been a compromising of their independence, either actual or apparent. Why has the bank kept the same auditor for the past 7 years and will it introduce a rotation of auditors, say, every 5 years?

John Ralph:Audit partners are required to rotate on a 5-year basis so that they are not prejudicing the independence of the auditor. There are processes in place to test the independence of the auditor and the audit firm in relation to the work they do for the bank.

John Schubert (Audit Committee Chairman):The important thing is to make sure that the same people aren’t involved for unduly long in the audit so that relationships can be formed that would be regarded in certain circumstances or at least perceived as impacting on independence. In relation to the firm, there is no requirement to change the firm. It is something the audit committee looks at in so far as there is an advantage in so doing. There’s always the question of what is in the overall interest bank, whether we are convinced that we can have the best people doing the work, the best firm doing the work for the bank at the time and ensuring that there is the required independence. The audit committee is absolutely convinced that we do have a fully independent audit process.

Voting:As per the board recommendations, nothing controversial here.

Post-AGM
I left half way through because I had a class at uni to go to. There were some people who asked questions about the bank manager who had stolen a large amount of money from a bank branch, some unionists who were upset about branch closures, an explanation of some technical financial definitions and one man who critisised John Ralph for saying the American "bathroom" rather than the Australian "toilet".

AMP AGM (2003)

Details
Company: AMP Limited
Type: Annual General Meeting
Date: 15 May 2003
Chairman: Peter Wilcox (independent)
CEO: Andrew Mohl

Pre-AGM
My second AGM, also the most heated I have been to. This was at the height of the scandals at AMP and there were some heated debates on the floor. Some 800 people attended, from memory, but many left during the meeting and only 200-300 were left at the end (which was about 5 hours later). I saw some faces which looked familiar: Peter Morgan from 452 Capital as well as Ali Moore and Ross Greenwood from Business Sunday.

Questions and Voting
I was planning on asking 2 questions, but did not. One was on the renumerations package, which was pulled before the meeting. The other was in relation to why the chairman had decided to vote all open proxies against Stephen Mayne, which he explained during his chairman's address. So I didn't end up asking any questions this time round.

Stephen Mayne was running for election to the board of directors, he was unsuccessful and gained only 11% of the vote. However, even if he had received 51% of the vote he still wouldn't have made it as he needed to get a higher percentage than another candidate and the two candidates with the lowest vote were Lord Killearn (80%) and Richard Grellman (82%).

Voting: I voted for Stephen Mayne, against Richard Grellman and against Lord Killearn. I have a lot of respect for Stephen Mayne and he had stated that voting against these two (who were the chairmen of the finance committee and audit committee during the crisis and should have gone) was the best way to get him onto the board. So I did.

Post-AGM
I got to meet Stephen Mayne - how exciting! I also had a bit of a talk to Justin McMurray, who had replaced Neil Woolrich as Crikey's business reporter following Neil Woolrich's move to the ABC. I mentioned how it's scary having to get up in front of everyone to ask questions and he agreed, pointing out that he had to gather up the courage to do so every time he did it.

Anyway, this still holds the record for the longest and most "lively" AGM I've been to.

Westfield AGM (2002)

Details
Company: Westfield Holdings Limited
Type: Annual General Meeting
Date: 13 November 2002
Chairman: Frank Lowy (executive)
CEO: Stephen Lowy and Peter Lowy


Pre-AGM
This was my first corporate AGM, and Frank Lowy is scary chairman if you annoy him (and disagreeing with him seems to do that pretty easily). Neil Woolrich (see below for his report) from Crikey (now an ABC journalist) and Giles Edwards from the ASA were also there and they asked most of the questions. It took a lot confidence for me to put my hand up in the air to ask a question.

Questions and Voting
Me: I don’t see anything in the executive remunerations package that links the bonuses to the industry or market shareholder returns. It doesn’t make sense to reward someone for increasing profit when everyone else is making bigger profits nor is it fair to punish someone who sees a fall in profit if it fell at a slower pace than everyone else. Would the board consider linking the executive bonuses to the shareholder returns of an ASX index?

Frank Lowy: The options package is designed so that the exercise price is always at a 10% premium to the share price when they are issued, so executives need to grow the company before they make any money on their options.

Neil Woolrich and the Giles Edwards both supported my question and did not accept Frank Lowys rationalle, but I got no further than his response. Neil Woolrich even included my question in his report when he said (sarcastically):

There's no point in repeating them all here because I was so patently wrong, as was the shareholder who stupidly backed up my assertion that there were no realistic performance hurdles on executive options.

Frank put this punter in his place by saying that they're issued at a premium to market price - that's the hurdle.

So there!

Voting: I voted against Fred Hilmer for re-election as director. He is a CEO, a full time position and he missed 3 out of the 11 board meetings. Lowy said that Hilmer was sick (or something else, that it was a fair reason is all I remember) for 1-2 meetings, but that meant that he still missed 1-2 meetings.



Post-AGM
I got to talk a bit to Neil Woolrich, he said I asked a good question. I told him that this was my first AGM and he said that as far as chairmen go, you can't go past Frank Lowy, if you can get through him you can get through anyone.

Westfield has a massive amount of corporate governance failings. Standard textbook concepts that are taught in every university corporate governance course. Perhaps the best way to understand this is to read Neil Woolrich's AGM report for Crikey, which appeared in the 13 November 2002 daily newsletter. It's a large report, so I've included it as a comment to this post (click on comments to read it).

However, Westfield has also been one of the best performing companies on the ASX with consistent shareholder returns of 20-40% over the medium term for the past 40 years. In fact, $10,000 invested in 1960, with all dividends reinvested, would be worth over $100 million today! So I guess a lot of people are willing to overlook some "minor" imperfections.

Corporate Governance Check List

I've wrote up a list of 12 criteria, later expanded to 22, on which I will be basing most of my questions at the AGMs which I attend. I created them out of a number of sources inlcuding what I've learned at uni (accounting and corporate law subjects), the Australian Shareholders Association website and Stephen Mayne from Crikey. So, in no particular order:
Board of directors

1. A majority of directors should be independent non-executive directors.
2. The chairman should be an independent non-executive director. They should definitely not be the CEO.
3. No director should sit on more than 5 boards of publicly listed companies. A chairmanship counts as 3 directorships.
4. Directors should have a very high or perfect attendance record.
5. The board should have at least 1 director with knowledge of the company's industry and at least 1 director with financial/accounting knowledge.
6. Executives of unrelated companies should not be directors.

Committees

1. The company should have, at minimum, an Audit Committee, a Remuneration Committee and a Nominations Committee.
2. All committes should be comprised of a majority of independent non-executive directors, the audit committee should be comprised entirely of independent non-executive directors.
   
3. The chairman of each committee should be an independent non-executive director.
4. Members of committees should have a very high or perfect attendance record.

Non-executive director remuneration

1. Non-executive directors should receive a flat fee. They should not be given performance bonus.
   
2. Non -executive directors should not be given ‘golden handcuffs’ (retirement benefits after serving on the board for a certain number of years).

Executive remuneration

1. Perfomance bonuses should pass performance hurdles that are set beforehand.
   
2. Any options must be issued at a premium to the market (i.e. no in the money options).
3. The company must perform better than the market/industry/sector.
4. Short term performance should be determined by EPS growth or ROE.
   
5. Long term performance should be determined by total shareholder return (TSR).
6. There should be a good balance of short term (12 months) and long term (3-5 years) performance bonuses.

External auditor

1. The external auditor must not provide any non-audit services to the company.
2. Former auditors should not be appointed directors while the company is still being audited by the ex-partner's former firm.
3. The audit partner/firm should be rotated every 5 years at most.

Political donations

1. No political donations should be made. It is up to individual shareholders to make that decision.

Just found out how to do headings

*So that's how you do headings!
Just set up my account. There might be some changes while I work out what works best. Here is a list of what I plan to do over the coming weeks:

1. Put up a list of links (ASX, ASA, Crikey, etc).
2. Put up my corporate governance check list, covering things from the board and committees to the external auditor.
3. Do my best to write up AGM reports for my precious AGMs. I've been to 4 (Westfield 2002, AMP 2003, Commonwealth Bank 2003 and Westfield 2004). I don't have all the details of these AGMs, so they won't be the best, but atleast it will add some content.
4. Write up a pre-AGM report for Rinker. I'll be attending their AGM on the 18th of July.
   

Seeing as I'm mainly procrastinating (I've got an exam tomorrow), I'll probably leave it at that for now. I might make another post next week when my exams are over.

* I've done a bit of editing. Just experimenting at the moment