Shareholder Activist, Crikey Founder, Publisher Stephen Mayne.

Shareholder Activist, Crikey Founder, Publisher www.maynereport.com

Stephen MayneStephen Mayne

• “Do you set out to be offensive or it is just natural?”

- Kerry Packer, PBL AGM, 2000.

• “That’s the first time anyone’s ever interrupted our AGM – I’ll get you later.” – Gerry Harvey, Harvey Norman AGM, 2001.

• “As you know Mr Mayne, I don’t subscribe to your rubbish” - Solly Lew, Coles Myer AGM, 2002.

• “You’re free to fire me any time, Mr Mayne” – Rupert Murdoch, News Corp AGM, 2004.

• “What are you going to bring up next, the assault charge?” – John Singleton, STW AGM, 2005.

• “People like Stephen Mayne don’t deserve a place in society.” – Alan Jones, 2005.

Popular as EverPopular as Ever

Woolworths, 2000: 54.74% NRMA, 2000: 45.59% CommBank, 2000: 39.71% AMP, 2000: 33.89% WA News, 2000: 28.41% John Fairfax, 2001: 20.58% ASX, 2002: 18.70% MacBank, 2006: 15.49% Gunns, 2005: 14.70% Telstra, 2000: 14.65% ASX, 2000: 13.52% News Corp, 2002: 12.89% David Jones, 2000: 11.46% AMP, 2003: 11.41%

PMP, 2001: 11.24% ASX, 2001: 10.69% NRMA, 2001: 10.61% Telstra, 2006: 9.53% NAB, 2000: 9.14% Fairfax, 2005: 7.85% Spotless, 2001: 7.69% Telstra, 2001: 4.7% SBC, 2001: 3.85% Woolworths, 2006: 3.00% Axa, 2001: 1.1% Westfield, 2000: 0.37%

Average, 2000-08: 15.44%

29 Failed Board Tilts29 Failed Board Tilts

President Doncaster Chess Club 1988 (unopposed)

Kennett’s seat of Burwood 1999 (6.7%, 3rd of 5)

Melbourne Lord Mayor 2001 (2.5%, 13th of 19)

RACV 2002 (7.54%, 4th of 6)

Melbourne Press Club 2002 (17th and last)

Copyright Agency Ltd 2002 (19.5%, 3rd of 4)

RACV 2005 (4th of 4, 14.5%,)

President local kinder 2005 (unopposed)

Wife elected to $2bn RACV board 2006 (beat 5 old blokes)

Victorian election 2006 (1.33%, only beat DLP)

Costello’s seat 2007 (1.95%, 4th of 8)

Other failures and three winsOther failures and three wins

2008: Centro, MFS, Allco, ABC Learning, various finance and property companies.

How will regulators respond?

2001: HIH, Pasminco, One-tel, Ansett

Regulatory response focused on audit independence, remuneration and continuous disclosure.

Current governance debaclesCurrent governance debacles

• Long-serving CEO with big ego• Identical board on parent and trust• Mis-classification of debt• Trust debt not consolidated• Opaque structure difficult to understand• Cross-collatoral obligations• Management and staff highly geared into stock• Paid too much for US assets• Too much short term debt

Centro - what went wrong?Centro - what went wrong?

• Founder CEO with big ego – King and Adams

• No majority of independent directors

• Under-statement of debts

• Cross-collatoral obligations with funds

• Executives highly geared into stock

• Paid too much for assets – Mirage, Stella

• Used investments raised through planners to fund own projects – Prime Income Fund

• Too many related party transactions

MFS - what went wrong?MFS - what went wrong?

• Mis-classification of debt

• Executives over-geared into stock

• Founder/exec chair with strong personality

• No majority of independent directors

• Business model relied on related transactions

• Paid too much for assets

• Run like a private company

• Structure too complex

Allco - what went wrong?Allco - what went wrong?

• Strong-willed founder still CEO

• 3 executives on board

• no majority independents – Austock, pollies

• Too many related party deals – Zullo, debt

• Paid too much for offshore assets

• Board highly geared into stock – inc Ryan

• Accounting all over the place

• Two thirds of claimed assets goodwill

ABC Learning - what gives?ABC Learning - what gives?

• City Pacific – restated accounts plus defo attack

• AWB – lack of NED accountability and farmer control

• NAB forex – accountability worked well

• Macquarie Fortress – distributions and buybacks

• News Corp – Sir Rod and poison pill

• Timbercorp AGM – excellent debate

• ASIC jail record – 17 last year woeful

Others worth a mentionOthers worth a mention

• Nick Sherry minister for corporate governance

• Stephen Conroy a passionate advocate

• Industry funds big influence

• Reversed proposed cut to ASIC budget

• ASX regulatory role to be separated

• Reform of AGM and executive pay coming

• Accounting standards into corps law?

• Disclosure of institutional voting

Rudd and governanceRudd and governance

• De-couple formal voting from physical gathering

• Eliminate dead rubber effect – debate after voting

• Attendances down and debate woeful

• Chairs hate formalities – waste time

• Analysts and instos don’t come – left to oddballs

• Need shareholders to put up resolutions directly

• Protocol on which directors should speak

• Evening AGMs should be explored more

Reforming the AGMReforming the AGM

• Big issue for internal audit – need to be all over it• Corps Law allows much to remain hidden• Eddie Groves’ $100m in deals with brother-in-law• No liquor sales disclosure when Coles and

Southcorp had Rick Allert as common chairman• Conflicted service providers are creeping back – ie

Austock chairman on ABC Learning board• Mark Burrows conflict at Fairfax - vs RACV• Vital for audit committee to be pristine – can’t have

Wollongong Council situation

Related party transactionsRelated party transactions

• Lots of board and exec benefits don’t get

disclosed – important internal audit scrutinises

• Cost of chairman’s office – 300k at Qantas

• Who looks at CEO and chair expenses – Ross

Turnbull syndrome at NRMA.

• Internal audit need a big role in this – can’t be

left solely to chairman or audit committee

Auditing of executive perksAuditing of executive perks

• Strong sense of ethics

• Desire to be at the nerve centre of a company

• Keep professional distance from board and CEO

• An ability to ask hard questions

• Better if in-house but career path questions

• Determination to do the right thing

• Persistence and self-belief

Personality of an internalPersonality of an internalauditorauditor

• Diane Grady was right this morning

• Should be at least two or zero on boards/committees

• Domineering blokes so often the problem

• RACV example – members produced 2 extra directors

• Break down the same sex schools

• Old boys club alive and well – 14 double dippers

• Leaders include Catherine Livingstone, Margaret

Jackson, Linda Nichols – all financial background

The gender challengeThe gender challenge

• Internal audit never out-sourced

• Name your own budget – resources grow with biz

• 4 person audit committee – 10 attend meetings

• Management attends for part of meetings

• 4-6 meetings a year

• Strong but subtle culture in internal audit

• Career path through to CFO

• Ensure relationships remain arms length

Dream audit processDream audit process

• Paying the regulator – goes to core of governance

• World’s largest source of political scandal

• Rudd flagged reform last night: $1000 threshhold,

foreign ban and cap on individual donations.

• Other issues: timing, cash for access, balance sheets,

Hanson-style profits, disclose spending, cap on

spending, union gerrymander, public funding

• We deserve better than the world’s weakest system –

Faulkner, Rudd and Wollongong the key

Campaign finance reformCampaign finance reform