Highly regarded outgoing Shareholders' Association chairman John Hawkins urged investors to keep up the fight. Photo / File
COMMENT:
Last Saturday's NZ Shareholders' Association Annual Investor Conference was a huge celebration even though its central theme was "Bridging troubled waters".
There were few signs of trouble among the 231 attendees as the NZX50 Gross Index soared 1.7 per cent the previous day while outside it was a delightfully sunny and still Christchurch day.
After a chilly start the rejuvenated city centre was full of shoppers seeking sunny spots for their lunch.
The conference theme seemed to have confused some speakers as one company presentation was headed "Bridge over troubled waters", instead of "Bridging troubled waters".
The only signs of discontent were with the first two speakers, Reserve Bank deputy governor Geoff Bascand and Fletcher Building chief executive Ross Taylor.
Bascand gave a long, rambling address which started with the comments "Our work touches the lives of all New Zealanders. We promote the prosperity and wellbeing of New Zealanders and contribute to a sustainable and productive economy".
That's all well and good but attendees were more interested in interest rate movements and the CBL insurance debacle.
Nevertheless, Bascand went on to talk about "building a stronger Reserve Bank" and developing strategies in relation to "Te ao Maori, climate change and South Pacific", whatever these mean as far as the central bank is concerned.
However, he addressed the CBL issue towards the end of the speech and made the following comments:
• "The Bank should have been more pro-active and urgent in its supervisory actions, and taken steps earlier"
• "Supervision was overly lenient towards CBL and not sufficiently courageous to act on disputed information"
• "Confidentiality by the bank of its investigation and supervisory actions was appropriate — but should have been accompanied by quicker action".
When Bascand finished at least 10 attendees wanted to use question time to query him about the CBL collapse. However, moderator Michael Wilson had to severely curtail questions because the deputy governor had used up most of his allotted time.
Unlike the other speakers, Bascand departed leaving more questions unanswered than answered, particularly in relation to the central bank's insurance sector oversight.
Taylor gave a broad overview of Fletcher Building's Australasian activities.
Australia, where it has 5000-plus staff and earnings before interest and tax (ebit) of only $57 million, remains difficult. Meanwhile, the company is in a stronger position in its domestic market, which has 10,000 staff and generates 90 per cent of group earnings.
He noted that there were too many staff in its Auckland head office and not enough out in the operating divisions. This failed centralisation strategy was one of the key platforms of former CEO Mark Adamson.
Attendees laughed when Taylor revealed that Fletcher Building had so many operating companies that he was discovering new ones almost every day. However, he now believed — and hoped — he had identified them all.
His comments on the group's future were general and were based on his belief that "a simpler and more focused strategy [would] enable Fletcher Building to achieve its full potential".
This would be achieved through a refocus on its core New Zealand businesses, completing the massive lossmaking B+I construction projects, setting up Australia for a turnaround and exiting non-core businesses.
However, not everyone was happy with Taylor's positive outlook. One questioner wanted to know if he was just another foreign CEO who would destroy a New Zealand company and depart with a massive payout.
Taylor laughed loudly at this suggestion and noted that he had been required to purchase $1m worth of shares, at $6.99 each, after joining the company in November 2017. He said he had great difficulty explaining this to his wife but he had managed to convince her that Fletcher Building was a good long-term investment.
He argued that he was now in the same boat as other shareholders although Fletcher Building's 2019 annual report shows that he had total remuneration of $3.25m for the year.
Meanwhile, the company's share price declined 30.2 per cent, from $6.95 to $4.85, during the same 12-month period while the NZX50 Capital Index rose 13.4 per cent.
Taylor can hardly claim that he is in the same boat as other Fletcher Building shareholders.
The outstanding address of the day, and one that received a sustained standing ovation, was by the highly regarded outgoing association chairman John Hawkins.
Hawkins, who replaced founding chairman Bruce Sheppard in 2010, has been an outstanding chairman and it is worth nothing that his honorarium for the March 2019 year was just $30,000, less than 1 per cent of Taylor's remuneration for the June 2019 year.
Hawkins' central theme was that "Change is the law of life [and] those who only look to the past or present are sure to miss the future".
He told the Christchurch audience: "I don't like unfairness nor people who are in positions of power and who fail to consider the situation of those who are not. Boards are supposed to represent all shareholders, and regulators and auditors are supposed to set and enforce a framework of rules to protect all shareholders".
He said he set out with three main objectives: one was to make the NZSA sustainable and provide a range of member services that would make it an attractive proposition.
Second, it was essential that NZSA remain activist and independent, but as the organisation matured, it should play the issue rather than the person wherever possible.
Third, he wanted to find ways that NZSA could work with people and organisations, but not for them.
He outlined numerous NZSA achievements and his standing ovation was a celebration of his stewardship. It clearly illustrated that members appreciated the progress made under his watch.
However, consistent with Hawkins' comments that it is the future rather than the past that is important, he highlighted several ongoing issues:
• Some of the lowest paid CEOs are the best performers and some of the highest paid CEOs are the worst performers
• The reluctance of regulators to chase the big issues and the slow pace of investigation. It seems to Hawkins that regulators are largely "sheep in wolf's clothing" with a mindset of "how can we avoid doing anything"
• The CBL collapse has demonstrated the conflict between the RBNZ's requirement for secrecy and the FMA rules requiring disclosure
• He is particularly concerned about the loss of listed companies through schemes of arrangement. When the going gets tough, too many directors accept the easy way out by acquiescing to takeovers through these schemes.
Hawkins signed off his hugely successful stewardship with the following quote from Mark Twain: "Remember, it is not the size of the dog in the fight, it is the size of the fight in the dog!"
Although the NZSA is a powerful advocate for retail investors, and offers a wide range of services to members, it continues to face challenges because of its ageing member base. The Australian Shareholders' Association faces the same issue as its retail membership has fallen steadily from 5121 in 2014 to 4674 last year.
Incoming NZSA chairman Tony Mitchell, who also gave an impressive address, is aware of this and will be making a major push to attract younger members.
NZSA membership is a must for all serious investors, particularly as the annual fee is only $145 and $45 for students. In addition, one Christchurch attendee told the audience that he has used the fee as a tax deduction.
Mark your diary, next year's NZSA annual conference will be held in Auckland on Saturday August 22.
- Brian Gaynor is a director of Milford Asset Management.
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