Brian Gaynor: Investors must insist on best practice

Gary Weiss (left) and Tony Gibbs (right) were once a close and effective team but internal conflict has seen Gibbs sacked from GPG. Photo / Mark Mitchell

Tony Gibbs, the country's number one boardroom brawler, will have a more sedate role after his controversial sacking by Guinness Peat Group.

This column has been highly critical of Gibbs but not as an individual. Gibbs is a very likeable and competent businessman but he has been criticised for his role in supporting a woefully inadequate corporate governance structure at GPG.

This structure has had its inevitable outcome, which is a major boardroom conflict and huge shareholder value destruction.

Ironically Gibbs was sacked just days before the last edition of the Independent was published. The weekly business publication, which will also be missed, has been very sympathetic to Gibbs in his numerous high-profile boardroom battles.

But Gibbs finally met his match in Gary Weiss, Ron Langley and Sir Ron Brierley, much to the despair of GPG's New Zealand shareholders. Gibbs lost this battle because he was outnumbered at the board table after Langley was appointed to the GPG board in May last year.

The problems with GPG, particularly for its New Zealand shareholders, go back to the early 1990s.

Brierley Investments acquired an 82.6 per cent stake in GPG through the purchase of a 62.6 per cent holding from Equiticorp's statutory manger in February 1990 and a further 20 per cent from Sir Robert Maxwell's Pergamon Holdings in May 1991.

The remaining 17.4 per cent was mainly owned by UK investors but the company had been suspended by the London Stock Exchange because of its many problems.

Shortly after the Pergamon purchase Brierley Investments sold 43.3 per cent of the company with 30.9 per cent going to New Zealand investors, 9.3 per cent to Australia and 3.1 per cent to Sir Ron.

The company would be listed only on the NZX, whose listing rules clearly stated that at least two directors and the company secretary must be resident in New Zealand.

However, the NZ stock exchange waived these requirements and 28 additional listing rule requirements.

Consequently GPG listed on the NZX without any New Zealand resident directors, even though 70.2 per cent of the company was owned by New Zealanders, 39.3 per cent by Brierley Investments and 30.9 per cent by other NZ investors.

GPG relisted on the London Stock Exchange in November 1992 and four months later it was reclassified as an overseas issuer by the NZX.

In August 1993 GPG listed on the Australian Stock Exchange. At the same time Brierley Investments reduced its holding from 39.3 per cent to 18.3 per cent by placing shares in Australia and the company issued 16 million new shares, representing 4.9 per cent, to Australian institutions.

Brierley Investments sold its remaining stake in 1994 and 1995 to New Zealand and Australian investors. On the basis of these share sales GPG's share registry in 1995 was as follows; New Zealand shareholders owned 41 per cent, Australians 39 per cent and UK investors 20 per cent.

New Zealand finally obtained its first resident GPG director when Gibbs was elected to the board at the May 1996 annual general meeting. The group's two largest New Zealand investments at the time were a 41.3 per cent stake in Turners & Growers and 33.9 per cent of The Colonial Motor Company.

Gibbs was a perfect fit at GPG and he and Weiss were a close and effective team. Jenni McManus wrote in the Independent in June 2002: "In the past 10 years GPG, and notably Gibbs and Weiss, have been at the centre of New Zealand's biggest and messiest corporate brawls."

McManus quoted Sir Ron as saying that Gibbs was the strategic thinker of his three foot soldiers (Gibbs, Weiss and Nixon) and as a result he would be "almost impossible" to replace.

But the change event as far as GPG was concerned was the ill-conceived acquisition of Coats in 2003.

The purchase was flawed because GPG didn't have the expertise to operate a complex multi-national and it was far too dominant from the group's total portfolio perspective.

In addition, the acquisition dramatically changed the power base of the company as far as Gibbs, Weiss and Nixon were concerned, as illustrated by the accompanying table.

At the beginning of 2003 approximately 50 per cent of group assets, including cash, were in the UK, 20 per cent in Australia, 14 per cent in New Zealand with the remaining 16 per cent undisclosed. This assessment is based on broker reports and the company's annual reports.

The current mix is estimated to be 21 per cent in the UK, 36 per cent in Australia, only 12 per cent in New Zealand, 30 per cent Coats and 1 per cent other.

The importance of Australia has increased, partly because more cash seems to be held there whereas most of the cash was in the UK in early 2003.

Weiss has become the key figure because he is chairman of Coats, albeit Gibbs and Nixon are also directors, and Australia has become relatively bigger.

Thus in the past seven years the control of assets has changed as follows:

* Gibbs has gone from 14 per cent to 12 per cent.

* Nixon has been cut from 50 per cent to 21 per cent.

* Weiss has surged from 20 per cent to 66 per cent, including Coats.

The Coats acquisition has completely changed GPG with most of the focus on the group's major asset and little activity in New Zealand and the UK.

Weiss has clearly become the dominant executive.

According to informed sources Gibbs put a proposal to the GPG board in May last year whereby the New Zealand assets, representing approximately $400 million, would be demerged from GPG and he would have total responsibility for these activities. The proposal was rejected by his fellow directors.

On May 29, 2009, just seven days after the annual general meeting in London, Langley was appointed to the GPG board. This appointment, which was totally inappropriate because it was made just after a shareholder meeting, dramatically changed the board's balance.

Langley, who was chairman of GPG's second largest investment Physicians Insurance Company of Ohio (PICO) in the mid-1990s, is not considered to be an independent director by most New Zealand shareholders.

GPG's newest director, who now spends four days a week in the group's Sydney office, reviewed a number of investments, including Turners & Growers. This review, which was highly critical of one of Gibbs' most cherished investments, created further boardroom strife.

The board was now deeply divided with Weiss, Langley and Sir Ron on one side and Gibbs and Nixon on the other. The rift got deeper when Weiss proposed the demerger of GPG Australia, Gibbs was outnumbered, he went public against the board and he was sacked. Langley's board appointment was an important event in this process.

New Zealand shareholders now face the prospect that Langley will be appointed as an executive director and replace Gibbs as the executive in charge of New Zealand operations. This will cause further conflict as Gibbs is still chairman of Tower, which is 30 per cent owned by GPG, and Turners & Growers, 65.7 per cent owned.

Sir Ron wrote in GPG's 1995 annual report that "GPG seeks to emulate in the 1990s the best years of Brierley Investments/Industrial Equity in the 1980s".

Unless New Zealand shareholders insist that GPG adopts best practice corporate governance standards, and has a clear majority of independent directors, then we will soon be writing: "GPG in the 2000s emulated all the worst features of Brierley Investments in the 1990s and this resulted in a massive destruction of shareholder wealth at Sir Ron's last major listed company."

* Disclosure of interest; Brian Gaynor is an executive director of Milford Asset Management and a GPG shareholder.