The tactics Essendon and AGL use to resist challenges from new board directors
Though from different realms, both companies deploy similar tactics to retain old directors and stonewall the new.
The Essendon Football Club and AGL don’t have a lot in common, save for being heavily in the news of late. But they do share the availability and use of board entrenchment techniques designed to resist challenges from alternative directors at their upcoming annual general meetings (AGMs).
The AGL notice of meeting for its November 15 AGM was released at 1pm on Friday, shortly after this Crikey piece on AGM practices was published.
While it would have been unusual for the remaining AGL directors to have embraced all four directors proposed by billionaire Mike Cannon-Brookes, you can’t blame them for not caving to an 11.3% shareholder who seems more motivated by a desire to shut down coal-fired power stations rather than maximise financial returns to shareholders.
When board control is being challenged, you’ve always got to watch how the incumbent directors spend shareholder funds protecting their positions. So it was interesting that the AGL board proposes to send this four-page letter to all shareholders, in addition to spelling out its take on the issues in its notice of meeting.
However, it was disappointing that the directors are relying on AGL’s constitutional cap on director numbers at just 10, which is lower than average for an ASX100 company.
To be specific, it partly justified rejecting three of the four external nominees back by Cannon-Brookes on the following grounds:
While we understand that Grok’s nominations were made in what it believes are the best interests of your company, given the depth of energy market and transition experience already represented on the renewed AGL board, the board is of the view that appointing all four of the Grok candidates would not add to the overall effectiveness of the board. Additionally, as AGL’s constitution limits the number of directors to 10, appointing the remaining Grok candidates to the board could limit the board’s ability to bring on additional directors who possess priority skills identified in the board skills matrix, such as ASX listed experience, mergers and acquisitions and customers, digital and emerging technologies expertise.
In other words, it’s the old “there’s not enough room in the inn” defence.
The AGL board could very easily have proposed a constitutional amendment for the AGM lifting its maximum number of directors — such as to 16 like AMP, 15 like ANZ, or even 20 like BHP — thereby creating plenty of room for more than one of the external candidates without ceding control.
Even better, it could have followed the recent lead of Webjet, which voluntarily adopted a new constitution in August that did not specify any maximum number of directors, emulating the situation at mining giant Rio Tinto. Uncapped board numbers are best practice because it gives maximum flexibility to shareholders or members to determine board size. It also allows for the corporate equivalent of stacking the US Supreme Court: continually appointing new representatives until you have the numbers, without the untidiness of sacking anyone.
Best practice in this situation would see all directors up for election at each AGM, so that shareholders could vote the lot out without lodging a specific removal resolution. Annual corporate elections have been the law in the UK and the US for the past few years, but Australia still clings to the old-school three-year term.
Essendon Football Club has an even worse form of board entrenchment, with members only getting to elect six of the 10 directors for three-year terms, with the other four simply being appointed if more than 66% of the incumbent directors support the move.
There have been multiple blunders at Essendon, starting with the existing president David Barham ousting his predecessor, Paul Brasher, a one-time global chair of PwC, in August in a tight 5-4 vote. Like any hard-fought leadership challenge, the transaction costs have been high.
Barham hardly had an overwhelming mandate, but he then moved ruthlessly against coach Ben Rutten. This then led to the departure of long-serving CEO Xavier Campbell, who was well regarded in AFL circles.
Barham consequentially made the additional mistake of appointing former NAB CEO Andrew Thorburn to review the whole club and effectively also run the CEO recruitment process. Thorburn then controversially put his own hand up to run Essendon. This was after interviewing multiple rival CEO candidates and getting the inside drum from numerous staff who thought they were spilling their guts to an independent, not their future boss.
It was completely inappropriate of Thorburn to make a play at the CEO gig in these circumstances and he should have been removed from all potential roles at the club once he’d flagged his interest, not rewarded with the top job.
While News Corp has unleashed one of its holy wars against Essendon and “the anti-Christian left” for parting ways with Thorburn 30 hours after his appointment, the Murdoch empire should remember that it was a front-page article in its Herald Sun that raised concerns about crazy sermons on the church’s website.
It was also quite extraordinary that Thorburn chose his church gig over being Essendon CEO when delivered this ultimatum by Barham, but by digging in he caused an almighty storm that the new president will struggle to survive.
However, Barham is only two years into his three-year term, so he won’t face election at the upcoming December AGM. Critics will need to call an extraordinary general meeting (EGM) to remove him from the board, but these seven incumbent directors could choose to roll him as president at any point.
Rich Lister Andrew Muir, who hails from the family that built and then sold The Good Guys to JB Hi-Fi for an eye-popping $870 million in 2016, is reportedly the only internal candidate up for the presidential role.
But given the soap opera of the past seven weeks since the presidential coup, the Bombers probably need a clean skin to take charge, such as Peter Costello. Alternatively, they could bring back one of their past presidents, such as Lindsay Tanner or Toll Holdings founder Paul Little, a bit like the way Jeff Kennett had a second crack at the Hawthorn presidency.
Little is the name being widely canvassed in the press. But even to be appointed to the board in the lead-up to the December AGM, he needs five of the seven existing directors to agree to satisfy that unusual two-thirds requirement in the constitution.
This article was first published by Crikey.
