At a time when successful companies are moving to lock in their successful key personnel, there is a building chorus of dissatisfaction being directed squarely at Australia’s institutional investors over their increasing interference in management process
At a time when successful companies are moving to lock in their successful key personnel, there is a building chorus of dissatisfaction being directed squarely at Australia’s institutional investors over their increasing interference in management processes.
It is particularly so in Western Australia’s resources sector, which is battling skills shortages and rising production costs to reap the huge rewards currently on offer from the commodities markets.
It is usually the high salary packages and performance-based incentive schemes, golden handcuffs to lock in top performers, that get the headlines.
But there is a feeling among companies, and even some stockbrokers, that institutional investors’ interference is becoming more pervasive and eventually damaging.
This was recently the case with Consolidated Minerals managing director Michael Kiernan and Alinta CEO Bob Browning.
Mr Kiernan had his $16 million, five-year employment contract torn up after institutional investors decided it was too much. This prompted him to announce his intention to resign in June next year, followed a few days later by an outpouring of support that led to Mr Kiernan agreeing to remain for a further 12 months without a contract.
Mr Kiernan’s credentials for the company he founded nine years ago appear impeccable – from negative $28.5 million shareholders’ funds in June 1998 to $217.5 million, market capitalisation up from $15 million to around $824 million and $70 million in dividends paid.
Mr Kiernan told ConsMin’s annual meeting he could under-stand the institutions’ attitude.
“What they don't look at is the work these people do, the expertise they bring to the company and the continuity they bring,” he said.
“This industry is in the middle of a boom and it’s difficult to get good staff. The easiest way to get good staff is to look around at other successful companies and take theirs. That's why these golden handcuffs are very important to keep our people’s noses to the grindstone, or else someone else will pinch them.”
Word that he was leaving caused Consolidated’s share price to plunge from $4.33 on October 3 to $3 by week’s end, before rising back to $3.12. The drop wiped $264 million off Consolidated’s market capitalisation and about $2.55 million off the value of Mr Kiernan’s 2.11 million share holding.
The upside was that shares in Monarch Resources, which Mr Kiernan and others floated in 2002, jumped from 20 cents to 34 cents in about the same time, to since hover around 33 cents. This added about $6.4 million to the company’s market capitalisation and just less than $2 million to Mr Kiernan’s 30 per cent holding.
The speculative money is on Monarch being Mr Kiernan’s post Consolidated resources vehicle, but while he expects to play a greater role with Monarch in the future, he is currently not looking past Consolidated.
Alinta CEO Bob Browning got a beating from institutional shareholders over his history making $1.69 billion purchase of Duke Energy’s Australian assets that culminated in his options package being voted down at a subsequent AGM.
He told WA Business News at the time he was going to prove his critics wrong and, using the share price as a yardstick, he has. Since the deal was done mid last year, Alinta’s share price has jumped from about $6 to nearly $11.
Jubilee Mines executive chair-man Kerry Harmanis just wants the institutional investors to keep their noses out of his business.
“Corporate governance models and other forms of interference have become too onerous, bog down management, restrict entrepreneurial spirit and ultimately create inefficiencies,” he said. “I stand by our own record and challenge the idea that so-called poor corporate governance leads to poor performance and increased business risk.
“The Jubilee team strongly supports a focused approach leading to high margins and generous shareholder returns. If you don’t like it, it’s a free world, please feel free to invest in another company and accept the returns and growth they have.
“Management of public companies is not in any way the role of shareholders. This interference is against the corporate stewardship principle, is not conducive to good business practices and ultimately maximising shareholder returns.”
