Contact revamps boardroom

By CHRIS DANIELS energy writer

Contact Energy has unveiled details of changes to its corporate governance structures, designed in part to protect smaller shareholders from cash-gouging by US energy giant Edison Mission.

Contact is 51 per cent owned by Edison, with the remaining 49 per cent held by 110,000 shareholders - most of them New Zealanders with small holdings.

The failing fortunes of Edison Mission last week led to Contact being put on a negative credit watch by ratings agency Standard & Poor's, which has already spoken of a need for Contact to become more clearly separate from its US parent, thus protecting its cash.

The changes also come ahead of the New Zealand Stock Exchange's planned changes to its listing rules, which are designed to strengthen the role of independent directors around the boardroom table.

Changes that Contact shareholders will be asked to approve at their next annual meeting in February include:

* A requirement that the board have at least two independent directors - the board of six directors currently has three independents and three Edison Mission appointments.

If the board increases beyond six directors, then at least one-third must be independent.

* An independent director will be required to approve the dividend and sign a solvency certificate before it is paid out.

* The board's audit committee will have a minimum of three directors, with the majority being independent. At least one member of this committee must have a finance or accounting background.

A new audit charter has been adopted by Contact along with these proposed constitutional changes. This charter says that Contact's auditor will not be allowed to also do consulting work for the company.

This committee will also review any "related party transaction", such as that proposed by the Contact board this year when details of a joint-venture investment in an Australian power plant, Valley Power, were released.

Shareholders became incensed when they learned the deal involved a two-stage investment, with the first instalment falling just shy of the 5 per cent of shareholders' value level that would require special shareholder approval and independent appraisal.

In May, Contact called off plans to lift its stake in the station, after the Market Surveillance Panel said the company would have to put details of the deal before its minority shareholders.

Chairman Phil Pryke said there had never been an episode where Edison directors had pushed anything that was solely to the benefit of Edison.

"We copped a bit of flak over that," said Pryke. "We could perhaps have handled that a little better."

In the Valley Power case, Edison directors did not participate in making the decision, which was investigated by the independents.