Conference Review Conversations with the chairmen

Conversations with the chairmen

Question:

James MacKenzie FAICD: With the increased sophistication of institutional investors and the increasing role of proxy houses, you get to the annual general meeting (AGM) these days and there’s nothing new announced. What is announced that is relatively new is promulgated through the normal mechanisms contemporaneously and I think that’s reflected in the numbers of people who go to the AGM. At the Mirvac AGM last year, there were 67 shareholders present and they represented 0.09 per cent of the issued share capital of Mirvac. At the Pacific Brands AGM last year, there were 38 shareholders present and they represented 0.1 per cent of the issued capital.

Now those AGMs cost a couple of hundred thousand dollars to run and they serve as forums for people who have issues to mitigate and questions to ask, which I think are more functionally dealt with in direct contact with executive management. They become showpieces. The cost that I mentioned doesn’t factor in the time that people put into prepare the scripts and the answers to possible questions. It becomes an exercise for which no real benefit is derived. I think it’s time we moved to the American system.

Mark Johnson AO FAICD: If I have my history right I think the first English companies act that enshrined AGMs dates from about 1860. Karl Marx published Das Kapital in the 1880s. When I go to an AGM, I always think of it as just the price of capitalism. It’s something that you have got to do until someone devises a better alternative.

Question:Are directors underpaid?

Johnson: There is some very elementary supply and demand economics at work here. There are actually more people willing to be directors than there are director positions. In a sense, the boardroom is like a very undeveloped country and the labour of directors doesn’t actually get appropriate recompense when you think of legal liability, sometimes the workload and the fact that you are putting up your total capital, which is your reputation really. If you go wrong or some of your colleagues go wrong, your reputation can be shredded and it’s not a five year [situation]. If you lose your reputation, it’s done. It’s your life’s work. So the rewards are a bit asymmetric.

Having said that, I don’t think directors fees will go up nearly as fast as CEOs’ fees or remuneration because many of us don’t know really know how to do anything else and we are going to be available for boards because when you have worked for 30 or 40 years, it’s about all you know how to do.

MacKenzie: I was at a lunch recently that Alan Jury, who wrote the Chanticleer column for the Australian Financial Review spoke at. He spoke about a range of things but one thing surprised me. He said he had done some research on the way directors fees had moved over the past 10 years compared to the way in which CEOs remuneration had moved and in the context of how directors’ responsibilities had increased over the last 10 years. He asked himself whether non-executive directors in Australia had the ability to negotiate. I said there’s no doubt that institutional investors are looking for the best boards they can have for the companies they invest in.

So you are, as a board, going to have to pay well to attract people who institutional investors like. But, by the same token, shareholders are looking for value for money too. So it’s always going to be a balancing act.

Question: Personally do you think directors are underpaid?

Johnson: I would say that probably it’s about right now. There has got to be some discipline. Chairmen probably worry as much about getting the total of directors’ fees through the AGM as they do about many other things.

MacKenzie: I think it’s getting there. It has come off a low base. And, there’s been changes in the way directors are rewarded for the time that they spend in terms of the shares and retirement benefits and options and things like that were more prevalent and “allowable” 10 years ago than they are now.

Question:Is the chairman twice as important as any other director?

MacKenzie: The chairman’s role has changed over the last decade. The chairman does have responsibilities that aren’t defined in the corporations law.

Is it twice as important? I don’t think it is. I think that it’s just a different role and the effectiveness of the chairman, certainly the way I look at it, is a function of the way that he or she and the rest of the directors work together. It’s a leadership role, rather than a role of importance.

Johnson: When you look at it, there are the American chairmen who are the super executives, the Rupert Murdochs and the British chairmen, who are in a very ambiguous position to me – they are sometimes seen as super executives and the relationship with their CEOs must be quite difficult. I think the Australian chairman, by and large, is characterised as somebody whose prime responsibility is to make sure that the board works and you are defining the board as the group that with management is going to be influential on strategy and execution. That’s the role of an Australian chairman.

GOLF DAY RESULTS

The results from the conference golf day at Clearwater Golf Course, Christchurch are:

First place

Michael Rich GAICD

Bob Wales MAICD

Brian Griffin

Shelley Wales

Equal second

Terry Budge FAICD

Graeme Bowker FAICD

Bill Hassos MAICD

Allan Cooper

AND

Klaus L Albrecht MAICD

Christina Albrecht

Rob Elliott FAICD

Nearest to the pin

Christina Albrecht

Longest Drive

Nicholas Barnett MAICD

From time to time we hold the conference overseas to provide the opportunity to explore international governance issues, better understand business and trade links and to make connections with our director colleagues abroad. We did that this year by going to Christchurch and are pleased to advise that our 2011 conference will be held in Beijing from 18 to 21 May 2011. We hope to see you there.

Mark Johnson AO FAICD, Chairman, AGL Energy

James MacKenzie FAICD, Chairman, Mirvac Group and Pacific Brands