Adviser backs shake-up for Contact board

Influential fund management advisory firm Institutional Shareholder Services has thrown its weight behind moves to oust leading Contact Energy directors.

ISS, an adviser to the New Zealand Superannuation Fund, also wants Contact to introduce measures to avoid conflicts of interest involving its 51 per cent shareholder, Australia's Origin Energy.

Despite opposition from the board and Origin, both questions are to be put to a shareholder vote at what is likely to be a heated Contact annual meeting on Thursday.

ISS regional director Dean Paatsch would not say exactly what advice his company was giving its clients.

But he said ISS supported an orderly succession plan for sitting independent directors Phil Pryke, Tim Saunders and John Milne.

All three were criticised for not adequately representing minority shareholders' interests during Origin's aborted $8.5 billion bid this year to merge with Contact.

Shareholders were angry they were not kept fully informed about the proposed merger.

They also said the directors' support for the proposal was in line with a record of voting against the wishes of minority investors.

Milne, Pryke and Saunders had also supported a $4.25 a share takeover bid by Contact's former owner Edison Mission in 2001, despite the offer being at the bottom, or below, independent valuations.

Paatsch suggested ISS was concerned about Origin's dominance on the board, especially after minority investors voiced concerns about potential conflicts between the company and Origin.

"Contact Energy has demonstrated the importance of the principle of having a majority of independent board directors," he said.

The Contact board did not have a majority of independent directors."

These comments suggest his firm has recommended against the election of Bruce Beeren, an Origin appointee, who with chairman and Origin managing director Grant King is up for re-election.

Minority shareholders led by activist fund manager Brook Asset Management and the Shareholders Association have called for the heads of Milne, Saunders and Pryke.

Other motions they propose include:

* Creating an independent committee to handle business decisions related to Origin.

* Changing chief executive David Baldwin's terms of employment so he is employed directly by Contact rather than seconded from Origin.

* Recovering from Origin Energy the $8.6 million cost of the aborted merger.

None of the motions is likely to be carried, as Origin is against them.

Contact does not support any of the resolutions, saying directors represented shareholders' views and the company had procedures to manage conflicts of interest.

But the support of ISS will increase pressure for change in the longer-term.

ISS helps more than 1600 institutional funds collectively owning more than a quarter of the world's publicly traded companies to decide how they should cast their votes in shareholder resolutions.

Other questions likely to be raised at the meeting include the possibility of a capital return.

Observers believe the firm can return as much as $1 billion.


Contact energy

* Supplies energy to more than half a million customers.

* Generates about 25 per cent of New Zealand's electricity in 10 power stations.

* Is one of the country's largest listed companies with more than 90,000 shareholders.

* Employs nearly 800 people in New Zealand.